In no other industry, besides insurance, is conflict of interest considered to be a good thing. Instead of being considered a problem, it’s a business model. The intent of insurance is to provide coverage for risks and, should those risks occur, pay resulting claims fairly and in a timely manner. The ways by which insurance corporations earn revenue actually reward companies for breaking the promises they make to policyholders. Perhaps no other tactic illustrates this point as well as the insurance industry’s practice of delaying the payment of claims.
It all started simply enough. Once upon a time, after the insurance industry became commercialized but before it turned into the warped industrial juggernaut it is today, insurance companies earned money through a strategy called “float.”
It’s your money that the insurance company has floating around in investments, but they’re the ones enjoying the extra income while you can’t even get the coverage you paid for.
The Float Effect
What do you think happens to your money when you pay your insurance premiums? Your agent or the likeable characters from the company’s advertisements don’t just stick your payments in a shoebox marked with your name. They invest it.
And because they have quite a lot of money to invest, those investments tend to be highly profitable – so much so that even if the insurance company were paying out more money in claims than it took in in premiums, it could still afford to stay in business. Consider that for a minute – thanks to investments and the nature of the business, insurance is the only industry in which a company could lose money but still end up “in the black.” This investment income is known as float, and for many years, it made insurance companies rich without regard to the costs they paid out in claims.
Fortunately for the insurance companies, while the average American has been struggling through recessions just to even make ends meet, these investments have continued to prosper.
Float money can still enrich the pockets of the wealthiest insurance companies. That is, as long as these companies do one very important thing: keep that money invested for as long as possible.
Where the Business Practice Becomes the Policyholder’s Problem
See, the inherent issue with float is that insurance companies have a lot to gain by putting off paying claims. The longer the insurance company can delay handing over your money, the longer that money – money that’s rightfully yours – will continue to earn the insurance company extra income. There’s nothing wrong with investing unclaimed premium dollars, but there’s something very wrong with jerking claimants around for years, keeping them waiting for money their families desperately need just so a massive company can earn a few bucks more at the expense of the very people keeping it in business.
The business model of float encourages procrastination, but delaying payment of legitimate claims is exactly the opposite of what insurance is designed to do. You bought a policy so that you could use it when the risks that you’re trying to manage – home damage, auto accident injuries, injuries from slip-and-fall accidents, dog bites – actually happen. Not months or years later.
The unfortunate truth is that if you get hurt in a car accident, well, the insurance industry basically tells you, “tough luck.” In no-fault states, you still have to pay a deductible and your copay for medical care. In other states, medical treatment might be delayed while you fight with the other party’s insurance company over liability. And if you miss work or suffer any other damages, don’t expect to see compensation for your lost wages or your pain and suffering anytime soon. Instead of giving you the usual runaround, demanding excessive paperwork, or dodging your calls, your insurance adjuster should just tell you that your money is double-booked, because that’s the truth. The company can’t release to you what’s yours, because they’re counting on keeping that money invested to continue upping their own pay.
Unfortunately, when you make a claim, your insurance adjuster isn’t thinking how to best help you – he or she is thinking about the money the company can make if it just delays paying your claim a little longer.
While it may be a smart business move, the insurance industry isn’t like other types of business. The insurance company made an explicit, contractually stated promise to you to pay for damages caused by a covered risk. It also has an understood duty to pay claimants what is fair within a reasonable period of time. When a smart business move translates to directly putting profits above people, the practice violates the very core of what insurance is supposed to be about. The promise of security becomes a useless product the second an insurance company chooses not to make good on it, and what you are left with is – in many cases – a state required insurance policy that’s worth about as much as the paper it’s printed on.
The Direct Effect on Claimants and Policyholders
If you’re lucky enough to get your money at all, it could take two, four, five years or more. When the insurance companies have been exceptionally defiant, acting in what’s called “bad faith” by refusing to honor policies, our office has represented clients whose claims went on for six years or longer. It’s outrageous that an industry whose only product is a promise to pay claims refuses to play claims.
By the time these companies finally quit pushing the delay strategy and pay up, the damage is already done to the claimants who were relying on being able to collect that money – to use this product for which they had already paid. People are already behind in their bills. They’ve had to take on private loans or funding with financially crippling insurance rates. They may have had their house foreclosed on or had to declare bankruptcy. Some of them have ruined lifetimes of carefully built credit through no fault of their own. And at some point, victim’s suffering no longer solely the fault of the person who caused the accident – it’s also the fault of an insurance industry full of greedy corporations.
There’s nothing harmless about the way today’s insurance industry utilizes the strategy of float.
In recent years, the problem has only gotten worse. Insurance companies have found a new favorite strategy for keeping more of your money in their pockets. After all, why just delay paying a claim when you could deny it entirely?