When you’re a claimant, you certainly don’t want your situation referred to as a “game.” There’s nothing fun or trivial about your need for receiving the coverage you purchased, or about the consequences you suffer while an insurance company gives you the runaround. Maybe someone is “winning” here, but it’s not you.

Like games, though, the insurance industry is supposed to be governed by rules and laws. All players – the insurance company, the claimant, the plaintiff’s lawyer (if there is one) – are expected to act in accordance within these rules. Unfortunately, just as in games, people cheat in the world of insurance claims processing. Insurers find ways to bend or ignore rules that they find inconvenient to achieve an end goal: in this case, profit.

In the insurance game, carriers have an advantage over you. They know the rules – and they know that you don’t. Photo Credit: StockMonkeys.com, via Flickr (Creative Commons license).

It’s bad enough that you’re essentially pitted against the very people you pay premiums to in a contest for the money you deserve, but in the last 20 years, matters have gotten even worse. Since the 1990s, the insurance industry has changed the rules of the game. If you’ve never heard of consulting firm McKinsey & Company or computer software Colossus, there’s a good chance that you, like millions of policyholders across America, are one of the people that the insurance industry strives to keep in the dark.

Colossal Changes

In the 1990s, insurance companies decided that they weren’t earning enough money. They called in top game theory experts to maximize revenue and minimize payouts. Allstate, followed by other insurers, brought in a consulting firm, McKinsey & Company – adviser to major corporations in virtually every industry – to radically alter the way the insurance carrier conducted business. The core of these changes as a complete overhaul of claims processing, once seen as the department that fulfills an insurance company’s obligation to policyholders and claimants. In the wake of McKinsey & Company’s influence, claims processing became the battleground on which claimants and insurers clashed, and adjusters became the front-line soldiers.

A major factor in this change was a transition from human judgment to machines. Where once adjusters used their vast experience and knowledge of the merits of claims to arrive at fair settlements, companies who brought in McKinsey & Company to consult for them soon removed this human part of the equation. Using a software program called Colossus, they reduced the role of the adjuster to essentially one of inputting data and then writing out a check for whatever number the Colossus program spit out, however arbitrary. Insurers also reduced the payouts, some critics say, by “tuning” the software to make sure payout amounts are low. The use of Colossus validates a question claimants have long asked, especially when adjusters expect them to jump through numerous of the proverbial hoops. Yes, your claim really is just a number – a number that, in the insurance industry’s opinion, is too much to pay.

Of course, Colossus doesn’t literally spit out money for the insurance company – but its low-ball offers certainly translate into more cash for the corporation and less for the claimant.

One might argue that exchanging human adjusters, capable of making mistakes, for computer programs that cannot miscalculate information is actually a step forward. If you believe that human errors result in fluff that drives up not only individual payouts but the cost of premiums everywhere, for every policyholder, Colossus may sound like a solution rather than a problem. But humans feel other emotions besides sympathy, and they exhibit their interpretations in ways that don’t involve money. A computer can be programmed with rules, like a payout for a specific type of accident cannot exceed X amount of dollars, and then it can’t be reasoned with. No additional information can change its mind. The rule is the rule.

Humans, though, can understand that a back injury that requires surgery is worth more than one that doesn’t. They realize that the non-numerical parts of your life, the ones that can’t be plugged into a simple equation, matter. The impact of an accident on your life is different depending on what your life entails. What you do affects how your life changes after an injury.

But a software program can’t take into account important qualitative factors like being unable to pick up your grandchildren because of an injury. It doesn’t distinguish between a foot injury that requires a middle-aged victim to walk with a brace and the same injury in a young victim who will lose out on a sports scholarship to college because of it. Computers don’t think, they calculate, and discard what can’t be calculated with a formula. No matter how efficient the computer software is, by its very nature, it can’t possibly consider all of the merits of a claim in the same manner a human adjuster could. It doesn’t do the job better, it just does it less thoroughly – and for the people depending on a claim being paid, a slapdash job of calculating claim value can present real hardships.

How Changes to Their Policy Affect Yours

Of course, there still are humans in the claims department – but sweeping policy changes, pressure from management, and altered training means that their roles have deviated far from what they once were. Colossus wasn’t the only change that McKinsey & Company implemented in the claims department. They also created new expectations for adjusters, many of which did not benefit policyholders.

Adjusters in many cases were forced to settle claims for no more than the Colossus value, which meant they started negotiations with pitifully low offers. If a claimant tried to fight for more money, the claim would be delayed or denied. Insurers might say that they are waiting on additional files, when in reality they know perfectly well that the requested files don’t exist. They may order “independent medical exams” by doctors – paid directly by the insurance company and eager to continue getting work – who are anything but independent. Too often, adjusters (with no medical training) form their opinions about a claimant’s injuries and then hire medical professionals for the express purpose of agreeing with them.

Some insurers have allegedly instructed doctors performing independent medical exams to answer written questions only if the answers supported the insurance company’s position – because that sounds like independence, right?

After the changes of the 1990s, claimants who hired lawyers to get them more money faced an even harder struggle as insurance companies strove to send a message to both claimants and attorneys: that they could make the claims process so difficult and draw it out for so long that the end result may not be worth the time and money spent to fight. Insurers would spend more to litigate a case than it would cost to just pay the claim simply to prove the point that they refused to reason with claimants and their lawyers. We’ve seen it happen to our own clients.

In a post-McKinsey & Company world, insurance corporations continue to use underhanded tactics to boost their revenues at policyholders’ expense. They saturate public opinion with misinformation, making it appear that the world is full of fraudsters and sue-happy fakers, and then persecute the innocent by arbitrarily flagging claims as fraudulent without evidence, all to drive up their statistics. Insurers intentionally confuse claimants with unintelligible language in policies and nonsensical interpretations of those policies, and they’re not above denying claims with no explanation or legal basis for doing so. The list of strategies to get out of paying goes on and on, with some ideas so irrational and convoluted that you almost want to congratulate the insurers on developing innovative new ways to screw over their policyholders and claimants.

As insurance corporations have gained more money, they’ve also gained more power to influence the public and the government. So far, the changes we’ve talked about have been almost passive – targeting only those who file claims – in comparison with their other strategies. Insurers are clever. They know how to manipulate information to shape public opinion, they know how to buy political influence, and most importantly, they know how to deal themselves a winning hand. For more about how the insurance industry has infiltrated the legal system to rig the game, check back soon for the next installment of The Insurance Industry: Perversion of a Great Idea.

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