National media articles have highlighted Ed Liddy’s appointment as the head of AIG during its unwinding. His task is a large one. A BestWeek article presents Liddy as a champion corporate strategist. The article quoted one person as saying Liddy was extremely "ethical." He may be, but my perception of Ed Liddy was shaped by his role in developing Core Claim Practice Redesign while at Allstate. No customer or consumer advocate could call those claims practices as "ethical."
Sears, Roebuck & Company sold a tire with the brand name, "Allstate." It started an insurance subsidiary with the same name selling automobile insurance. Many probably remember Allstate insurance agents in Sears stores. In the late 1980’s Sears divested itself of Allstate through a public offering. Liddy was an executive of Sears at that time and went to Allstate at the time of its spin-off. Allstate hired McKinsey & Company, a corporate consulting group, to reevaluate every aspect of its Core business activities from sales through claims.
What the MBA’s working at Mckinsey knew about claims ethics was probably nothing. This is evident in the vast amount of Core Claims Practice Redesign materials recently made public as a result of the Florida Office of Insurance Regulation’s examination of Allstate. It does not take a rocket scientist to figure out that if an insurer takes premiums from customers and then places obstacles to prompt and full payment of claims, the insurer will make a whole lot more money than by promptly paying. Those smart McKinsey MBA’s figured that out as well. They devised an elaborate "new" way for Allstate to make its claims department more "profitable" by paying less on claims.
Indeed, Allstate’s internal records show that it knew it would gain a competitive advantage if it changed its claims philosophy. The hard line was drilled down to the claims organization. Allstate became a litigation and non-payment machine. Some veteran claims adjusters at Allstate questioned the new processes. Allstate executives prepared PowerPoint slides depicting these employees, and made it clear to management that these questioning employees needed to be terminated. As Allstate rolled its new initiatives, all claims personnel knew it would be the new claims way or the highway. ED Liddy was instrumental in Allstate’s change in claims ethics. Ed Liddy may be the darling of corporate boardrooms, but he is not a champion for any policyholder.
