You can tell it is not an election year when consumers lose valuable rights because politicians, who promised to serve them, vote against consumer interests. Yesterday, I wrote a post, Good Guys Prevail Over Insurance Lobby, about a pro-consumer victory in the Florida House of Representatives. The loss was in the Florida Senate, where the insurance industry is supported by many key Florida Senators.
Florida Senator Gwen Margolis from Miami stated, "I have never seen anything in the Florida Legislature that is as anti-consumer as this." Julie Patel, of the Sun-Sentinel, reported on the bill’s passage in Sweeping Property Insurance Package Headed to Full Senate. She noted the apparent lack of gravity and of concern for consumer interests by Florida Senators in their actions on this bill:
Changing the name of state-backed Citizens Property Insurance to Taxpayer Funded Property Insurance. Lawmakers need to have to some fun, said Sen. J.D. Alexander, R-Lake Wales, before proposing the change. Legislators said provisions of the bill are needed in part to help shrink Citizens’ costs because nearly all Floridians are on the hook to pay fees if Citizens has major deficits after hurricanes.
I was happy to read in Patel’s article that House Representative Matt Gaetz took a leadership position and stood up to the insurance industry in this debate:
The committee rejected Richter’s proposed change to make Citizens exempt from a so-called bad faith law that effectively allows policyholders who win lawsuits against the insurer to collect attorneys’ fees instead of subtracting the money from the claims payouts. Critics say Citizens delays or lowballs claims at times and should be subject to the same laws that hold private insurers accountable for good customer service.
"If it were proven that because of poor management or [arrogance] that Citizens had acted in a number of occasions in bad faith, I think it would affect your job because we’d look" to find other managers, said Matt Gaetz, R-Fort Walton Beach. "Why do you think the government should treat people worse than private companies?"
It should be noted that Matt Gaetz and his father, Florida Senator Don Gaetz, are from the Florida panhandle and understand the problems caused by slow paying, delaying, and denying insurance companies following Hurricnae Ivan. As I noted in Policyholder Advocate Matt Gaetz Picks Up Endorsement From Jeb Bush, Senator Don Gaetz previously proposed the following pro-policyholder insurance legislation:
- SB 964 – Insurer has a fiduciary duty to treat those it insures in good faith
- SB 960 – Civil Remedy against Citizens Property Insurance Corporation
- SB 962 – Requiring insurance companies to adopt and implement standards to follow when adjusting claims to reach a proper settlement
In the same post, I noted an alarming and accurate reflection by a Citizens Insurance Company spokesperson regarding the motive of many private insurance companies to delay, deny and not pay claims:
Citizens Spokeswoman Christine Ashburn told legislators the insurer isn’t pressured to produce profits or dividends like private insures so it has no incentive to deny claims unfairly. "Whether or not we pay claims doesn’t change my salary or my president’s salary," she said.
The implication is that private insurers have such a motive. In a post, Is Claims Management Only Concerned About Overpaying Claims?, I commented on this motive and outcome-oriented mindset of many private insurance companies:
Nowhere in the article is there any mention of a problem caused by adjusters underpaying their customers’ claims. I first came across the term "leakage" in a McKinsey and Company analysis of the USAA claims organization done in the late 1980’s. The analysis focused on various changes which needed to be made so that USAA could recover "opportunities" caused by "leakage" in the claims handling process. Again, the study never discussed any problem with adjusters cheating customers by underpaying claims. In all the management metrics that I have ever read, I have never seen one where a claims manager received a bonus because the unit or group he supervised had the lower "underpayments" to customers.
Instead, claims management is for reducing claims severity or lowering the loss ratio to premiums. Indeed, has anybody seen an industry article questioning that the claims industry should be concerned about underpaying claims? The entire culture seems to be about driving down claims payments rather than getting the payment right. I am not picking only on State Farm. Most major insurance carriers have some form of re-inspection. The former re-inspector explained it to me in his videotape.
Typically, he would go out with less experienced adjusters or adjusters whose "severity payments" (the average amount paid on claims) was above levels acceptable to management. He would critique the claims handler’s activities to show where claims payments could have been reduced so that new adjusters would learn and the higher paying adjusters would be brought back in line with the group. I asked him if State Farm ever returned money to a policyholder where he found a mistake that resulted in an underpayment.
He responded:
"Chip, you don’t get it. My job was not to make certain that the payments were right. My job was to make certain that the problem of overpayments was stopped."
Hopefully, the anti-consumer parts of the Senate bill will be removed so that longstanding consumer protections will continue, or even be strengthened. There is an obvious need for the strongest insurance consumer protections mandated in law, as demonstrated from actual experience and from statements by those in the insurance industry.
