In the mid-1990s, Allstate made a deliberate decision to lower the amount it was paying claims in order to increase profits. However, it is impossible to decrease natural disasters, accidents and other uncontrollable events that lead to claims. So Allstate turned to the factors it could control—claim review. The company pioneered the “three-Ds”, deny the claim, delay the claim and defend against litigation. Moreover, the company would offer lowball initial settlements to claimants. If the injured person did not agree, Allstate employed hardball litigation tactics to deny the claim at all costs. The corporate culture reflected this change in attitude. Adjusters who were successful in denying fire claims by blaming arson were rewarded with portable fridges.
In addition, Allstate decided not to renew policies in high-risk areas. In Florida, Allstate has dropped over 400,000 homeowners since 2004 but retained those who also had auto insurance with the company. However, the company ran afoul of the state regulators because this practice was prohibited by state law. The company had similar problems in New York was forced to abandon the practice. Allstate also tried to drop customers affected by Hurricane Katrina despite a federal law prohibiting such practices. The company argued that customers who bought “coverage enhancements” (which were pushed by Allstate agents) had bought new policies and thus were exempt from the mandatory coverage law. Lastly, Allstate relied on “anti-concurrent” claims to deny losses after Hurricane Katrina. Even though many homeowners had hurricane insurance, the “anti-concurrent” clauses allowed the company to deny the claims if there was also water damage because “floods” were not covered.
The new tactics worked like a charm. In 10 years, Allstate lowered the amount it paid out in claims from 79 percent of premiums to 58 percent and doubled its profits to $4.6 billion. Although being named the worst insurance company in America, Allstate seems to be taking it as a cost of doing business. And why wouldn’t they. They money keeps rolling in.