Allstate's Dirty Hands

Scott Smith

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For years Allstate Insurance has claimed you are in good hands if you are an insured with their company. However, this mantra belies Allstate's deceptive claims practices and defiance of Court Orders.

In the early 1990s Allstate retained the services of McKinsey and Company in reengineering its auto accident insurance claims operations. The story of Allstate's scorched earth claims practice was published in a book by David Berardinelli, a Santa Fe New Mexico's Plaintiff's lawyer in his book, From Good Hands to Boxing Gloves. The book outlines the key role played by McKinsey, a story Allstate is desperately trying to keep secret. Allstate went so far as to file a lawsuit requesting the Court prohibit Mr. Berardinelli from publishing Allstate's casualty claims practice. Allstate's attempt was unsuccessful and the book is available for purchase.

Allstate has even defied an Order by the same Santa Fe Court to make available public copies of the PowerPoint slide McKinsey prepared which forms the basis of Mr. Berardinelli's book. Allstate's defiance of the Court Order is nothing more than a continuation of Allstate's attempt to conceal their unfair auto claims practice. The McKinsey plan instructed Allstate to treat some of its claimants with "boxing gloves" rather than it's illusionary trademark "Good Hands". Taken in sum, the McKinsey presentation demonstrates a portrait of business strategies that are at odds with Allstate's carefully cultivated public image. Rather than quickly resolving claims for injury and property damage, for over a decade Allstate has deployed a variety of systems to make sure it pays the minimum necessary for those who do not know their rights and plays hardball with those who seek fair compensation.

In essence McKinsey's plan is nothing more than a scheme to increase pocketing a higher percentage of the premium dollar paid by Allstate's insured. Ten years after Allstate instituted the McKinsey plan the amount of money it paid out per premium dollar in car collisions declined from approximately $.63 to $.47.

The property and casualty insurance industry has waged a war with plaintiffs' and consumer lawyers alleging each group was greedy. Allstate's allegation was based upon Plaintiffs' lawyers demand the insurance company pay full and fair compensation for those injured in automobile collisions. The McKinsey plan reveals the plaintiffs' and plaintiffs' bar are not the evil element claimed and presents a carefully designed business strategy intended only to enrich Allstate and property and casualty insurance companies who play hardball with consumers. Unfortunately, several state legislatures, including Ohio, have been wrongly influenced by the insurance claims industry and have passed laws that limit injured consumer's ability to recover full and fair compensation for their losses. The McKinsey plan makes public the wrong doing lays at the foot of the property and casualty claims industry, not the plaintiffs' bar.

The hardball claims practice originates from Allstate's Claim Core Process Redesign (CCPR). Plaintiffs' attorneys around the country have known for years what has been hid from the public, that is various elements of CCPR go beyond eliminating fraudulent claims and operate in a systematic way to deny policy holders legitimate insurance benefits.

The claims practice change can be traced to serious financial gain received by Allstate's executive officers. Jerry D. Choate was President of Allstate's Personal Property and Casualty operations when McKinsey was retained shortly after 1993 when Allstate's then owner, Sears Roebuck & Company spun off twenty percent of the insurer to the public and distributed the rest of Allstate's stock to Sears shareholders. Once Allstate had severed ties with Sears, their executives connected their personal financial fortunes directly to the improvements of the insurer's bottom line. Choate served as Allstate's Chairman and Chief Executive Officer from 1995 through 1998 and by 1997, had accumulated shares worth tens of millions of dollars.

Under the guise of eliminating fraudulent claims, Allstate took on a confrontational approach to claims through use of CCPR. Allstate focused on "subjective" injuries, claims for such things as suffering, pain, emotional distress, or injuries that could not be seen by diagnostic medical testing as opposed to "objective" injuries, such as a broken bone. McKinsey then worked with Allstate to install Colossus, a computerized claim-evaluation software system sold by Computer Science Corp. In essence, by inputting selective facts Colossus compares a claimants injuries with a database of similar cases and recommends a narrow settlement range. The system can be easily manipulated to consistently spew low ball offers by which Allstate refuses to negotiate. If the inputting claims adjustor puts in only what the adjustor perceives should be considered by the computer then the recommended settlement value will be less than the actual loss, the garbage in, garbage out computer practice.

A major objective of McKinsey's plan was to reduce the attorney's participation in representing claimants following a car collision. McKinsey even forecasted the potential gains from keeping attorneys out of the claims process predicting Allstate's stock would increase at the clip of $1.60 per share even if there was only a twenty-five percent drop in attorneys appearing in behalf of the claimants.

The boxing gloves approach was made public in open Court when Allstate was attempting to prohibit Mr. Berardinelli from publishing his book and again in a case against Allstate in Kentucky. The plan claimed that by "holding the line" on cases where accident victims hire attorneys, Allstate could achieve "a new distribution of settlement times" on "subjective-injury claims". "By increasing the number of early unrepresented settlements," Allstate could give ninety percent of these claims the so called "Good Hands" treatment by paying out less than a fair settlement. However, the plan showed a remaining ten percent getting "boxing gloves" treatment and a graph that portrayed resolution of their claims taking as much as four years or longer.

Allstate's marketing and claims practice did not stop there. Courts and regulators throughout the country including New York, Pennsylvania, and Washington have forced Allstate to halt or change its practice of handing out the controversial "Do I need an attorney?" form to people involved in automobile claims. The form is the first step in eliminating lawyers from the process and settling claims for less than full value. In 2005, Farmers Insurance Group agreed, in a nationwide settlement, to stop using the form for many claims. Colossus has also come under attack. Unfortunately this information is slowly being accepted by the Courts and virtually ignored most state legislatures.

Although Allstate's dirty hands have been known to Plaintiffs lawyers for many years, the public is finally getting to know the auto claim insurance industry for what it really is.