Their family home constitutes the most significant and stable financial investment for many Florida families. Even in the wake of the housing market collapse and the slow return of housing values, there are significant financial advantages to home ownership. While saving is difficult for many middle class families, a mortgage payment constitutes a form of compulsory savings even if the value of the home does not appreciate. Further, money is diverted from rent or lease payments that offer no equity to an asset that builds equity. The mortgage interest deduction also provides a valuable perk when investing in a family home.
Despite benefits that make owning a home an attractive investment and form of financial security for homeowners, this investment comes with costs and potential risks. The costs include Florida homeowner’s insurance premiums while the risks include the potential perils that can cause damage to a residence. Although the security of insurance coverage is supposed to make the cost of premiums worthwhile, many homeowners find their insurance carrier far from cooperative when their home is damaged. Insurance companies maximize their profits by paying as few claims as possible and minimizing the amount of payouts. This blog post explains the delay, deny and defend strategy used by insurance companies to minimize payouts to consumers and increase insurance industry profits.
Traditional Function of Insurance Companies to Provide Security against Loss
During the last several decades, insurance companies have turned the basic insurance model on its head. When you purchase homeowner’s insurance, you are essentially purchasing security against financial risk caused by damage to your home, or liability claims brought by third parties who are injured on your property. The insurer collects premiums for providing this form of financial security. The insurance industry strategy for handling claims that has basically re-defined the relationship between policyholders and insurance companies is referred to as the “delay, deny, defend” strategy.
Although insurance companies are vast bureaucracies, the departments and personnel traditionally have clearly defined roles:
- Underwriters calculate the appropriate price for a policy based on an evaluation of applicants and potential risks;
- Actuaries assess the risk based on factors and information provided by the insured;
- Agents market insurance policies and assist consumers in selecting the appropriate coverage;
- The claims department pays claims.
Although this delineation of roles indicates the role of the claims department is to pay claims, the delay, deny, defend strategy turns the claims department into the profit center for insurance companies. This basic approach to generating increased profits involves delaying payment of valid claims, denying payment entirely, and defending the claims handling process by tenaciously defending against lawsuits.
Insurance Industry Model Shifts to Focus on Denying and Underpaying Claims
During the 1970s, several large insurance companies hired mega-consulting firm McKinsey and Company to develop claims strategies that would generate increased profits. McKinsey concluded that insurance claims constitute a “zero sum game” that pit insurers against insurance carriers who compete for the same dollars. The consultants sold insurance carriers on redefining the game by altering their whole approach to the business of claims. The following strategies were widely adopted by insurance carriers:
- Relying on computer programs to calculate the amounts insurers would be offered
- Dragging out the claims process to increase the financial pressure on policyholders to accept lowball offers
- Deterring policyholders from retaining legal representation
- Providing insurance adjusters with financial incentives to underpay claims
- Making settlement offers on a “take-it-or-leave-it” litigation basis
Despite iconic promises in advertising slogans, such as “You’re in good hands with Allstate” or “Like a good neighbor, State Farm is there,” homeowner’s insurers often handle property damage claims or liability claims according to this time-tested profit generating strategy. Insurance companies are in a unique position to utilize this strategy. When a homeowner hires a contractor to perform work on his or her home, the homeowner can refuse to pay the full contract price if the work is not properly completed. However, homeowners cannot compel payment of a claim by threatening to take their business elsewhere after their insurance company refuses to pay the claim.
Greenberg Stone and Urbano: Seeking Maximum Recovery for Damages Sustained Due to Negligence
If your homeowner’s insurance carrier is refusing to efficiently handle your insurance claim, our Miami Homeowner’s Insurance Claims Attorneys at Greenberg Stone and Urbano will tenaciously pursue the full compensation you deserve. For over 130 collective years, our firm has assisted accident victims in personal injury and wrongful death actions across South Florida. We seek to obtain compensation for your tangible and intangible damages, including medical bills, lost wages, pain and suffering, and more. Our skill and dedication has earned us an AV rating from Martindale Hubbell and recognition as one of South Florida’s top firms by the Miami Herald. Call us at (888) 499-9700 or (305) 595-2400 or visit our website to schedule your initial consultation.