Why Insurance Companies Have a Conflict of Interest

During the earliest days of insurance companies in the United States, insurers existed only to serve their customers. The insurance business was simple: a person would pay their premium as required, and the insurer would provide compensation when the insured made a valid claim. Any unpaid policies served as an insurance company’s profits. As time went on, insurance companies transformed their operations as they searched a way to become more profitable.

Insurers began to look for a way to make money from the policies that they held. After a series of disasters, many insurance companies had to find a way to invest the unclaimed money that they held. They began making money through speculative investments and began to refer to the money they held as float. An in-depth discussion of float available here. In short, float is money obtained from policyholders that insurance companies invest to increase their profits. This money remains invested until it is needed to honor a claim. The longer a company holds on to float, the more money they can make. As insurers built their fortunes through float, they became publicly-traded companies, just as many large companies do. Once they were public, insurers found themselves answering shareholders along with their policyholders.

In 2017, the insurance industry had a total of $1.7 trillion worth of premiums. With trillions in premiums generating investment income, insurance companies have a conflict of interest between paying out claims and satisfying their shareholders. To make shareholders happy, many—if not all—insurance companies are delaying and denying the claims of their policyholders to feed the interests of their shareholders.

Delay, Deny, Defend: An Insurance Company Culture for Profits

In his book Delay, Deny, Defend, Jay M. Feinman dissects the insurance industry and how it satisfies shareholders at the expense of policyholders. Feinman reveals the experience of an adjuster who worked for a major insurance company. She explained during whistleblower testimony that her company set an arbitrary goal of sending 6 percent of all claims to its Special Investigation Unit (SIU). In other words, the company was asking employees to delay a specific amount of claims. Because of her department’s success in hitting this goal, its goal increased to 7 percent the next year. So, this means that insurance companies encouraged adjusters to doubt claimants simply to hit a quota. The former adjuster commented that “People making claims were to be viewed with suspicion.” Since the SIU was labeling some claims as fraudulent crime, and the insurance company raised quotas for adjusters, the insurance company was all but admitting that its fraud detection process was arbitrary.

Why would an insurer arbitrarily delay claims? Profits through investments have diverted the attention of insurance companies from serving the policyholder to serving the shareholder. While it still provides payments to claimants, it does so through a process that keeps investments compounding for as long as possible at the expense of policyholders. Shareholders know it, and policyholders pay for it.

If you’re struggling with an insurance claim, help is available. Call our New Orleans insurance claims lawyer today at (504) 608-3211 for a free consultation on your case.