Allstate

The criminal conspiracy between Allstate and McKinsey

From reading the previous chapter we know how misdirected McKinsey Consulting became, this misdirection really caught the eye of Allstate Insurance Company. In 1992 the management of Allstate worked a deal with McKinsey where-by Allstate would become the leading insurance company to market McKinsey’s fraud. Allstate was so successful in bilking clients out of billions of dollars that another 35 to 40 major insurance companies throughout America paid McKinsey an entrance fee of up to $60 million apiece to learn how to benefit themselves by depriving their clients out of money due to them. Basically Allstate desired to learn “the tricks of the trade.” By taking advantage of McKinsey’s policy, “Winning the Economic Game—Changing the Rules”, Allstate became the insurance industry leader in “modifying the bad faith laws.”

Commissions govern the sale of insurance in all 50 states; virtually all the states laws are the same. McKinsey (when they were honest and had integrity) had written all the insurance laws. In their inception, the insurance laws were valid and good. To qualify to sell insurance in any of the states, insurance companies must agree to obey these laws, which were written to protect the clients from abuses. It was a “no-brainer”, with the “greed is good”, to easily by-pass these laws by buying out the insurance commissions. In New York State the insurance commission is completely and totally a tool of the McKinsey school of thought. The same is true for the banking commission in New York State. Some states however, are honest, have integrity, abide by the laws and protect their citizens. Florida for example has banned Allstate from selling homeowners insurance due to persistent fraud. Indiana realized that Allstate was nothing more than a monopoly (both vertical and horizontal). This monopoly was responsible for eliminating many automobile repair businesses, completely counter to the benefits of The Sherman Anti-Trust Act. Indiana took positive steps to protect their citizens. In New York State our banking and insurance commissions became so horribly corrupted that in 2011 they disbanded and became one office named The Department of Financial Services. How did McKinsey market their program to Allstate and what was Allstate

How did McKinsey market their program to Allstate and what was Allstate getting for their $60 million dollar investment? There is a book written about this called, From Good Hands to Boxing Gloves, by David J. Berardinelli.

There are two approaches to increasing the profitability of a business: charge more money for your goods and services, and or, reduce expenses as much as possible. By marrying Allstate McKinsey was able to increase the sale price of insurance policies and reduce the payment of claims. Historically all insurance policies were sold and included a copy of the declaration sheet placed immediately on the front page of the policy. This declaration sheet (dec sheet) was a contract that the sales agent and client would agree to which stated the terms and conditions of the contract. After being schooled by McKinsey, the Allstate insurance agent would sell the policy; give the dec sheet, and promise to mail the policy later. This immediately gave Allstate the advantage of not having to honor the insurance policy. In essence because of this Allstate knew they could charge more and give less than what they promised at the point of sale. This is pure fraud. The second, reduce expenses, becomes claims management redesign. In my case, I renewed my insurance every year for ten years based on a dec sheet and never received my policy in spite of repeatedly asking for it. Only after my fire did I receive a policy, which did not agree to the terms and conditions of the dec sheet.

McKinsey laid out its mission statement for redesigning claim handling at Allstate— and for the entire insurance industry. According to McKinsey, its “change goal” was to “redefine the game… to radically alter our whole approach to the business of claims.” For McKinsey, redefining the game meant replacing the traditional rules of insurance with its zero-sum game business model. Radically altering Allstate’s whole approach to the business of insurance would mean creating a business model at Allstate that committed every employee and resource to a single goal—“doing whatever it takes” in an amoral, relentless pursuit of profits.

Insurance is a necessary evil in today’s society. Everyone needs it to drive a car, to finance a home, to protect their investment and for peace of mind. Insurance is based on the principles of “good faith” and “bad faith”. Doing whatever it takes in the pursuit of profits would entail overriding all the “bad faith”. See “good faith” “bad faith” in the Insurance By-Laws chapter.

McKinsey uses two formulas. They are: Claim Core Process Redesign (CCPR) and Colossus.

What is CCPR?


A zero-sum game is exactly how McKinsey described CCPR to Allstate’s top executives. McKinsey told Allstate that CCPR would be designed to treat paying claims like a “zero-sum economic game. Allstate gains—others must lose.” McKinsey was really saying that CCPR would be based on its “greed is good” business model.

The CPR Formula


Two Harvard Business School professors appear to have inspired the theories McKinsey used in its CPR formula in their 1990 Harvard Business Review article, Core Competence of the Corporation.” Given its name and during the Allstate project, it looks like McKinsey designed CPR to give its teams a formula to pick out a client’s core skills and chief strategic market intent. The McKinsey team would then redesign a unique set of business processes that would “dramatically and rapidly increase shareholder value, as measured by improved cash flow and share price.” Through McKinsey this CPR formula became CCPR for Allstate.

According to Allstate’s publicists and lawyers, Allstate designed CCPR to stop “an historic overpayment of claims” and to curb insurance fraud. However, as the Consumer Federation of America’s July 2007 report shows, before CCPR Allstate paid an average of 73 cents per premium dollar for claims when the overall industry average was 70 cents per premium dollar. Yet, during this same period, Allstate’s net profits were at least as good as, if nor better than, the industry average. After utilizing the CCPR formula Allstate’s claims payout was reduced to 40 cents on the premium dollar.

What is Colossus?


The name Colossus is well known in the computer industry. It was the name of the first programmable computer built in 1943 by the British in Bletchley Park, England, to decode the German military codes. Colossus was also the name of a famous fictional supercomputer with artificial intelligence in the 1969 cult movie classic Colossus: The Forbin Project. In a plot line similar to the later Terminator films, Colossus takes over the United States nuclear arsenal and then threatens to wipe out the human population by global nuclear conflagration with the warning to humans: “Obey me and live. Disobey me and die.”

Colossus is the trade name for a computer program sold and licensed by Computer Sciences Corporation (CSC). Two Australian companies, General Insurance Organization of Australia and Computations Pty Ltd originally developed Colossus between 1988 and 1991. According to Colossus’ creators, the intent was to provide consistency in evaluations of the subjective components of injury (also called general damages). Traditionally, such evaluations varied based on the experience of the adjuster and the unique facts of the policyholder’s injury and circumstances.

The basic premise of Colossus is that by using artificial intelligence programming, the system can calculate a measurement of a person’s general damages. Colossus bases this measurement on the type of injury, number and type of treatments, and the expected immediate and residual effects of the injury, regardless of the individual characteristics of the person involved.

Colossus produces value ranges for general damages based on a measurement called severity points. The program assigns these severity points to all the possible combinations of 600 recognized injury codes, together with the number and types of medical treatments received. Given the same injury details, Colossus assigns the same number of severity points to each claim with very little regard to individual characteristics or non-medical issues such as the real impact of the injury on the policyholder’s lifestyle.

Insurers who license Colossus pay an initial setup fee of $10 to $30 million with additional monthly maintenance and licensing fees. Colossus’ marketing materials state that most insurers will completely recover the initial setup costs for Colossus from the savings on claim payments within the first two months. Colossus can truthfully make these representations about the amounts and flexibility of the savings Colossus produces because of how Colossus works and how each individual insurer sets it up.

Colossus Fine Tuning


The results of the benchmark tuning provide only a starting point for the Colossus evaluations. The next step in the Colossus setup process is called fine-tuning. During this step, the insurer checks Colossus against actual settlements to see if Colossus is generating sufficient savings to meet the insurer’s needs. CSC suggests, as a guide, that Colossus should generate at least 20% savings over the insurer’s historical settlement values. This is why CSC can state in its marketing materials that Colossus will generate an immediate 20% savings in claim payments.

The Colossus formula, in its inception, was a very good guide to evaluating the severity of a claim or a loss. There is a saying in the computer world, “garbage in, garbage out.” What Colossus enabled Allstate Insurance adjustors to do was to put in any information whatsoever, knowing it wasn’t true, in order to lower the payout for the loss. The insurance adjustors were schooled to immediately reduce the value of the loss by 20%. As time went on the numbers became more and more contrived that were injected into Colossus, until the value of the loss could be reduced by 90%.

In measuring the adjuster’s job performance by comparing actual payments to the Colossus values, Allstate encouraged adjusters to convince policyholders to accept their prompt but unfair settlement offers. These new performance measures would force adjusters to see claimants who resisted their initial settlement offers as an obstacle to achieving good job performance evaluations. This would make it natural for adjusters to use McKinsey’s “boxing gloves” approach in response to such resistance. In turn, this has created a corporate culture at Allstate that encourages claims employees to treat policyholders making claims as their adversaries.

These job-performance measures have their most profound impact on the adjuster’s ability to negotiate claim values. Allstate strongly discourages compromise. Allstate grades adjusters on their take-it-or-leave-it negotiating techniques, which prohibits reevaluating the computer-driven claim values.

Allstate’s Employee Incentive Programs


The affidavit of former Allstate frontline adjuster, Shannon Kmatz, reveals how pervasive and covert McKinsey’s system of incentives and rewards is at Allstate. When starting employment, Allstate provided its local adjusters with a regional office document entitled “Regional Office Expense Policy.” Allstate also provided a blue Allstate CitiBank credit card—which the adjusters affectionately referred to as “Big Blue.”

Allstate adjusters received rewards and incentives, mainly credits on their Allstate “Big Blue” credit cards, which they could spend freely. The incentives also included a variety of specific benefits, such as Beanie Babies, lunches, travel, movie tickets, postage stamps, coupons for merchandise, gift certificates, paid time off, and lottery tickets.

The carrier has an obligation to immediately conduct an adequate investigation, act reasonably in evaluating the claim, and act promptly in paying a legitimate claim. It should do nothing that jeopardizes the insured’s security under the policy. It should not force an insured to go through needless adversarial hoops to achieve its rights under the policy. It cannot lowball claims or delay claims hoping that the insured will settle for less. Equal consideration of the insured requires more than that.

Insurance law specifically dictates a very important requirement a claims adjuster must follow. It states “that an insurance company must issue a written disclaimer within 15 days of an incident and each and every 90 days thereafter to communicate in writing to their client their reason for accepting or denying an insurance claim”. If they fail to do this, the company loses by default and cannot appeal because they have denied their client of NYS constitutional rights. In New York State this is entitled NYS INSDEPTREG#11-NYCRR216.6C. As of this date, twelve years later, I have never received one letter of acceptance or a disclaimer. I should have been paid in full twelve years ago.

McKinsey established a “watchdog” in every claim office called an Evaluation Consultant. McKinsey then developed job performance measurements for both the watchdog and the adjusters. The evaluation consultant’s job was to review every Colossus evaluation generated by every adjuster in the office. The evaluation consultant checks every adjuster’s Colossus input, and then sets a claim value for every claim called the Evaluated Amount. The Allstate adjuster communicates this non-negotiable, “Good Hands” offer to the claimant.

McKinsey’s Approach to the Sale of the Insurance Policy is:

  1. Automate the factory machinery so that the dec sheet promises more than the
    policy will ever deliver.
  2. Establish new employee performance measurements to reward employees who are
    able to meet or exceed their sales quotas.

Translated into actual CCPR protocols, McKinsey’s approach to claims is:

  1. Use computer evaluation programs, like Colossus or IntegriClaim, to produce consistent, lowball claim values, regardless of the individual merits of the claim.
  2. Enforce employee acceptance of McKinsey’s new claim system by establishing performance measurements designed to reward employee behavior that “rewards the shareholders.”
  3. Enforce policyholder acceptance of reduced claim values by delaying payment to create financial stress, then give the policyholder a choice between accepting a non-negotiable, lowball offer to get prompt payment—or endure years of expensive litigation to get fair payment.

The result of this new McKinsey program, embraced by Allstate, is insured’s are paying more and receiving less than promised.

What has come to be significant losses of over $250,000 dollars are evaluated and about 30% of them receive an offer of 10% of the policy. If the client refuses this Allstate challenges them to sue. This happened to me.

The majority of insurance claims, about 80% of all the billions of dollars Allstate paid out, were for claims between $1,500 and $15,000—small to mid-sized claims. Reducing claims payments for these all-important small to mid-sized claims, even if only by a few thousand dollars per claim, would add up to billions in profits

McKinsey knew that claim payments to policyholders with an attorney averaged about five times more than claim payments to policyholders without an attorney. So, keeping policyholders away from attorneys as long as possible—especially the policyholders with small to mid-sized claims—would be very important.

The most important thing McKinsey knew was how critical Allstate’s approach to policyholders during the first 90 to 180 days after a loss would be to reducing claim payments. McKinsey understood the importance of delaying payment. Allstate could earn additional interest on the claimant’s money, and this critical time is when most claimants would really begin to feel the financial pressures of the loss. Claimants would be at their most vulnerable to the kind of pressure McKinsey intended to apply.

Consequently, McKinsey designed CCPR to keep policyholders waiting and away from attorneys during this critical period. The policyholder would get false assurances that they didn’t need an attorney, because Allstate would be making a “fair” offer “soon” to settle their claim. McKinsey knew this approach would convince most policyholders to just wait for Allstate’s fair offer—and keep away from attorneys. What Allstate didn’t tell policyholders is that their fair offer would not appear for 90 to 180 days.

Keeping policyholders waiting, away from attorneys, with promises of forthcoming fair offers, would provide Allstate with its best opportunity to exploit the policyholder’s financial vulnerability from the loss. This formed the foundation for McKinsey’s “Good Hands or Boxing Gloves” strategy.

McKinsey created scripts for Allstate’s adjusters to read to policyholders throughout these first 180 days. McKinsey intended the scripts to build empathy in order to keep policyholders waiting and away from attorneys. Allstate trained and monitored their adjustors on using these scripts, which had a “good news—bad news” model. The good news in the scripts was the message that Allstate really cared about the policyholder and was honestly trying to help the policyholder get the claim settled as soon as possible. The adjustor would gradually give the policyholder the bad news that Allstate needed more information and more time before they could make an offer. Days stretched into weeks, weeks into months—until finally the policyholder really felt the financial pressure of the loss, right on target, at 90 to 180 days.

This would be the critical point—the moment Allstate would spring the trap. The policyholder, at his or her most financially vulnerable point, would get the really bad news—Allstate’s lowball claim offer for about 60% of the real value of the claim. Litigation would be the only way a policyholder could get fair payment under McKinsey’s zero-sum game. McKinsey planned this process so that it would take years, in some cases more than five years, for these policyholders to get their claims paid fairly. The intended result of McKinsey’s zero-sum game was to present the policyholder with only two choices: prompt payment or fair payment—but not both. This is what McKinsey meant by “90% Good Hands” and “10% Boxing Gloves”

A few policyholders might eventually win a “boxing gloves” fight with Allstate. But fair payment would come at such a terrible price in terms of delay and expense that winning would be a Pyrrhic victory for the policyholder: so costly it wasn’t worth winning. McKinsey’s “boxing gloves” tactic would also serve as a warning to deter other policyholders from refusing Allstate’s first offers in the future. McKinsey estimated that only about 10% of policyholders would be able to go the distance in a fifteen-round fight against a trained professional like Allstate.

The reality is that Allstate simply has more money and more experience than most plaintiffs or their attorneys. McKinsey also knew Allstate would have another important ally in litigation—time.

Delaying payment does two things:

  • Benefits the insurer, which is earning investment income while it holds the policyholder’s money.
  • Hurts the claimant, who needs that money to replace his or her loss.

An article in Risk Management Magazine explains how insurers use delay to their advantage.

When an insurance company denies a claim, most policyholders simply give up. Insurance companies win by default. Delay works in favor of insurance companies. Insurance handling and insurance coverage litigation…have four speeds: slow, very slow, stop, and reverse…Thus the entire litigation system—its enormous costs and lengthy delays—works to the advantage of the insurance company.

The system is structured so that the insurance company, by denying a claim, gains the time-value of the money and the likelihood that the claim will be settled for less than its full value. Moreover, at the same time the policyholder is fighting an uphill battle against the insurance company’s lawyers, it is forced to defend endless allegations of fraud by the claims adjuster. Whether in negotiation or in litigation, the insurance companies win by saying “NO”

Allstate lawyers are instructed to investigate every aspect of a policyholder’s life to uncover any information that could conceivably embarrass or intimidate them into abandoning the claim or giving in to Allstate’s lowball settlement offers. These tactics have proved successful in many cases.

Allstate puts an injured person’s life under a microscope. They call courtroom doctors (who work for insurers most of the time), former friends, or former flames, to slander the injured person’s character. In my case, they made every effort to bankrupt me, twice even tried to kill me, wrecked my credit, conspired with other McKinsey graduates: HSBC Bank/Household Finance, Country Wide Financial, JP Morgan Chase Bank, Zurich Insurance Company, Hartford Insurance Company, and the 3 Major Credit Agencies: Experian, Equifax, and Transunion. They go to great lengths to ensure that the experience of waiting for litigation with Allstate is memorable. So memorable, that injured people often do not survive emotionally, financially, or physically. Often time’s clients tell their friends and neighbors, and the attorney tells his or her colleagues, that litigation with Allstate simply isn’t worth it. The scorched earth defense has worked beautifully. Allstate lawyers are graded, and rewarded; on how many cases they take to trial and win. The more aggressively they use these tactics against policyholders, the greater their financial rewards. For Allstate staff lawyers (who are Allstate employees and can only represent Allstate), the financial rewards include bonuses and raises. For retained lawyers (who are hired by Allstate, but are not Allstate employees), the financial rewards usually include being hired for more Allstate cases or increases in the hourly fees Allstate is willing to pay them.

Allstate lawyers don’t stop at medical records. They also typically subpoena a policyholder’s tax returns, financial records, and bank records for the past ten years— even when the policyholder is not making a claim for lost income. Employment records are another favorite target. Subpoenas for personal files are regularly served on every known employer of the policyholder—again, even if no claim for loss of employment is being made. Allstate then combs the employment records for reprimands, demotions, denials of raises, firings, or any negative information about the policyholder—even if it has nothing to do with the claim.

Another standard practice is searching public records and databases for any negative information on the policyholder. These include lifetime searches for arrest records, including traffic citations. They also search for mortgage and lien information, prior insurance claims of any kind, and any kind of lawsuit where the policyholder’s name appears—including records of divorce proceedings and custody fights.

Motions


The plan involves the filing of as many motions as possible to overwhelm the plaintiff’s attorney with time-consuming and often unnecessary work. Allstate’s plan includes intimidating and discouraging attorneys as well as policyholders from pursuing claims against Allstate. Unfortunately, these tactics have successfully discouraged many attorneys from representing policyholders making claims against Allstate.

Pre-Trial Settlement


A part of the program involves settlement of the case before trial—or more accurately the non-settlement of the case before trial. Allstate lawyers are not allowed to negotiate settlements. The lawyer’s job is to follow the adjuster’s plan—enforce the low offer.

The Allstate adjuster controls every aspect of the litigation—not the lawyer. The Allstate adjuster assigns one of four litigation plans to the case before it is assigned to the lawyer.

These litigation plans are:

  1. Defend on coverage—zero offer.
  2. Defend on liability—zero offer.
  3. Defend on damages—zero offer.
  4. SFXOL (Settle for X or litigate)—with the X representing Allstate’s computergenerated claim value.

The SFXOL litigation plan is by far the one Allstate assigns most often. The lawyer’s job is to tell the policyholder and his or her attorney to settle for Allstate’s computergenerated value or else try the case to get any payment from Allstate.

The use of computer evaluation programs to replace individual adjuster judgment and standardized values regardless of the individual merits of the claims has been a centerpiece of McKinsey’s zero-sum game model for the insurance industry. CSC claims that approximately 30 to 40 major insurers are using Colossus.

Centralized computer evaluation systems also mean that adjustors need only limited skills. Hiring adjusters with limited skills allows Allstate to reduce its costs by paying lower salaries to adjusters who handle more claim files. Individual adjuster experience, skills, and judgment don’t matter much in McKinsey’s CCPR claim environment. The only adjuster skills required under McKinsey’s CCPR system are typing data into a computer, and firmly communicating Allstate’s non-negotiable settlement offer to the policyholder.

The impact of computer evaluation programs like Colossus and IntegriClaim on reducing claim payments at Allstate has been dramatic. As stated previously, Allstate’s net operating profits have jumped from an average of $82 million a year to over $2 billion a year since they installed CCPR and Colossus.

McKinsey designed Allstate’s claim factory to produce an inherently defective insurance product. As a result, Allstate sells insurance that is overpriced, and still fails to provide its policyholders with the vital public service they paid for—when they need it most.

Specifically, we can look to tens of thousands of homeowners in Louisiana, Mississippi, and Florida. They put their money and trust in promises of protection which McKinsey’s zero-sum game system was designed not to deliver. Among the three largest insurers denying Katrina claims, each one has a claim system designed by McKinsey. McKinsey’s business model at Allstate has harmed more than just Allstate’s policyholders. Unpaid medical bills are a leading cause of personal bankruptcy across the nation. Unpaid or underpaid homeowners’ claims affect whole neighborhoods, counties, and states when natural disaster strikes and people who bought insurance can’t afford to rebuild. This business model costs American taxpayers billions. Building an insurer’s claim system around a zero-sum game creates a corporate culture that encourages dishonest claim practices. Allstate shows this in how it treats both its policyholders and the American taxpayer in Katrina claims.

Allstate and Flood Insurance


Allstate provided two types of coverage to the homeowners of South Louisiana and New Orleans at the time Katrina hit. The first type was the private homeowner coverage that covered losses caused by wind and hail, such as in a hurricane. However, these policies did not cover damage caused by flood. Under a non-flood homeowner policy, Allstate solely paid the claims for non-flood damages.

At the same time, Allstate also offered its Louisiana policyholders flood insurance through NFIP, the National Flood Insurance Program. The NFIP hires insurers like Allstate to write the flood policies, investigate flood claims, and evaluate flood losses under its Write Your Own (WYO) insurance program. The NFIP then pays for all flood claims, which Allstate approves—together with a fee for Allstate based on the gross amount of each flood claim. Those insurer fees range from $60 for an Erroneous Assignment claim, up to $5,750 or 21% (whichever amount is greater) for each flood claim loss over $250,000.01.

Under this program, the federal government bears all the financial risk. Then, the government pays insurers like Allstate what usually amounts to substantial fees, since floods tend to cause widespread damage to large numbers of homeowners in the affected area. In South Louisiana, Allstate sold both wind policies (where Allstate pays the claims) and flood policies (where the NFIP pays the claims) to thousands of its policyholders.

Consequently, Allstate adjusted a substantial number of Katrina claims where its policyholders had both wind and flood policies. If Allstate’s adjuster found that wind caused damage, then Allstate would have to pay the claim. If Allstate’s adjuster found that flood caused the damage, then the NFIP would not only pay the entire claim but would also pay a fee to Allstate based on the gross amount of the flood claim. Given Allstate’s zero-sum game culture, it’s not hard to understand what happened in these situations—and why. Evidence uncovered during litigation against Allstate has shown a pattern: Allstate defrauded taxpayers to benefit their shareholders. For example, there have been numerous instances where Allstate’s adjusters may have instructed engineers who inspected a homeowner’s property to change their initial reports. If engineers reported that wind caused the damage, they may have changed the reports to find that flood caused the damage. In at least one case, Allstate’s engineer determined that flood caused the policyholder’s damage before ever actually going to the property.

By changing the engineering reports, Allstate was able to deny claims altogether when the policyholder had no flood coverage. They could also shift the entire loss, or a major portion of the loss, onto NFIP and the taxpayers. The result: Allstate wins—others must lose. Allstate paid far less on its coverage than it might have if the original engineer’s reports had not been changed.

However, Allstate’s zero-sum game approach didn’t stop there. Because Allstate’s fees for flood claims depend on the gross amount of the claim, another pattern typical of Allstate’s mentality has begun to surface, As reported in the New Orleans Times Picayune, Allstate was apparently charging NFIP more for labor and materials on flood claims than it was paying under its own wind coverage for the same labor and materials. Allstate seemed to have two different ways of pricing the damage repair costs…If Allstate attributed the damage to wind or rain, for example—putting it (Allstate) on the hook for payment under the customer’s homeowner policy—the company priced the cost of removing and replacing the drywall at .76 per square foot, but if the damage was blamed on storm surge or flooding, the estimated cost of removing and replacing the drywall more than quadrupled, to $3.31 per square foot. Other similar high charges for water claims and low charges for wind were made for other materials required for the repair.

Inflating labor and material prices for flood claims would also mean higher fees for Allstate from the NFIP. The Times Picayune also reported in the same article that, according to adjusters it interviewed for its story, Allstate appeared to be the only insurer doing this in Louisiana for Katrina claims.

In addition, evidence introduced during trial in Weiss v. Allstate, suggests that Allstate’s adjusters may have been charging contents loss reports on claims labeled as flood to increase Allstate’s fees. The evidence suggests Allstate adjusters altered the contents loss forms, which the policyholders submitted, without the policyholder’s knowledge, to reflect more losses. This would increase the gross amount of the claim and therefore increase Allstate’s fees. Such conduct is directly traceable to the zero-sum game culture at Allstate. Even more shocking, the company who operates the NFIP for the federal government is CSC, the same company that licenses Colossus to Allstate, and which has Allstate executives on its advisory council.

We may never know how many billions of dollars in extra profits Allstate gained for its shareholders and executives during the Katrina disaster by underpaying its own claims or by dumping its liability onto the taxpayer-funded NFIP. Under the Bush administration, the Department of Justice has shown no apparent interest in investigating or criminally prosecuting any of these allegations. Given the department’s recently documented partisan partiality, their lack of interest may be due in some part to the fact that the insurance industry has been a major supporter and contributor to the Republican business agenda over the past ten years.

The last few years have been particularly lucrative for the insurance industry. McKinsey, through tactics at Allstate, and through its connections with much of the Fortune 500, has made the term trial lawyer evoke the idea of an enemy of society. They have effectively turned the American public against a source of real protection from insurance companies. McKinsey and its followers have turned the American right to access the courts into an issue of “tort reform,” evoking the thought that anyone who sues is an ‘abuser” of the system. They have framed a vision of the judicial system being wildly out of control. Through the media, McKinsey’s clients have convinced us the legal system must be “reformed.” While they have conditioned us to believe that frivolous lawsuits are clogging the courthouses, the numbers of civil litigation cases for personal injury are down substantially from their levels in 1992 in both state and federal courts. Moreover, jury verdicts in auto injury cases are at levels below where they were in the 1980’s, despite medical costs associated with those cases that have increased by 6% per year since then.

The Results for Policyholders


These cases illustrate McKinsey’s “boxing gloves” litigation plan. The object of this plan is intimidation. That means using aggressive tactics to bully both the plaintiff and the plaintiff’s attorney into walking away or giving up and taking whatever Allstate is offering just to end the agony.

The bottom line for any policyholder or claimant making a legitimate claim against Allstate is this: be prepared to accept about half of what your claim is worth, or endure about four years of investigation and litigation before you see a dime of your money. It’s a strategy that’s proved very successful—and profitable, as McKinsey correctly predicted. Fewer that 10% of Allstate policyholders making claims have been willing to continue the legal process through a court of law. Now that you know what they’d be put through, would you blame them?

In the process, what have these tactics done? For one, they have driven people into bankruptcy as a result of unpaid medical bills. That puts a larger burden on you, the taxpayer. People are left disabled, but without compensation to support them. They require social services—funded by you. This process is called privatizing profit and socializing loss.

To quote David J. Berardinelli, “For a few attorneys facing years of litigation in a badfaith case like the one Allstate created for the Pincheiras, the payouts (if there are any) generally break down to about minimum wage once the attorney calculates all lawyer and staff hours. There are exceptions, of course, but not many. I have calculated that I have received around $5.30 per hour for the time I have put into informing the public about this issue. That’s certainly nothing compared to the $27,400,000,000 I calculate Allstate’s pre-tax income has increased under CCPR.”

If a client refuses the offer and gets an attorney life becomes very expensive. It takes years and years to eventually get into court and it costs more money than can possibly be imagined. To regain what Allstate Insurance promised and failed to deliver, a claimant must have access to serious money, be in good health to endure the stress, and maintain a positive outlook. In December 2012, as I write this letter, what Allstate’s approach has cost me is beyond belief. I have suffered a long series of delays, lost my wife, been on the borderline of bankruptcy 3 times, and have spent $250,000 dollars. All in the hopes of getting what our constitution promises us, the right to pursue justice in a court of law.