Delay, Deny, Defend

1. Insurance's core promise of security is undermined by profit motives.

Insureds buy financial protection and peace of mind against fortuitous losses.

The fundamental exchange. Insurance is built on a promise: in exchange for premiums, the company accepts the risk of financial loss that an individual cannot bear alone. This promise is meant to provide security and peace of mind, cushioning the blow of unexpected events like accidents or fires.

A special relationship. Unlike buying a typical product, purchasing insurance is buying a promise of future security. This creates a relationship of trust, where the policyholder relies on the insurer to be there when they are most vulnerable. Iconic slogans like "Like a good neighbor" or "You're in good hands" reflect this expected relationship.

The inherent conflict. However, insurance companies are also businesses driven by profit. Their largest expense is paying claims. The less they pay out in claims, the more they keep as profit. This creates a fundamental conflict between the company's financial interest and its promise to fully indemnify policyholders.

2. "Delay, Deny, Defend" is a systematic strategy to boost profits.

The reason is simple: The less the insurance company pays out in claims to you and people like you, the more it makes in profits.

Breaking the promise. When insurance companies prioritize profit over their promise, they employ a strategy known as "delay, deny, defend." This involves delaying payment to wear down claimants, denying valid claims in whole or part, and aggressively defending lawsuits brought by policyholders seeking what they are owed.

Tactics in action. Delaying claims allows companies to hold onto premiums longer, earning investment income (float), and pressures vulnerable claimants to accept less. Denying claims outright or making lowball offers forces claimants into difficult choices: accept an inadequate amount or face costly and protracted litigation. Aggressive defense makes litigation a painful and expensive ordeal, deterring claimants and their lawyers.

Widespread but hidden. While companies dismiss these as isolated incidents, evidence from lawsuits, whistleblowers, and internal documents suggests "delay, deny, defend" is a widespread, systematic approach. The true extent is unknown because companies guard this data closely, and state regulators often fail to collect or publish comprehensive information on claim handling.

3. Consultants like McKinsey transformed claims into profit centers via process redesign.

The concept of “leakage” or total economic opportunity came into vogue as firms, led by McKinsey, encouraged many in the industry to use closed file reviews (CFRs) to measure the trade-offs between LAE investments and indemnity accuracy.

A shift in focus. Traditionally, the claims department's sole job was to pay what was owed, no more, no less. However, facing financial pressures from underwriting cycles and catastrophes in the late 1980s and 1990s, companies sought new strategies. Management consultants, notably McKinsey & Company, were brought in to re-engineer the claims process.

Claims as opportunity. McKinsey's key insight was to view claims not just as an expense, but as a "profit center." By investing strategically in the claims process (Loss Adjustment Expense or LAE), companies could achieve "indemnity savings" – paying less on claims. This was framed as reducing "leakage," or overpayment, but the goal was explicitly to reduce payouts to boost the bottom line.

Redefining the game. This transformation, often implemented through programs like Allstate's Claims Core Process Redesign (CCPR) or State Farm's Advancing Claims Excellence (ACE), fundamentally altered the claims process. The focus shifted from fair, prompt payment to maximizing company profit by minimizing payouts, making the claims department a key driver of financial performance.

4. The claims process became industrialized, driven by metrics and technology.

Adjusters have become less independent and more efficient from the company’s point of view, with efficiency defined in terms of following the dictates of the claims systems.

From craft to factory. The traditional claims adjuster, a skilled professional exercising judgment, has largely been replaced by a "claim representative" bound by systematic processes and technology. Claims are segmented by type and severity, handled by specialized units, and increasingly centralized.

Systems control adjusters. Computer systems and software dictate procedures, evaluate claims, and limit adjuster discretion. Adjusters are trained to follow these systems, with performance often measured by adherence to process and metrics related to payout amounts (severity) or claims closed without payment (CWP).

• Performance evaluations tied to payout metrics.
• Bonuses linked to reducing claim costs.
• Pressure to meet quotas for referring claims to Special Investigations Units (SIU).

Technology as gatekeeper. Software like Colossus (for personal injury) and Xactimate (for property damage) are used to set claim values, often with parameters ("tuning") set by the company to produce lower offers. Adjusters may be required to settle within these system-generated ranges, regardless of the claim's individual merits.

5. Companies segment claims (like MIST) and discourage lawyers to reduce payouts.

Capturing the opportunity will require reducing the number of represented claimants and more aggressively managing the claims that do become represented.

Dividing to conquer. Insurance companies segment claims into categories to apply different, profit-maximizing strategies. A key segmentation is whether a claimant is represented by an attorney. Companies actively work to prevent claimants from hiring lawyers, knowing that represented claimants recover significantly more.

Discouraging legal help. Tactics include:

• Rapid initial contact to build trust and suggest legal help is unnecessary.
• Misrepresenting the cost of attorneys (e.g., stating they take a percentage of the total settlement, not just the increase obtained).
• Making lowball offers contingent on the claimant not hiring a lawyer.
• Exploiting the economics of law practice by making small claims too costly for lawyers to pursue profitably.

Targeting MIST claims. Minor Impact, Soft Tissue (MIST) claims (e.g., whiplash from low-speed crashes) are a prime target. Because injuries are subjective and vehicle damage is minor, companies argue the injuries are exaggerated or not caused by the accident. They systematically deny or offer nominal amounts, forcing claimants to litigate small sums, which is often economically unfeasible for both claimant and attorney.

6. Biased experts and software are used to justify low offers and denials.

Of all the oxymorons in the world, an Independent Medical Examination occupies first place by thousands of leagues.

Manufacturing doubt. To justify denying claims or making low offers, companies rely on seemingly objective tools and experts. However, these are often used to create doubt about the cause or severity of injuries, rather than providing a neutral assessment.

Paper reviews and IMEs. "Paper reviews" (reviewing medical records without seeing the patient) and Independent Medical Examinations (IMEs) by company-selected doctors are common. While presented as objective, reviewers and doctors who receive significant business from insurers may be biased towards finding no injury, a lesser injury, or no causal link to the accident.

• Reports may use "cookie cutter" language.
• Reviewers may lack appropriate expertise or spend minimal time.
• IME doctors may earn substantial income from insurance work.

Software manipulation. Systems like Colossus, used to value personal injury claims, are "tuned" by insurance companies using data that can exclude high settlements or jury verdicts. This results in systematically lower "Evaluated Amounts" (EAs) that adjusters are pressured to adhere to, regardless of the claim's true value or potential jury award.

7. Homeowners policy complexity is exploited, leading to underpayment and denial tactics.

Homeowners policies are not what they seem.

Complex contracts. Homeowners insurance policies are notoriously long and complex, filled with definitions, coverages, exclusions, and conditions that are difficult for the average person to understand. This complexity provides ample opportunity for companies to deny claims based on obscure terms.

Surprise exclusions. Despite being "all-risk" policies, they exclude dozens of potential causes of loss. The anti-concurrent causation clause can exclude covered perils (like wind) if they occur alongside excluded perils (like water), even if the covered peril was the primary cause. Homeowners are often unaware of these limitations until a loss occurs.

Underinsurance and depreciation. Companies may fail to ensure homes are insured for their full replacement cost, leaving policyholders underinsured after a total loss. Even with replacement cost coverage, companies may initially pay only the depreciated "actual cash value," withholding the remainder until repairs are complete, and sometimes attempting to deduct costs like contractor overhead and profit from this initial payment.

8. Catastrophes like Katrina expose systemic denial strategies (wind vs. water).

When the investigation indicates that the damage was caused by excluded water and the claim investigation does not reveal independent windstorm damage to separate portions of the property, there is no coverage available under the homeowners policy.

The ultimate test. Major catastrophes like Hurricane Katrina generate massive numbers of claims simultaneously, putting the insurance system under extreme pressure. These events highlight systemic issues in claim handling, particularly the conflict between covered (wind) and excluded (water) damage.

Shifting the burden. Despite legal precedent placing the burden on the insurer to prove a loss was excluded, companies often deny claims if the policyholder cannot definitively prove how much damage was caused by wind versus water, especially in "slab cases" where little remains. Internal protocols, like State Farm's "wind-water protocol," directed adjusters to deny claims if independent wind damage couldn't be proven.

Dubious experts and tactics. Companies used experts whose reports often favored finding water damage (covered by federal flood insurance or borne by the homeowner) over wind damage (paid by the insurer). Expedited claims processes after Katrina, sometimes agreed upon with federal agencies, minimized investigation, making it harder to distinguish between wind and water damage and potentially shifting costs to the federal flood program.

9. Insurance fraud is aggressively marketed to justify aggressive claim handling.

We just want to put the fear into them that we could.

The industry narrative. Insurance companies heavily market the idea that insurance fraud by policyholders and claimants is a massive problem costing billions annually. This campaign aims to shape public perception, increase skepticism towards claimants, and justify aggressive investigation and denial tactics.

Exaggerated problem? While fraud exists and is wrong, critics argue the problem's scale is exaggerated by industry-generated statistics. Studies suggest the rate of provable criminal fraud is far lower than the industry's estimates of suspected fraud.

Fraud as a tool. Allegations or suspicions of fraud are integrated into the claims process as a means to delay, deny, and defend.

• Red flag systems label claims as potentially fraudulent based on common, non-fraudulent characteristics (e.g., multiple occupants, soft tissue injuries, older cars).
• Computer systems and databases are used to score claims for fraud potential, often leading to false positives.
• Adjusters may face pressure or incentives to identify and refer claims to Special Investigations Units (SIUs).

This focus on fraud turns the adjuster into an adversary, treating claimants as suspects and using the threat of investigation or prosecution to pressure them into abandoning or settling claims for less.

10. Consumers must be informed and assertive to navigate the claims process.

Be polite, be prompt, be persistent.

Empowering yourself. Consumers cannot single-handedly fix systemic issues, but they can take steps to protect themselves. This starts with being an informed consumer when buying insurance and an assertive participant when filing a claim.

Buying smart:

• Research companies' claim handling reputations using available data (state departments, consumer surveys).
• Understand your policy's coverage, including exclusions and limitations (e.g., flood, wind, replacement cost nuances).
• Ensure adequate coverage limits, especially for replacement cost and contents.

Claiming effectively. If you have a loss, understand your policy's requirements and the company's obligations. Document everything, keep records, and take notes of all interactions. Be polite but persistent in demanding fair treatment.

Know when to get help. For complex or disputed claims, recognize when you need professional assistance. Lawyers or public adjusters can help navigate the system, interpret policy language, challenge biased reports, and level the playing field against the insurer's resources and expertise.

11. Regulatory reform is essential to stop unfair claims practices.

Regulators have been nowhere on this.

Regulation's failure. Despite being heavily regulated, the insurance industry's claim practices are only sporadically overseen. State regulators prioritize solvency and rate regulation, often dedicating insufficient resources to market conduct and consumer protection.

Industry influence. The industry wields significant influence through campaign contributions, lobbying, and a "revolving door" between regulatory agencies and industry jobs. This influence often hinders meaningful reform and enforcement of consumer protection laws.

Needed reforms:

• Transparency: Require companies to publicly report detailed claim handling data (e.g., denial rates, time to settle, litigation frequency) so consumers can make informed choices.
• Stronger Laws: Enact and enforce clear, binding rules for fair claim practices, applying to all claimants (policyholders and third parties) and punishing every violation, not just patterns.
• Accountability: Strengthen policyholders' and victims' ability to sue companies for bad faith, ensuring full compensation and punitive damages where warranted to deter misconduct.

Without robust regulatory action and legal accountability, the economic incentives for insurance companies to delay, deny, and defend will continue to undermine the fundamental promise of security they sell to the public.

Last updated: June 2, 2025