Updated on: 1/2/2023
In the 1990s, two of the largest insurance corporations in the United States - Allstate Insurance Company and State Farm Insurance Company - hired McKinsey & Company - a management consulting firm based in New York - to evaluate their business practices and offer recommendations to increase profits. This is not an unusual concept, as giant corporations across America regularly consult with firms like McKinsey to gain a new perspective about their business practices and develop strategies for making more money.
What is unusual about this particular example is the lengths Allstate - based on recommendations from McKinsey & Co. - was willing to go in order to achieve its business goals. As a result of their research into Allstate's business practices at the time, McKinsey & Co. prepared a report, later to become known as the McKinsey Documents, which consisted of approximately 150,000 pages and PowerPoint slides that were influential in Allstate’s redesign of their claims-management system.
Allstate’s profits doubled over ten years after consulting with McKinsey, but at what expense to claimants? The original purpose of the insurance industry was to protect the claimants in the event of financial liability. Due to industry competition, lack of regulation, and a variety of other factors - including the precedent set by insurance companies now put maximizing profit over the interests of the claimants who pay for protection and benefits.
Details Revealed By The 'McKinsey Documents' Release
In the report, McKinsey advised Allstate that in order to maximize their profits, they should intentionally act in bad faith by purposefully giving low offers to auto accident victims and delaying legitimate insurance claims. This helped Allstate save $700 million and increase their stock price. Their profits in 2007 were $4.6 billion, which is double their profit through the 1990s. This profit was accomplished in part by paying an average of 30 below market value on most claims.
Allstate’s company motto is “You’re in good hands with Allstate.” In the McKinsey Documents, they suggest that claimants who quickly accept the low-ball offers would be those clients who are in “good hands,” while claimants who counter or seek legal counsel would be treated with “boxing gloves.” They also suggested that Allstate use an “alligator approach” by “sitting and waiting” and delaying claims to frustrate claimants and entice them to accept and get the process over with, even if it was not the proper amount of compensation.
Allstate took advantage of the fact that many people either don’t fully comprehend how to valuate their claim or cannot front the medical, etc. expenses while negotiating a claim. Knowing this, Allstate hoped most people would accept the first, low-ball offer. By delaying claims, they hoped to deter claimants from rejecting an initial offer or seeking legal counsel by making claims “so expensive and so time-consuming that lawyers would start refusing to help clients.”
OIC Investigation Into Allstate's Unethical Business Practices
The OIC investigated claims against Allstate and the courts subpoenaed management documents from Allstate, including the McKinsey documents. The first judicial order was given in 2004.
Allstate produced a number of documents pertaining to their management practices but refused to produce the McKinsey documents under the premise that it contained confidential business practices and “trade secrets” that Allstate did not want competitors to learn about and copy. Allstate paid fines of $25,000 per day for their refusal to comply with judicial orders.
In Florida, Insurance Commissioner Kevin McCarty was backed by Governor Charlie Crist in suspending Allstate’s ability to write new business until they produced the requested documents. Only after this decision was upheld after being appealed did Allstate release the McKinsey documents on April 4, 2008, after paying more than four million dollars in fines over the course of four years.
They continued to maintain that their reason for secrecy was protecting “trade secrets and confidential proprietary information” but decided to release them to clear up and “misunderstandings” about shadiness that might be interpreted by their refusal to disclose.
More Controversy In McKinsey & Co.'s Past
McKinsey & Co was also involved in several other notable scandals including Enron, South African governmental corruption, and the Galleon insider trading scandal. Enron was created by a former McKinsey consultant. Enron was also a client of McKinsey. Enron involved in a financial and accounting scandal.
McKinsey was involved with corruption in South African government, utilities, and infrastructure sectors. The Gupta family placed corrupt individuals in positions in those sectors, and McKinsey & Co obtained consulting contracts via contacts in the Gupta family. They were charged with fraud, racketeering, and collusion.
Former McKinsey senior executive partners shared inside information with the owner of Galleon Group. The partners and owner came to a private agreement while the companies were trying to reach a formal agreement. This violated confidentiality practices and led to charges of conspiracy and securities
The True Priorities Of Insurance Companies
The reality is that if insurance companies were truly operating in the best interests of claimants, personal injury attorneys would have a much difficult time in proving their value to injured claimants. Just because the McKinsey issue has legally been resolved and the insurance companies have done their best to erase any mention of these types of scandals does not mean that insurance companies prioritize policyholders and innocent injury victims over their own profits.
Insurance companies remain focused on squeezing every dollar out of every possible claimant on a daily basis. You can read more about these unethical business practices in our free PDF report: Unsurance - The Ugly Truth About Unethical Business Practices In The U.S. Insurance Industry.
If you believe that you are being treated unfairly by the insurance companies involved in your personal injury claim, it is in your best interests to consult with the experienced personal injury attorneys at Davis Law Group. Our award-winning legal team will review your case free of charge and help you better understand why we may be able to help you get a better result for your case, even after paying attorney's fees.
Call our office in Seattle at (206) 727-4000 or use the confidential contact form on this page to have your case personally reviewed by our insurance bad faith lawyers. We will gather the necessary information about your case and help you better understand your legal rights and options.