1. Allstate

CEO: Thomas Wilson

2011 compensation $11.2 million

(predecessor Edward Liddy made

$18.8 million in compensation and an

additional $25.4 million in retirement

benefits)

HQ: Northbrook, IL

Profits: $4.6 billion (2007)

Assets: $156.4 billion8

There is no greater poster child for insurance industry

greed than Allstate. According to CEO Thomas Wilson,

Allstate's mission is clear: "our obligation is to earn a

return for our shareholders." Unfortunately, that dedication

to shareholders has come at a price. According to

investigations and documents Allstate was forced to

make public, the company systematically placed profits

over its own policyholders. The company that publicly

touts its "good hands" approach privately instructs

agents to employ a hardball "boxing gloves" strategy

against its own policyholders.

Allstate's confrontational attitude towards its own policyholders

was the brain child of consulting giant McKinsey

& Co. in the mid-1990s.McKinsey was tasked with developing

a way to boost Allstate's bottom line. McKinsey

recommended Allstate focus on reducing the amount of

money it paid in claims, whether or not they were valid.

When it adopted these recommendations, Allstate made a

deliberate decision to start putting profits over policyholders.

The company essentially uses a combination of lowball

offers and hardball litigation.When policyholders file a

claim, they are often offered an unjustifiably low payment

for their injuries, generated by Allstate using secretive

claim-evaluation software called Colossus. Those that

accept the lowballed settlements are treated with "good

hands" but may be left with less money than they need to

cover medical bills and lost wages. Those that do not settle

frequently get the "boxing gloves": an aggressive litigation

strategy that aims to deny the claim at any cost.

Former Allstate employees call it the "three Ds": deny,

delay, and defend. One particular powerpoint slide

McKinsey prepared for Allstate featured an alligator and

the caption "sit and wait"-emphasizing that delaying

claims will increase the likelihood that the claimant gives

up. According to former Allstate agent Shannon Kmatz,

this would make claims "so expensive and so timeconsuming

that lawyers would start refusing to help

clients."

Former Allstate adjusters say they were rewarded for

keeping claims payments low, even if they had to deceive

their customers. Adjusters who tried to deny fire claims by

blaming arson were rewarded with portable fridges,

according to former Allstate adjuster Jo Ann Katzman.

"We were told to lie by our supervisors. It's tough to look

at people and know you're lying."

Complaints filed against Allstate are greater than

almost all of its major competitors, according to data collected

by the NAIC. In Maryland, regulators imposed the

largest fine in state history on Allstate for raising premiums

and changing policies without notifying policyholders.

Allstate ultimately paid $18.6 million to Maryland

consumers for the violations. In Texas earlier this year,

Allstate agreed to pay more than $70 million after insurance

regulators found the company had been overcharging

homeowners throughout the state.

After Hurricane Katrina, the Louisiana Department of

Insurance received more complaints against Allstate-

1,200-than any other insurance company, and nearly twice as many as the approximately 700 it received

about State Farm-despite the fact that its rival had a bigger

share of the homeowners market. Similarly, in 2003, a series of wildfires devastated

Southern California, destroying over 2,000 homes near

San Diego alone and killing 15 people. State insurance

regulators received over 600 complaints about Allstate and

other companies' handling of claims.

Allstate says the changes in claims resolution tactics

were only about efficiency. However, the company's former

CEO, Jerry Choate, admitted in 1997 that the company

had reduced payments and increased profit, and said,

"the leverage is really on the claims side. If you don't win

there, I don't care what you do on the front end. You're

not going to win."

For four years, Allstate refused to give up copies of the

McKinsey documents, even when ordered to do so repeatedly

by courts and state regulators. In court filings, the

company described its refusal as "respectful civil disobedience."

In Florida, regulators finally lost their patience

after Allstate executives arrived at a hearing without documents

they had been subpoenaed to bring. Only after

Allstate was suspended from writing new business did the

company, in April 2008, finally agree to produce some

150,000 documents relating to its claim review practices.

Still, some commentators believe many critical documents

were missing.

Allstate's "boxing gloves" strategy boosted its bottom

line. The amount Allstate paid out in claims dropped

from 79 percent of itspremium income in 1996 to just 58

percent ten years later.25 In auto claims, the payouts

dropped from 63 percent to just 47 percent. Allstate saw

$4.6 billion in profits in 2007, more than double the level

of profits it experienced in the 1990s. In fact, the company

is so awash in cash that it began buying back $15 billion

worth of its own stock, despite the fact that the company

was simultaneously threatening to reduce coverage of

homeowners because of risk of weather-related losses.

Despite its treatment of policyholders, Allstate's recent

corporate strategy has focused on identifying and retaining

loyal customers, those who are more likely to stay with

the company and not shop around. The target demographic,

as former Allstate CEO Edward Liddy said, is

"lifetime value customers who buy more products and

stay with us for a longer period of time. That's Nirvana

for an insurance company."

Loyalty only runs one way, however.While Allstate

focuses on customers who will stick with it for the long

haul, the company is systematically withdrawing from

entire markets. Allstate or its affiliates have stopped writing

home insurance in Delaware, Connecticut, and

California, as well as along the coasts of many states,

including Maryland and Virginia.

In Louisiana, Allstate has repeatedly tried to dump its

policyholders. In 2007, the company tried to drop 5,000

customers just days after the expiration of an emergency

rule preventing insurance companies from canceling customers

hit by Katrina. Allstate dropped them for allegedly

not showing intent to repair their properties. After an

investigation by the Louisiana Insurance Department,

Insurance Commissioner Jim Donelon said, "[A]t best, it

was a very ill-conceived and sloppy inspection program.

At worst, they wanted off of those properties."30 Allstate

also used an apparent loophole in the law by offering its

policyholders a "coverage enhancement" which the company

would later argue was a new policy, and thus exempt

from non-renewal protection.

In Florida, Allstate has dropped over 400,000 homeowners

since 2004. The move has landed Allstate in trouble

with regulators because the company appears to be

keeping customers if they also have an auto insurance

policy with Allstate. Florida law prohibits the sale of one

type of insurance to a customer based on their purchase

of another line of coverage. Allstate officials have

acknowledged that most of the 95,000 customers nonrenewed

in 2005 and 2006 were homeowners-only customers.

The company ran afoul of regulators in New York

for the same reason, and was forced to discontinue the

practice.

In California, while other major homeowner insurers,

including State Farm and Farmers, agreed to cut rates,

Allstate demanded double-digit rate increases in what the

former insurance commissioner described as an "exit

strategy." John Garamendi, now the Lieutenant Governor,

said, "[T]hey've said they want to get out of the homeowners

business in a market that is competitive, healthy

and profitable."

Consumer advocates have also complained that Allstate

put an ambiguous provision in homeowners' policies that

may have deceived some policyholders into thinking they

had coverage for wind damage when they did not. Socalled

"anti-concurrent-causation" clauses state that wind

and rain damage-damage covered under the policy-

is excluded if significant flood damage occurs as well.

Therefore, those with policies covering wind and rain damage

and "hurricane deductibles" still faced the prospect of

learning, only after a catastrophic loss, that they had no

coverage. In 2007, then U.S. Senator Trent Lott sponsored

legislation requiring insurers provide "plain English" summaries

of what was and what was not covered in order to

stop this kind of abuse. "They don't want you to know

what you really have covered," said Lott.