Insurance companies facing legal action for bad behavior is nothing new. What’s interesting is the multitude of ways that these companies are found to be trying to get out of paying. Geico is the latest insurance company to get in hot water for it’s claims services.
Two class action suits have been filed, one in Delaware and one in New York, against Geico Insurance. The suits allege, among other things, a series of disturbing behaviors which, if true, make Geico appear as slimy as it’s gecko spokesperson. Here’s the scary allegations set forth by the lawsuits:
Geico deliberately and fraudulently portrays drivers as responsible for accidents they didn’t cause.
Geico assigns drivers to a high-risk status to keep customers from switching to other insurance carriers (which might not accept “high-risk” drivers).
Geico uses software that reduces or denies claims without any reasonable basis or justification – it’s just random.
Geico doesn’t try to find out a reasonable payment for doctor’s treatments, but automatically sets a maximum payout at 80% of what the insurer has been charged.
Geico has a policy to automatically deny claims for certain treatments occuring eight weeks after an accident.
These suits are based on the experiences of a couple of Geico clients. One found that he couldn’t get accepted by another insurance company because Geico had mysteriously categorized him as “high risk” (a mistake that Geico claims to have fixed), and another who was in a 2011 car accident and had her Personal Injury Protection (Also called “medpay”) claims denied despite reasonable requests to have it paid.
While insurance companies behaving badly is nothing new, if any of these allegations are true, Geico could face huge penalties and fines for “Bad Faith” behavior.
More allegations of bad claims behavior
Geico certainly isn’t the first insurance company to have problems with it’s claims reputation. For example, Liberty Mutual is reported by the American Association for Justice as having pizza parties for the claims handlers who deny the most claims. Allstate was essentially kicked out of the state of Florida for refusing to comply with state investigators. And, of course, Progressive insurance recently sent one of their lawyers to fight for the person who caused the death of a progressive policy holder. (Yes, you read that right. The progressive lawyers worked against the client. Why? To reduce claims of course.)
Geico in the green, but not relaxing claims behavior?
Multiple law firms now report that Geico is getting harder and harder to deal with. Yet Geico is earning record-breaking profits. In 2012, even with Superstorm Sandy, Geico earned a profit of 680 million. But aside from that profit, Geico and it’s mother company Berkshire Hathaway holds 73 billion dollars in reserves. That’s 73 billion dollars Geico has set aside in case of a lot of claims. What does it do with that massive pile of money? It invests it, of course. That 73 billion invested conservatively is earning an additional 4 billion or so in interest. Far more than the underwriting profits of the company.
Even with a massive surplus and interest growth, Geico continues to nickel-and-dime clients for every cent. If it turns out it’s true that Geico is refusing to pay out 100% of policyholders’ insurance amount, then it deserves to be brought to court and made to pay. Bad faith behavior is a serious problem and needs to be confronted at every turn.