10. Liberty Mutual
CEO: Edmund F. (Ted) Kelly
2005 compensation $27 million
HQ: Boston, MA
Profits: $1.5 billion (2007)
Assets: $94.7 billion
Like Allstate and State Farm, Liberty Mutual hired consulting giant McKinsey & Co. and adopted deny, delay, and defend tactics. The company has also gone one further than simple claims-handling abuses by indulging in what regulators allege is systematic bid-rigging.
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Like Allstate and State Farm before it, Mutual hired consulting giant McKinsey & Co. to boost its bottom line. The McKinsey strategy relies on lowering the amounts paid in claims, no matter whether the claims were valid or not. By all accounts, Liberty Mutual has not become as notorious as its rivals for the deny, delay and defend tactics that McKinsey encouraged. However, that has not stopped the company from leading the way in complaint rankings and stories of short-changed victims. In fact, Liberty Mutual is facing a glut of litigation from its own vendors who say the company’s cost-cutting has resulted in poor claims processing and a spike in lawsuits.
Like several other big property casualty insurers, Liberty Mutual has also begun abandoning policyholders across the country. The company has pulled out of many states—not only hurricane susceptible states such as Florida and Louisiana, but also northern states such as Connecticut, Rhode Island, Maryland, Massachusetts, and much of New York. A 2007 New York Times article highlighted Liberty Mutual policyholders James and Ann Gray of Long Island. The Grays were “nonrenewed” by Liberty Mutual despite the fact that they lived 12 miles from the coast and had “been touched by rampaging waters only once, when the upstairs bathroom overflowed.” In fact, Liberty Mutual and its big name competitors have left more than 3 million homeowners stranded over the last few years. New York regulators chastised Liberty Mutual for tying nonrenewals to whether a policyholder had an auto policy or other coverage, against state law.
Liberty Mutual has also gone where even its big property casualty rivals Allstate and State Farm have feared to tread by trying its hand at massive corporate fraud. While the likes of AIG, Zurich, and ACE settled charges that they colluded with broker Marsh & McLennan in a huge bidrigging fraud, Liberty Mutual remains the only insurance company that refuses to concede guilt. The fraud centered around fake bids that companies submitted to Marsh in order to garner artificially inflated rates. Liberty Mutual claims its business practices were lawful and that regulators’ settlement demands are “excessive.”
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