7. Farmers

7. Farmers

CEO: Paul N. Hopkins (Farmer Group Inc.
US subsidiary of Zurich Financial
Services. Zurich CEO James J.
Schiro
2007 compensation $10.3 million)
HQ: Los Angles, CA
Profits: Zurich Financial -- $5.6 billion (2007)
Assets: #387.7 billion (114)

Swiss-owned Farmers Insurance Group consistently ranks at or near the bottom of homeowner satisfaction surveys. Given its tactics towards its policyholders, that comes as no surprise. The company even created an incentive program that offered pizza parties to adjusters who met low payment goals.
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Farmers Insurance Group consistently ranks among the worst insurance companies for customers of homeowners or auto insurance in satisfaction surveys from the likes of JD Powers and Customers Reports. Nor is it just individuals who get the short end of the stick. U.S. businesses were victimized by Farmer’s parent company, Swiss giant Zurich Financial Services, which in the last few years has paid out nearly half a billion dollars to settle bid-rigging and price-fixing cases. According to regulators, “businesses shopping for commercial insurance were deceived into believing they were getting the best deals available. The whole anti-competitive scheme was an intentional smoke screen by several insurance players to artificially inflate premiums and pay improper commissions to those who brokered the deal.”

No case is as illustrative of the Farmers attitude than that of Ethel Adams. The 60-year-old Washington State women was involved in a multi-vehicle accident that put her in a coma for nine days, left her with devastating injuries, and eventually confined her to a wheelchair. Incredibly, Farmers denied her claim, reasoning that the driver at fault had acted in a moment of intentional road rage, and thus the crash was not an accident. The company’s denial caused an outcry, and Farmers Los Angles headquarters was flooded with calls and emails from angry policyholders threatening to boycott the company. Farmers only caved when the Washington State Insurance Commissioner threatened the company with legal action.

Adams’ case is symptomatic of Farmers’ attitude towards its policyholders. Internal company documents and testimony from former employees reveal a company that systematically places profits over policyholders. An example is Farmers’ employee incentive program, “Quest for Gold.” The program offers token incentives, including $25 gift certificates and pizza parties, to adjusters who meet goals, such as low payments and the rates at which they are able to dissuade claimants from retaining an attorney. Employees’ performance reviews and pay raises are also determined by their ability to meet claim payment goals. Internal emails show one particular claims manager encouraging representatives to intentionally underpay valid claims, saying, “[a]s you know, we have been creeping up in settlements… Our [claims representatives] must resist the temptation of paying more just to move this type file. Teach them to say, ‘Sorry, no more,’ with a toothy grin and mean it.” (121) The same email also indicated that claims representatives were financially rewarded for such behavior. The manager singled out an employee who consistently low-balled claims, saying, “[i] f he keeps this up during 2002, we will pay him accordingly.”

Such strategies have attracted the attention of state insurance industry regulators. In North Dakota, Farmers has been fined for “ unfair practice in the business of insurance…. and an unfair claim settlement practice,” for its use of employee incentive programs and for tying performance evaluations to arbitrary claims-handling goals. In Oklahoma, Farmers agreed to limit its use of the claims-evaluation software Colossus, the same software used by Allstate, after the company was found to have repeatedly failed to pay claims in full. The Texas Department of Insurance joined with the state’s attorney general in 2002 to file a lawsuit against Farmers over violations of state consumer protection laws, including deceptive, misleading, and unfairly discriminatory homeowners’ insurance practices. While the company would not admit wrongdoing, it did agree to reduce rates and issue refunds. However, Taxes regulators were forced to take action against Farmers again just two years later, ordering the company “to cease and desist from charging excessive property rates for residential property insurance in violation of Texas law.”

Farmers’ most high-profile run-in with state regulators occurred in California after the 1994 Northridge earthquake, which killed 72 people, injured nearly 12,000, and caused over $12 billion in damages. Many of the homeowners were covered by Farmers. Despite paying out over $1.9 billion for 37,000 claims, the company was hit with a wave of bad faith lawsuits for failing to pay policyholders the full value of their homes. In one case, a Farmers’ subsidiary was sued for bad faith and fraud by a condominium homeowners association after the company refused to pay to rebuild the severely damaged building. The homeowners, who were mostly minorities, were helped in their case by the testimony of a former claims adjuster, Kermith Sonnier, who admitted that a supervisor told him to settle the claim for a target amount, despite never having seen the damage firsthand. In March 2000, over six years after the quake struck, a jury awarded the homeowners association $3.98 million in compensatory damages and was deliberating punitive damages when Farmers agreed to settle the cases for $20 million. Sonnier, who had been fired by Farmers, also successfully sued the company for compensatory and punitive damages.

The reaction of California regulators was an example of the sometimes dubious relationship between the industry and those who are supposed to oversee it, California Insurance commissioner Chuck Quackenbush issued a proposed order saying that the company mishandled claims and could potentially face $450 million in fines. However, instead of pursuing the investigation, Quakenbush offered Farmers a deal that would absolve the company of all liability if it donated $1 million to the California Insurance Education Project, a foundation created by Quackenbush. The company also contributed $10,000 to one of the commissioner’s political accounts. In addition, Quackenbush’s settlement required that Farmers survey all its policyholders to gauge satisfaction with the company’s handling of their claims. Incredibly, any policyholder who completed the Farmers survey automatically waived all rights to seek justice in court. Quackenbush resigned under the threat of impeachment two months after the settlement was made public.

Immediately following the earthquake, the company implemented a program asking employees to help recoup some of the losses and adopted the slogan “Bring Back a Billion,” meaning that employees were expected to bring in a billion dollars for the surplus. Some of these employees even signed pledges agreeing to work toward this goal. More recently, Farmers have found California regulators less easy to manipulate. In 2007, California Insurance Commissioner State Poizner found that some Farmers customers who filed claims later had their insurance nonrenewed or experienced premiums hikes just because they used their insurance for its intended purpose. Farmers agreed to refund policyholders $1.4 million and paid $2 million in administrative fines, although it did not admit any wrongdoing.