Article written by Michael Childress.
Presented as a speech at Rutgers Law’s Fragmented Risk Conference March 1, 2013.
I. Introduction
The insurance industry operated for centuries under certain fundamental principles. An insured, looking to minimize its own risk, looks to purchase an insurance policy. The insurer issues the policy and remains profitable by spreading risks over as large a population as possible. In the event of a loss, the insurer and insured give effect to the policy terms.
In recent years, however, insurers have employed a cornucopia of cost saving tactics that have turned this elementary understanding of the insurance process on its head. Brokers work to benefit the insurance industry while insurers analyze risk only after issuing policies and shift that risk back onto the insureds. The supposed camaraderie and commonality of interest touted by insurers gives way to an increasingly adversarial process that treats the insured as a foe.
Following a loss, insurers lowball and coerce vulnerable insureds into signing releases and waivers. Insurers cry wolf following a natural disaster and claim that bankruptcy is inevitable if they are compelled to pay claims on a large scale.
Highlighted by recent natural catastrophes such as Superstorm Sandy and the series of Christchurch, New Zealand earthquakes, the insurance industry is in desperate need of reform. Governments across the world have attempted to step in and provide relief for the insureds, and individual states in the U.S. have promulgated statutes aimed at disincentivizing such insurer conduct. These answers have been met with varying success. [Read more...]
