I have heard of the virtues of Tort Reform being extolled often, but never fully appreciated until recently how this virtuous sounding idea is actually a frontal assault on consumers. You have to admire a good spinster for his skill at his craft when he gets people to embrace an idea that is harmful to them. It makes me think of all of the people rallying against Obamacare, not realizing that they are probably the ones to get screwed if it got repealed. The U.S. Chamber of Commerce, and its Institute for Legal Reform (ILFR) have done a marvelous job at this type of spin. I am actually impressed by how they pulled it off.
This is a story of big insurance and a white glove consulting firm. It starts in earnest in the 90s. Some big insurance companies were going public, the executives of these sleepy things started to receive generous stock compensation plans tied to publicly traded stocks. The venerated consulting firm, McKinsey and Company joined the fray to advise these big insurance companies how to squeeze more profits out to generate stockholder returns.
And what is wrong with stockholder returns? Nothing, except if your company is a fiduciary like an insurance company that has an obligation to its policyholders. And what did McKinsey conclude? That it is a zero sum game. Make equitable payouts to your policyholders, who you have promised to make whole if they become injured, and there is less at the end of the day for the shareholders. Get aggressive with your claims paying policy, and who do the benefits accrue to? If you said the shareholders, you are right on the money. And will the policyholders notice? Not until it is too late, not after they've spent 10 years buying into the pitch that they "are in good hands" or have a "good neighbor". Then an accident happens, they are out of work, they were not at fault and their insurer gets to determine how to fairly compensate them for economic damages.
McKinsey's recommendation? What is now known as "delay, deny, defend". And a computer software system, Colossus, that is now employed by roughly 40 insurers that uses consumer economic data to analyze, using millions of statistical data points, who (i.e., which policyholder) is economically weak and who can be lowballed into accepting a quick low offer versus stomaching the long process of fighting the good fight with legal representation to obtain a settlement comparable to jury verdicts for similar hardships and injuries. Old? Colossus knows you will want to settle fast for cents on the dollar. Poor, living in a depressed neighborhood? Same thing.
This sounds a little suspicious, does it not? There must be regulatory (a word made evil by the US Chamber of Commerce) protections in place to protect policyholders, no? Well, to address this, McKinsey recommended what it called "targeted changes in public policy". And what does that mean? Insurance companies can be held accountable to its policyholders by what is known as "bad faith" insurance laws. The McKinsey playbook? Start modifying (i.e., water down) these bad faith laws, and start promoting "tort reform" for the public good.
Are we hearing propaganda about the "bogged down" court system for the public good? I think you will find that all of these efforts are for "business protection" / "insurance company protection", and not for "consumer protection."
for more on this history, see http://www.businessweek.com/...