Dave Stratton, an insurance defense attorney, runs a blog where he discusses interesting things from a defense attorney’s perspective. Mr. Stratton has some interesting ideas. He also has some that, while interesting, show what I consider to be a lack of understanding of the insurance industry. This is not a shot at Mr. Stratton. In my experience, most defense attorneys are good at resolving cases, good at trying cases, and bad at understanding how the insurance company works.
Case in point. Mr. Stratton has an article about AIG insurance. Basically, an AIG supervisor from the early to mid 1980s leveled charges about AIG’s payment philosophy. The philosophy was simple – hold the checks until someone complained. Mr. Stratton seems to think that this is okay since people want claims paid, but more importantly want their insurance company to stay in business.
If you know how insurance companies work, they make a profit not on underwriting, but on investment income. Underwriting, the process whereby an insurance company figures out what to charge for a policy, does not make the insurance companies money. Most insurance companies lose money strictly on underwriting. However, insurance companies make money on investments. And what type of income is that? Its income from investments. So, if AIG holds a check for an extra 30 days, they earn an extra 30 days of interest. So one check is not that big a deal, but holding an extra 1,000 checks for a total of $1,000,000 can make an insurance company a whole lot of money over the course of a year.
And, dont think that this is an isolated incident. Most insurance companies have practices on payments. And there are insurance companies that delay payments to increase their income. It happens, its wrong, and people like Mr. Stratton need to stop defending the practice.