Arbitration & Mediation

The Zero Sum Game: Allstate's McKinsey Documents

By Victoria Pynchon

Back from the ABA's ADR Conference via Washington D.C., I've had a lot of fly-over state "quiet time" to ponder the gulf between mediation advocates (litigators) and mediators (former litigators who drink a little adversarial treason with their morning lattes).  

What's the gulf?  Wide or narrow, it's name is "Zero Sum Game" and those who continue to play it often get their  . . . uh . . . soft parts caught in a wringer.

I want to come back to reflect on this topic, but right now I give you one thought followed by an excerpt from a very lengthy post on the so-called Allstate McKinsey documents. 

The post highlights the damage caused to the Zero Sum Game Player when the public learns he is playing it with customers (remember the Pinto punitive damages award?) or with its own -- or others -- insureds.  

First the comment.  By JAMS mediator Jeff Kichaven at the Insurance Mediation Workshop this past weekend:  Piling rationales on top of one another to encourage a party to change its position is a little like raising your voice to communicate with a deaf man.  

Just ponder that.  As if it were a zen k??an. 

Second, this excerpt from Slabbed's post on the McKinsey Allstate document furor -- The Herald Tribune Takes the Allstate Challenge (full post here)

In a previous post that received a notice in the Silicon Investor BB I spoke of insurers and their lawyers using the court system as instruments of institutionalized bad faith. Indeed Allstate has taken much criticism for ignoring lawful subpoenas over these documents as well as substantial fines as noted by Ms St John. This brings me to the beginning of the main story.

For more than a decade, Allstate Insurance Co. kept a secret from its auto policyholders — a national strategy to force customers to accept reduced cash payouts or face years in court.

Thousands of pages of Allstate documents reviewed by the Herald-Tribune detail how the nation’s second-largest insurer systematically cut payments to customers as a way to boost profits.

The documents describe a two-pronged strategy.

First, the company evaluates claims with a computer program designed to reduce payouts by as much as 20 percent of what the company once paid for the same injuries.

Second, Allstate pushes policyholders to accept quick settlements without the help of lawyers. Policyholders who try to fight for more money face Allstate attorneys coached to refuse to negotiate and to drag out litigation.

The approach often forces car accident victims to take what Allstate offers right away or spend years in court while their bills go unpaid — a strategy Allstate spelled out in guidelines for claims adjusters that “forces the claimant and attorney to think about the obstacles they must overcome …”

Indeed it appears we have a road map of how tort reform is being used against us. Limits on damages only make it easier for these large insurers to get away with outragious behavior. The story continues:

It was a “Zero Sum Economic Game. Allstate gains … others must lose,” declared a consultant’s PowerPoint slide from a 1994 presentation to executives.

During the next five years of Allstate’s claims overhaul, the same consultant, New York-based McKinsey & Co., chose confrontational words to describe the new system. In PowerPoint presentations and discussion papers drawn up for Allstate executives, McKinsey used “boxing gloves” to characterize how Allstate should treat policyholders who balk at settlements. For customers who hired lawyers, McKinsey urged, “align alligators,” adding these instructions: “sit and wait.”

The documents also show:

Allstate removed much of the discretion of local claims agents to set payouts, requiring them to base their recommendations on a computer program called Colossus. Under that program, average payouts for bodily injuries dropped more than 20 percent in the first few years, internal documents show, a big step toward reaching McKinsey’s goal of “establishing a new fair market value” of such injuries.

Allstate recognized that when an injured driver hired a lawyer, the insurer lost money. In repeated presentations to Allstate executives, McKinsey coached tougher and increased legal action. By 1996, Allstate had doubled its legal force, hiring 225 more lawyers. “The bottom line is that Allstate is trying more cases than ever before,” a corporate newsletter said . . .

For full post from Slabbed click here.

Full post as published by Settle It Now Negotiation Blog on April 07, 2008 (boomark / email).