Farmers Insurance Group has been fined $750,000 for allegedly setting up incentives for auto insurance adjusters to underpay some claims and deny others. According to North Dakota Insurance Commissioner Jim Poolman, the fine is the largest the Insurance Department in his state has ever imposed. Because state law requires the money to go into the state’s general treasury, however, it cannot be used to compensate customers. Concerning the fine, Commissioner Poolman stated:

It was to take a piece of their hide, basically, for treating policyholders unfairly. We felt … the program was egregious enough, and the penalty was appropriate.

An Insurance Department investigation, which began in August 2004, uncovered evidence that Farmers had quotas for denying vehicle insurance claims, and for referring others for fraud investigations. Farmers also settled injury claims using a predetermined range of payments, rather than examining each claim on its own merits. If adjusters did not follow the company’s guidelines, they could see cuts in their own paychecks. The investigation revealed that Farmers’ programs created “a natural, inherent bias against policyholders.” Farmers Insurance Group sells about $11 million worth of car insurance to North Dakota policyholders each year, which ranks it as the third-largest vehicle insurer in the state. It was not made clear how many North Dakota customers the company has, but according to Commissioner Poolman, the number was “in the thousands.”

A state Insurance Department report on the investigation said Farmers had begun an effort in 1994 to rebuild its financial reserves after a series of natural disasters, including a California earthquake near Northridge in January 1994. Its efforts included special employee programs targeted at cutting claims payments, according to the report. “A potential conflict of interest was created between meeting these goals and effectuating a prompt, fair and equitable settlement of each individual claim on its merits,” the report says. Customers who learn of the Insurance Department’s investigation and believe Farmers may have handled their vehicle claims unfairly can ask the agency to investigate those complaints. It is also possible that the policyholders would have grounds for civil litigation against Farmers.

Source: Insurance Journal

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