Insurance Scams

Americans are required to pay for car insurance as a condition of driving. Yet very often, insurance doesn’t pay out when policy holders file a claim.

45% of auto liability and medical claims closed last year went unpaid by insurers, according to a Wall Street Journal analysis of thousands of company regulatory filings. That rate might change slightly as open claims are resolved, but it represents an increase from 35% a decade ago.

Frequently, these claims are closed without payment for technical reasons.

When Christopher Benton hit another car and had a “little bumper accident,” he assumed his $5,000 liability-coverage insurance claim would sail through. But Allstate-owned National General refused to pay a cent.

The reason? Benton failed to list his 15-year-old son, who wasn’t in the car during the accident and doesn’t have a license, on his policy application.

Both Benton and his broker were unaware of this reporting requirement until after the accident.

Benton is now part of a class action lawsuit against National General that alleges its applications are designed in ways that set policy holders up for future denials.

Insurers and consumer advocates disagree on why the odds of getting paid for claims have worsened.

For its part, the insurance industry is pointing the finger at attorneys.

“People are going to litigation as a first step, instead of a last resort,” said Sean Kevelighan, chief executive of Insurance Information Institute.

Plaintiff lawyers, on the other hand, say they are being made the scapegoat for a problem created by insurers.

“Litigation is increasing because more claims are being denied—not the other way around,” said John Morgan, founder of Orlando, Fla.-based law firm Morgan & Morgan.

Consumer advocates also suggest that insurers are seeking to boost profits by being tougher with claims.

Personal auto insurers last year paid out around 61 cents in claims for every dollar in premium, their lowest so-called net loss ratio since 2020, according to S&P Global Market Intelligence.

The claims that are most often denied are those for liability and medical coverage. These are typically more complicated, more likely to involve lawyers, and more expensive than those for auto damage.

This is deliberate, as Michael Zaremski, an insurance analyst at BMO Capital Markets, says insurers “put more guardrails in place” for such claims, thus increasing the odds of disputes that result in no payment.

Among the 10 biggest auto insurers, Farmers, Liberty Mutual, and State Farm had the biggest increases in no-payment rates for liability and medical claims over the past decade, the analysis found.

Location also has a big influence on the odds of no payment for auto claims. Drivers in Hawaii and California were last year almost twice as likely not to get paid on a resolved claim as those in Michigan, the analysis found.

This is because state regulations, such as caps on attorney fees that curb litigation, can affect nonpayment levels, industry bodies said. So, too, can deductibles, with higher average levels for a state likely to lead to more claims closed without payment, they added.

The insurance industry argues that there are many reasonable explanations for claims closed without payment, such as when a claim is paid by the other driver’s insurer, withdrawn by customers, outside the policy terms, or for less than the deductible.

Still, the data suggests that the level of nonpayment is rising. This should be concerning for all policy holders, and it mirrors what’s happening to homeowners and their insurance coverage, as the Journal has previously reported.

As Christopher Benton, the man who was in the minor car accident, said, “It doesn’t seem right they can just not pay.”