As I mentioned in part one of this series of articles, Corporate Body Snatching and Client Rustling - How Insurance and Investment Companies Steal Clients For Huge Profits, nearly everyone has some sort of insurance product. Here, I'm focusing on how people may be manipulated and scammed with Property and Casualty Insurance, most commonly known as Auto and Homeowner's.

Auto and homeowner's insurance functions a lot like health insurance. If the insured never makes a claim, the premiums paid are nearly pure profit because the company doesn't have to pay out anything. Imagine this kind of insurance company as a large pool of money that's being fed by a constant stream of premium dollars flowing into it. When something unfortunate happens to one of the premium payers, the company removes a pre-agreed amount of money and gives it to the client. The total settlement given to the client is nearly never equal to 100% of the loss due to the deductible stated in the insurance policy. Anyone who has filed an accident claim will know how this system works. What most people don't realize is how they can be manipulated into accepting less compensation than they deserve.

Basically, any kind of insurance is simply a promise to cover the risk of financial loss due to accident, health problems, liability, or death. Only items of value can be insured against loss, and only legitimate claims are honored. Even animals can be insured. A horse breeder once insured the life of his prizewinning stallion for $100,000. After it died suddenly, he promptly filed a claim for the loss. When the insurance claims adjuster examined the horse, he found a bullet wound in its head. An inquiry uncovered that the horse could no longer sire offspring, so the breeder shot it, believing that he could collect the $100,000 of coverage. The insurance policy on the horse was for untimely death due to health or accident. All the breeder redeemed for his poor judgment was what the slaughterhouse gave him. When you buy insurance, it pays to understand what you're paying for and how it works.

As seen with the unfortunate victims of hurricane Katrina, who were told that uninsured storm surge destroyed their homes, not high winds and pounding rain, many insurance companies will use whatever means are available to deny claims. These companies didn't become multi-billion-dollar corporations by being generous with their clients. They'll find many excuses to keep the money until the last possible moment. If one of the policyholders files a claim for an auto accident or some damage to their home, the claims adjuster is instructed to do whatever possible to disqualify it. If there's no way to avoid paying, some companies give adjusters monetary incentives in the form of a percentage of the claim to negotiate the lowest possible payment.

Here's a good example of how the settlement process might work. A severe storm with large hail damaged a client's new roof. Instead of the insurance company paying the full $5000 to replace the shingles, the claims adjuster convinced the client to accept $500 less because a tree branch had also fallen on the roof. The client's homeowner's policy clearly stated that a tree hitting a house is considered an Act of God and isn't covered. The adjuster pocketed half the difference, or two hundred fifty dollars, as a bonus for his extra effort to save the insurance company money. Of course, the company never informs the clients of any recourse other than to accept whatever the adjuster offers them. If any company employees tell their clients that they can appeal their claim settlement to the state's Director of Insurance, they are likely to be fired on the spot.

You may ask yourself why anyone tolerates such unethical treatment? Many insurance companies take the broad, long-term viewpoint that ignorance and intimidation have intrinsic value. When clients are confused and frightened enough, they don't complain or make claims, even when they're entitled to the money. Those who do file more than three claims in a three-year period on either or both of their auto and homeowner's insurance may find their coverage terminated when their next renewal date comes up. Since state auto licensing, loans and home mortgages demand coverage, unexpected cancellation by a company can send the client scrambling to get whatever insurance they can find.

Most people don't make three accident claims within three years. So, to discourage as many claims as possible, unscrupulous companies count someone calling the customer service department with an innocent question as a damage claim. They use the excuse that if someone asks the question, they really have a potential damage claim and are trying to find out if they'll get more money than the cost of their deductible if they file. Statistically, clients who ask questions are the ones who want service and make claims. Time is money. The fewer customer service reps and claims adjusters who are employed, the less profit the insurance company is wasting on their salaries, health and retirement benefits.

Auto and homeowner's insurance are generally looked upon as something everyone hopes they don't have to use. But what happens when clients have to take their business elsewhere? That's when they realize they're wearing golden handcuffs. When someone's policy is canceled, they are usually condemned to buying high-risk insurance because no company wants accident-prone customers. If they can get some company to insure them, those high-risk premiums are generally three times what they were normally paying. If a client complains that they can't afford to go elsewhere, some insurance companies may offer to take them back into their own high-risk sub-company at a cost slightly lower than any other company would charge them. So, the client is now paying over twice what they were before their coverage was canceled.

Something that makes clients even less likely to change insurance companies is when they own other forms of insurance with the same company. Company profits depend on those millions of premium dollars continuing to flow in. If a client is paying for life insurance policies, and adding to IRAs and annuities, canceling everything and going elsewhere can be a daunting and costly prospect.

The loss of a life insurance client isn't of primary concern, because that immediately relieves the company from the obligation of paying out thousands of dollars in death benefits, plus they don't have to refund all the money that was paid in premiums over the years. Annuities and IRAs are a different matter. Insurance companies have a large portion of annuity capital invested to give them the maximum income on the clients' money. So, to encourage clients not to cancel any of their policies, companion discounts are offered on auto and homeowner's insurance premiums. It's an incentive for even those paying for high-risk insurance to keep all their policies.

The iron key that locks the golden handcuffs is that policyholders are too frightened to make any claims because it will cost them more to take their business somewhere else. They will just continue paying their premiums and hope that they never have to make a claim. Plus, by having so few clients making claims, the company will have to pay fewer bonuses to the accident claims adjusters. It's a sweet moneymaking machine that's greased with intimidation, and enslaves the clients with their own money.

So, how can you protect yourself against unscrupulous insurance companies? Here are a few tips. Educate yourself! Carefully read all of your current insurance policies. Review your coverage with your insurance agent or customer service department. Ask how claims are defined and handled. Get competitive bids and claims details on coverage from other companies. Call your state's Department of Insurance to understand how they may help you if you have any type of dispute with an insurance company. Your financial stability may depend on it. And remember, you never know how good your insurance company is until you make your first claim.