A new insurance scam

INSURANCE COMPANY ADS typically show a smiling agent comforting a family outside of a burning house. It's OK, the message says: We'll put your life back together. You are, in the words of the famous Allstate slogan, in good hands.

But that's not what happened to two San Francisco families – and their stories, recounted in nearly identical lawsuits, point to what consumer advocates say is a serious and growing problem in the home insurance industry. As A.C. Thompson reports on page 21, in an effort to contain costs, Allstate (and apparently other insurers) is working with contractors who, the lawsuits allege, do shoddy work, don't replace burned lumber, and spend years repairing houses. In the case of Aubrey and Emilia Blair, who are suing Allstate and Spiteri Builders Corp., reconstruction after a 1999 fire is still far from complete. After four years the octogenarian couple still have no place to live.

Several years ago Allstate became one of the first insurers to use a computer program (called Colossus) to evaluate personal injuries caused by car crashes. The program, consumer advocates charge, is geared to generate the lowest possible payment. Internal Allstate documents contain glowing reports of how the plan has saved the company huge amounts of money – at the expense of policyholders.

The state insurance commissioner and the legislature should investigate whether that same trend is taking place in homeowners insurance – whether, as some charge, Allstate is cutting deals with less than reputable contractors to keep home-repair prices down. The time to do that is now, before more homeowners get screwed.