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Why Do Insurance Companies Delay Claims?

Insurance companies are for-profit businesses that function by selling paid promises of coverage for specific events. For example, a driver pays for auto insurance that covers damages in the event of an accident, and the premiums that driver pays fluctuate based on his or her perceived risk level. Insurance companies exist to make money, and paying out on claims loses money. This unfortunately encourages some insurance agents to engage in bad faith practices, the most common of which are delay tactics.

An Arizona insurance claim lawyer can help a policyholder understand his or her policy and determine when bad faith has occurred.

Common Delay Tactics and the Reasons Behind Them

When an insurance company delays claims, it works to the company’s advantage in several ways. Primarily, delay tactics essentially bully policyholders into accepting lower settlement amounts than they rightfully deserve. After any covered incident, the economic repercussions will continue to mount and increase the financial strain following the incident. This unfortunately creates a sense of desperation that a policyholder must take whatever he or she can get as soon as possible to avoid mounting financial woes.

Insurance companies also generate revenue by investing the money paid in premiums by policyholders. Generally, the money an insurance company receives in premiums goes into investment accounts that generate interest. The insurance company retains this money until the time they pay out to a policyholder, so an insurance company may delay a payout to secure as much interest revenue as possible.

Some insurance companies may simply delay claims in retaliation against a policyholder for exercising his or her rights to coverage. These delays can take many forms.

  • Unreasonably delaying responding to claims
  • Poor implementation of established investigation and claims processing
  • Delayed communications in regard to submitted claims
  • Misrepresenting aspects of a claim or a policy in an attempt to delay proceedings or in an attempt to encourage the claimant to drop the claim or accept a lowball settlement offer

Ultimately, the longer an insurance company delays paying out on a claim, the more the company makes in premium payments, interest growth, and potential accepted lowball offers from desperate claimants. It is vital for all insurance policyholders to understand their rights and the duties of insurance companies, and they should also know how to identify bad faith practices.

What You Can Do About Insurance Bad Faith

Policyholders can do several things to protect themselves from incidents of bad faith. The first is prevention; thoroughly research an insurance carrier before purchasing a policy from that carrier. Look for past lawsuits against the insurer for bad faith claims and see what policyholders have to say about working with the insurer. If you notice any patterns of bad faith issues or unhappy policyholders, it may be best to look for insurance elsewhere.

If you encounter any issues with an insurance claim and suspect bad faith, an Arizona insurance claim lawyer will be your best asset. A good attorney can help positively identify insurance bad faith issues and potentially resolve these problems before they turn into full-fledged lawsuits. In many cases, an attorney drafting a letter accusing an insurer of bad faith can be enough to encourage a more favorable response.

Insurance companies prefer to pay on claims instead of risking expensive litigation and damage to their reputations that are likely to arise from lawsuits. Sending a difficult insurance company a solidly constructed letter accusing them of bad faith, signed by an attorney, is generally the best way to encourage a more fair and reasonable response. Anyone who suspects insurance bad faith practices from an insurer in Arizona should consult with an Arizona insurance claim lawyer as soon as possible for the best chances of recovery.