The People’s Billion-Dollar Bully (Part One): How Insurers Took the Little Guy’s Side to Beat Him Down

by Sean Preston, Coverall Law

Introduction: The Hands That Hurt

“If you don’t like what’s being said, change the conversation.” That line from Mad Men’s Don Draper could have been the slogan for the modern insurance industry. Over the past few decades, insurers have done more than just change the conversation – they’ve rewritten the script. While their public image leans hard on polished slogans and friendly mascots, positioning themselves as guardians of the “hardworking policyholder,” the reality inside claim centers and repair negotiations tells a different story. Behind the branding is a business model increasingly geared toward suppressing claim payouts, not facilitating fair restitution.

What began as an industry rooted in financial protection has mutated into one defined by financial engineering. Today, insurance carriers operate in a market where pricing is locked in by regulatory frameworks and public expectations. Unable to compete meaningfully on premiums, carriers have turned inward, finding profitability in the only flexible part of the equation: claim payouts. It’s no longer just about risk management – it’s about cost containment, often at the expense of the very people insurers claim to champion.

This transformation didn’t happen in a vacuum. It was shaped by pivotal court rulings, like the Massachusetts Supreme Judicial Court’s 1952 decision in Massachusetts Bonding and Insurance Co. v. Commissioner of Insurance, which made clear that insurers were on their own when it came to securing profitability. It was accelerated by consulting powerhouses like McKinsey & Co., who in the 1990s armed carriers with methods to aggressively limit payouts while maintaining a veneer of customer care. And it has been allowed to calcify through tepid regulation that too often reacts to crisis rather than preventing abuse.

In this article, we’ll unpack how a combination of legal, economic and strategic forces laid the groundwork for a claims environment that is more adversarial than supportive. We’ll explore how insurers reframed themselves as underdogs fighting against “fraud” and “inflated repairs”– only to punch down at small repairers and policyholders. And we’ll examine how commoditization in the insurance market didn’t drive innovation or service – it drove delay, denial and systemic undervaluing. The industry may talk like it’s on your side, but in the ring, insurers wear boxing gloves you never saw coming.

The Legal Foundation: Massachusetts Bonding (1952)

The story of insurers turning inward to squeeze claims costs begins not with a modern spreadsheet but with a 1952 courtroom. In Massachusetts Bonding and Insurance Co. v. Commissioner of Insurance, the Supreme Judicial Court of Massachusetts dealt insurers a foundational ruling – one that would shape how the industry calculated profit ever since. The Court affirmed that the state’s insurance commissioner was not responsible for ensuring insurer profitability. Instead, his statutory mandate was to set rates that were neither “confiscatory” nor “extortionate,” placing his duty squarely within a narrow band of fairness: “The statute imposes upon the commissioner the duty of fixing a rate that lies somewhere between the lowest rate that is not confiscatory and the highest rate that is not excessive or extortionate.”

In essence, the Court told insurers: you’re on your own. If market conditions, rising claims or increased costs make your business model unsustainable, the remedy isn’t a regulatory bailout – it’s internal adaptation. And adapt they did. With premium rates effectively capped and judicial review deferring to regulatory discretion, insurers had only one variable left to manipulate: the claims side of the ledger. Every dollar not paid on a claim became a margin-saver.

Over the next several decades, insurers increased premiums wherever they could, and by the 1980s, the results were plain: skyrocketing insurance costs triggered consumer panic. This led to legislative upheaval across the country, most notably in Pennsylvania, where a legislative overhaul slashed basic coverages and imposed rate freezes and rollbacks. For instance, the 1990 Pennsylvania Motor Vehicle Financial Responsibility Law cut first-party property damage limits from $10,000 to $5,000, a measure that remains today, leaving policyholders dangerously underinsured in modern repair markets.

But here’s the difference between insurers and repairers: insurers, by virtue of scale, structure and strategy, have options. Insurers can achieve profitability in a controlled-rate environment through investment income, operational efficiencies, diversification and underwriting precision. They can weather regulatory storms through geographic and product-line hedging. Body shops, by contrast, have only one path to profitability: fix the car correctly and get paid fairly.

That’s what makes the 1952 decision so pivotal. It didn’t just limit rates – it embedded an incentive into the system. It effectively pushed insurers to become financial engineers, cost suppressors, and eventually – with help from consultants like McKinsey – claims tacticians. What began as a regulatory guardrail has now become a structural reality: insurers don’t just respond to claim costs, they design around them.

Warren Buffett’s Blueprint: Profiting from Float

Warren Buffett has long held a singular admiration for the insurance business – not because of the risk-spreading model or the noble ideal of financial protection, but because of one key advantage: float. As he once remarked, “The insurance business is the most attractive in the world if you can manage to break even on the underwriting side.” What Buffett understood – and what insurers have since mastered – is that profitability in insurance doesn’t depend solely on the quality of coverage or even the accuracy of underwriting. It hinges on the ability to hold vast sums of money, delay paying it out and invest it in the interim.

Float refers to the premiums collected upfront that don’t immediately need to be paid out in claims. In theory, that money is held in trust for policyholders. In practice, it becomes a powerful revenue stream. As long as the insurer can avoid catastrophic missteps on the underwriting side, it enjoys the luxury of investing those dollars – often for years – before they are paid out. And because insurers operate in a heavily regulated environment where pricing flexibility is limited, the pressure to generate returns shifts away from underwriting profit and squarely onto investment income.

That pressure is paying off. In recent years, insurers have seen some of the fastest gains in investment income in decades. In 2023, US life insurers reported that investment earnings made up nearly 30 percent of their total income. AIG reported a 14 percent increase in net investment income in Q3 of 2024, while Cincinnati Financial saw a 24 percent jump in bond interest income in Q1 of 2025. Even State Farm, which posted a $111 million pre-tax operating loss in 2024 due to underwriting deficits, still booked $6 billion in investment and other income – enough to soften the blow and reinforce the strategy.

The power of float has been magnified by recent macroeconomic conditions, especially the Federal Reserve’s rate hikes, since 2022. Higher interest rates have made insurer bond portfolios more profitable and reinvestment opportunities more attractive. And while smaller players – such as independent repair shops – tighten belts to stay afloat in the face of delayed payments and contentious claims processes, large insurers are using those same delays to generate yield.

Float is not merely a structural advantage; it’s the foundation of the modern insurance profit model. This helps explain why insurers are so relentlessly focused on controlling payouts. Every claim deferred or underpaid means more capital left in the system – and more time for that capital to earn. What Buffett identified as the “most attractive” part of the industry has become the linchpin for a business model that treats claims not as obligations to fulfill, but as investment interruptions to manage.

McKinsey’s Takeover: Boxing Gloves for Everyone

In the 1990s, insurance giant Allstate hired McKinsey & Company to help reimagine its claims operation – not to better serve policyholders, but to maximize profitability. What emerged was an industry playbook that would spread far beyond Allstate, influencing how major insurers across the country would handle claims. At the heart of McKinsey’s strategy was a disturbing duality: offer fast, small settlements to those who took the first deal and unleash aggressive, delay-heavy tactics on those who resisted. Internally, this was known as the “Good Hands or Boxing Gloves” strategy – a reference to Allstate’s iconic marketing slogan. The transformation was clear: the company that promised to protect you in your time of need was now prepared to fight you if you stood up for your rights.

McKinsey’s training materials were damning. “Hold down payments, and the customer will walk away,” one slide advised, encapsulating the philosophy that underpaid, frustrated claimants would ultimately give up. Other directives urged insurers to “align alligators” – a euphemism for weaponizing legal resources – and to “sit and wait,” leveraging time itself as a means to starve out settlements. These weren’t just theoretical frameworks. They were executed in courtrooms, through software like Colossus that undervalued injuries, and by fostering a culture where resistance to legal counsel was not only encouraged, but expected. Claimants were told they were on the side of the little guy – the company “fighting fraud” – even as they were being boxed out of fair compensation.

This shift – from a service model “for the benefit of policyholders” to one “for the benefit of shareholders” – didn’t just change Allstate; it became, as Doug Quinn, executive director of the American Policyholder Association (APA), testified before Congress, “the industry standard.” Quinn, a former industry insider turned advocate, experienced firsthand the devastating effects of insurer misconduct after Superstorm Sandy. He detailed how engineering reports were falsified, adjusters silenced and policyholders systemically underpaid or denied coverage. “It’s not an isolated incident or a few bad apples,” he testified. “It’s systemic. Worse – it’s industry wide. It has been for decades.”

The results are predictably grim. Delays, denials and drawn-out litigation don’t just wear down policyholders – they destroy lives. The strategy works because it’s built on psychological attrition. It counts on the average claimant being too exhausted, too intimidated or too broke to keep fighting. Even in the face of media investigations, government scrutiny and occasional legal victories, the broader machinery continues unabated – because, financially, it works. As McKinsey’s zero-sum logic suggests: “Allstate gains – others must lose.”

In this environment, what began as a consulting initiative metastasized into an ethos: that the best way to serve policyholders is to treat them as potential adversaries. And while some McKinsey alumni have since distanced themselves from the harshness of the approach, the legacy remains baked into claims operations across the industry. The boxing gloves, once metaphorical, are now standard issue. (For further reading, see From Good Hands to Boxing Gloves: The Dark Side of Insurance and From “Good Hands” to Boxing Gloves: How Allstate Changed Casualty Insurance in America by David Beradinelli.)

Be sure to check out part two next month which will dive into the advertising and branding tactics of the insurance industry. 

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