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* Insurance companies which charge higher premiums to their most loyal customers, and are being stopped in other states, but not in Illinois…

Last month, Connecticut became the 16th state to issue a bulletin barring insurers from using “price optimization” in ways that would charge customers with the same risk profile different rates based on their propensity to shop or their likelihood to switch providers. Indiana took similar action in July.

Anne Melissa Dowling, Gov. Bruce Rauner’s choice in May as insurance director, came from Connecticut, where she had been acting director of that state’s Insurance Department.

In a statement, the Illinois department says: “As there is no agreed-upon definition as to what is entailed in the term ‘price optimization,’ we don’t plan to address an undefined notion. We are, however, aware of many new and innovative pricing models, responding to the market demand for more individualized pricing.”

* Crain’s looks at a growing “industry”…

In 2013, though, Keller stepped off the path again, this time with Adam Gerchen, whom he had met at Alyeska Investment Group, a Chicago hedge fund. Together they founded Gerchen Keller Capital to finance litigation in exchange for a cut of the resulting judgment or settlement. Gerchen, 34, is CEO, and Keller, 36, managing director. Travis Lenkner, 36, joined soon after as a partner and managing director.

Gerchen was a former Goldman Sachs banker and Harvard Law School graduate who had never practiced law, while Lenkner, a senior counsel at Boeing, knew Keller from their time clerking together for Supreme Court Justice Anthony Kennedy. The trio’s collective background was dubbed “resume porn” by David Lat, founder of legal news and gossip website Above the Law.

Today, Gerchen Keller Capital is the largest firm of its kind in the world. Starting out with $100 million from a dozen investors (two were anchors), the Chicago-based business has grown to $1.4 billion in assets under management. In addition to funding early stage lawsuits, it buys legal fee, judgment and settlement receivables from finished cases. It has invested an average of $6.7 million per case since inception and an average of $10 million per case in the past year. The pension fund for Michigan’s state employees has invested $3.5 million with it, and Texas’ pension fund has put in $28.7 million. The firm is profitable, Lenkner says.

The rise in litigation financing in the last decade has attracted attention from lawyers, investors, clients, business lobbyists and the U.S. Senate. There’s the potential to make serious money: Burford Capital and IMF Bentham, public companies based in the United Kingdom, boast respective returns of 71 and 158 percent. There’s also the potential for serious humble pie: Juridica Investments in Guernsey announced in November it would stop investing in new cases after it poured $3.5 million into a trade secrets case expected to yield $9.4 million—and got $2 million back instead. In August, Republican Sens. Chuck Grassley of Iowa and John Cornyn of Texas sent a letter to Burford Capital execs demanding to know the scope of its investment in U.S. cases.

* And Pro Publica looks at workers’ comp “cost containment” companies…

While lawmakers have clamped down on payments to workers, doctors and lawyers, little scrutiny has been given to these “cost containment” firms — even though today they arguably have more influence on how injury benefits are handled than insurers and employers.

Highlighting the bounty, there are now more than 150 workers’ comp conferences a year. There’s one for the American Society of Workers Comp Professionals, one for the Association of Workers’ Compensation Professionals and one for the Association of Workers’ Compensation Claims Professionals. At least 26 have golf tournaments. […]

Last year, workers’ comp insurers in California spent 36 percent of premiums on overhead — more than they spent on medical care. That’s over twice what group health plans can spend on administrative costs under the Affordable Care Act.

A glimpse of the Vegas expo shows why. There were companies that provide networks of doctors and companies that review medical bills, firms that provide expert medical opinions and firms that specialize in complex claims. There were defense lawyers, data processing firms, rehab facilities, surveillance companies, outside claims shops, occupational medicine clinics, pain management services, translators, schedulers, headhunters and associations promoting other conferences.

There were labs that test injured workers’ urine for illegal drugs. There were even labs that test urine to ensure workers are taking the prescribed drugs instead of selling them.

In California, the amount of money that insurers spend on medical cost containment programs has more than doubled from $197 million in 2005 to $471 million in 2014, according to the state workers’ comp ratings bureau.

posted by Rich Miller
Wednesday, Jan 6, 16 @ 9:53 am

Comments

This is what the end of growth in a growth based economy looks like.

When all the cheap land has been developed and all the transformative ideas have become inventions, the most ambitious members of society turn into cannibals (masked as productivity) and prey on the rest of society. Rent seeking behavior, monopolies, this is what the future holds until our economy is restructured to redefine and reward true productivity

Comment by railsplitter Wednesday, Jan 6, 16 @ 10:07 am
As for Insurance, whether it be Homeowners or Auto, if one of the biggest ripoffs in the country for consumers. I just had a conversation with someone yesterday about this. We really are in desperate need some much needed regulation of that industry, with consumer protection in mind. Don’t expect any help from this Administration though. Unless you’ve been living underground for the past year you would realize that the Governor is not on your side if you are an average working guy.

Comment by The Dude Abides Wednesday, Jan 6, 16 @ 10:07 am
Illinois has some large insurance companies located here, State Farm, Allstate, etc.. They have a lot of influence over lawmakers, and a friend in Rauner. In Illinois, the insurance companies don’t even have to show the state regulators their books on W/C. Don’t expect any changes to that, they have a friend in Rauner, who will veto anything the insurance companies don’t like.

Comment by DuPage Wednesday, Jan 6, 16 @ 10:08 am
Regarding the insurance issue, I’m not sure we need legislation to prevent insurance companies from charging more to those identified as unlikely to shop around. People need to shop around for the best rates and I don’t know if government needs to, in this particular case, protect us from ourselves.

Comment by Just Observing Wednesday, Jan 6, 16 @ 10:17 am
@Just Observing, you can shop around and find a company that will offer you a rate a little lower than what you are currently paying. Once you go with the new company though, they will begin to gradually raise your rates, regardless of your driving record or if you have never made a claim. Soon you find yourself paying as much as you were with your old company. That’s what is going on and we do need consumer protections.

Comment by The Dude Abides Wednesday, Jan 6, 16 @ 10:23 am
The Insurance lobbyists are the scariest juggernaut in Springfield, when they want to really push or avoid something. The NRA or Exelon are easy in comparison.

Comment by walker Wednesday, Jan 6, 16 @ 10:26 am
They call themselves a “cost containment” company? Whoa.. They are more like an entertainment company.

Comment by Mama Wednesday, Jan 6, 16 @ 10:31 am
BTW Just saw “The Big Short.”

Great movie for explaining what drove the financial and economic crash of 2007, and in explaining what esoteric financial terms actually mean in everyday language. Only shortcoming was that they didn’t make clear the role AIG and other insurance companies played in creating the fraud and encouraging the delusions that led to the crash.

Comment by walker Wednesday, Jan 6, 16 @ 10:33 am
Dude - but costs to insurance motorists and home owners do actually go up, so someone has to pay for that. Cars are more expensive than ever and the amount it takes to repair a vehicle at a body shop is outrageous. The amount it takes to repair or reprogram computer systems is equally as bad. Who pays for that?! The majority of it - unless you have a $1,000+ deductible - comes from the claims pool. Last year I was in what I would consider a relatively minor fender bender. The kids and I were safe, and no engine damage was done. $3,300 later my old and crappy (yet paid off) car was fixed. I paid $500 out of pocket, and because I was not ticketed my rate stayed within a dollar or so from where it was before the accident. So my insurance company picked up a $2,800 tab - and a new car seat, too - for something that was not a serious and/or life threatening accident.

I pay about $800 or so a year to fully insure my house, which is worth $130,000 (give or take). If my house burns down, my insurance will build me a house worth $160,000. My deductible is a whopping $1,000 for that. Again - if that happened, my company would be on the hook for an enormous amount of money and my obligation (sans premiums) is pretty minimal. And my credit is not great, either, so I would imagine my rates would be better if my credit score jumps.

Comment by Anonymous Wednesday, Jan 6, 16 @ 10:36 am
10:36 was me. For some reason, my computer is not saving my name when I post.

Comment by Team Sleep Wednesday, Jan 6, 16 @ 10:38 am
These multi-billion dollar companies thrive in the current government culture which believes in a fantasy that fraud within our system is so rampant, we could balance our budget if it was rooted out.

The current governor - a “businessman” - was elected telling us this. We have millions of citizens believing that their taxes are too high because of fraud, inefficiencies, unions and corruption.

Good old Bill and I were polar opposites on many issues, but we both were in harmony when discussing the need to find the means to pay for new government policies and programs. When we have governors borrowing billions so that they don’t have to tell Illinoisans that they can’t life free, they end up doing what we see is out situation today.

These companies are manifestations of decades of myths, based upon the idea that our current governments are so broken down they need to be completely replaced. “Shaking up” is how it was sold to voters two years ago.

“Madiganistan”, evil “Communes”, Democratic-AFSCME cabals, are all being blamed for what is in essence a fraud rate so low, we are losing money hiring these middlemen to root it out.

These companies know it, and they are living it up.

Voters are getting cynical, and they have a right to be cynical. It isn’t because they are being robbed blind in their taxes - it is because they are being constantly lied to about how governments function. Rauner is rich breaking organizations into pieces he can sell. He looks at our state government and wants to do the same.

HMS is making millions demanding that civil servants prove to them, what has already been proven to the IRS annually. They were contracted to bring their snake oil wagon into Illinois and have their heyday hawking fraud relief.

How much fraud has HMS uncovered so far? I bet it won’t cover the contracted cost.

Comment by VanillaMan Wednesday, Jan 6, 16 @ 10:40 am
No one likes insurance companies, and the commenters on this thread show it. Even people who work in that industry don’t have warm and fuzzy feelings about their employers. But insurance serves a vital purpose, the long-term profit margins are thin, and this latest kerfuffle allows the populists to show their flag again. It will blow over, as it always does.

Comment by 39th Ward Wednesday, Jan 6, 16 @ 10:49 am
medical cost containment. My wife’s doctor scheduled a routine CT scan at the hospital for her. The insurance company called. Northwestern wanted $4100 for the scan. A reputable firm would do it for $250.00. Asked us to make a change. Is Northwestern worth the additional $3800? How would I know?
But if we want to control health costs we need to ask some questions

Comment by jeffinginchicago Wednesday, Jan 6, 16 @ 11:04 am
= finance litigation in exchange for a cut of the resulting judgment or settlement.=

That seems only to serve the purpose of encouraging lawsuits. The finance sector has gone haywire.

Comment by JS Mill Wednesday, Jan 6, 16 @ 11:14 am
== No one likes insurance companies, and the commenters on this thread show it. ==

We don’t like them when we are paying the premiums. I will note my independent agent does shop it around for me every couple of years and usually finds I do have the best, or close to it, premiums for what I need covered. It’s not worth switching companies for $40 - $50 a year savings.

I run hot and cold on insurance companies paying off claims based on various experiences. Car insurance - my company has been good but others, including one of Illinois biggies, have really tried to stiff me on repairing a classic car until I forced the issue with a threatened lawsuit. Homeowners - they were very good with my 2006 tornado claims. Health insurance - good coverage overall but just slow payment on the state related stuff.

But I’ve liked insurance companies in the past when I owned insurance company stock and made money from it. So most of us have a love / hate relationship with our insurance companies.

Comment by RNUG Wednesday, Jan 6, 16 @ 11:26 am
Wait until you find out that you are assigned a percent of blame even if you aren’t ticketed. And it happens without you knowing it, between drivers’ insurance companies. Then they can both raise your rates.

Comment by NoGifts Wednesday, Jan 6, 16 @ 11:51 am
I’m sure the fellows at Gerchen Keller are upstanding businessmen, but the “litigation finance” people (sorry, I didn’t get their name) who happened in to the law office where I work look like they just came from a visit to Satriale’s Pork Store.

Comment by Cheswick Wednesday, Jan 6, 16 @ 12:39 pm
I was reading about “price optimization” just before I added my 16-year old to my auto policy. Allstate wanted to triple my auto and remove my retiree/senior discount, after being a customer for 40+ years. I decided it was time to shop around and State Farm came in at $1900 less annually for my three policies. I talked to my since retired agent and was told they don’t care about long-time customers, only new ones.

Like RNUG said, I would never have thought about it for a few dollars, or even a few hundred, but thousands? I’m loyal to a point.

Not sure if “price optimization” was the reasoning here, but it all fits. And I’m sure I’ll see increases in the future with State Farm but isn’t that the case with everything? If they do and it’s exorbitant, time to shop again.

As for regulation, not sure how I feel about that right now. How do you prove a company is doing it? It’s sad though that a company can’t respect a loyal customer who hasn’t had but a thousand dollars of claims over all those years.

Comment by Finally Out (and now very glad to be) Wednesday, Jan 6, 16 @ 1:12 pm
-Finally Out-,

Unfortunately, if you’ve been a loyal customer with minimal claims, all that means to the insurance company is that you are statistically overdue for a big claim that will cost them money.

Comment by RNUG Wednesday, Jan 6, 16 @ 3:31 pm
Looks like Worker’s Comp isn’t about helping injured workers, it’s more about the parties and golf outings. 36% of the premiums go to overhead, more than medical care while Illinois Businesses were wondering why the savings from the 2011 reforms never reached them.

I wonder why the Illinois Policy Institute doesn’t run this story?

Comment by Chicago 20 Wednesday, Jan 6, 16 @ 4:05 pm
RNUG, exactly right, Combining actuarial science and profits in one place is never gonna work out well for the little guy in the long run.

Comment by Arthur Andersen Wednesday, Jan 6, 16 @ 4:07 pm
@Finally Out 1:12. =…added my 16-year old to my auto policy.=

I had a similar “gotcha” on adding a 16-year old driver a couple decades ago, so these rate games have been going on a long time. When my oldest was 16, he was not primary on any of our cars. He was actually secondary on the oldest car that I drove to work. However, since he was not declared primary on any car, the billing computer figures all possible rate combinations and bills you the highest. In my case it listed my 16-year old as the new primary driver of our new car, without showing it on the bill. After telling the agent I got a much lower quote from his competitor, he blamed it on “the computer” and lowered the rate way back (about 60%). Obviously they already knew about their “computer problem” and were deliberately throwing the very highest bill at me and seeing if I would pay it without question. As the saying goes, you start off in good hands, but eventually they just give you a finger.

Comment by DuPage Wednesday, Jan 6, 16 @ 4:17 pm
Insurers realize that every instance of fraud and waste they can turn into a news story has millions of dollars of PR benefits fir the whole industry. They are playing the long game.

Comment by The Way I See It Wednesday, Jan 6, 16 @ 7:37 pm
–But insurance serves a vital purpose, the long-term profit margins are thin,–

We should all be so thin. The big health insurers are on a bull run of record profits and their stocks are through the roof.

Comment by wordslinger Wednesday, Jan 6, 16 @ 7:42 pm
@NoGifts, you’re exactly right. They all got together years ago and agreed (read colluded) that merely being in the wrong place at the wrong time constitutes “fault” to some degree. Or so it was explained to me in ‘83 pursuant to a rate increase (marginal, but still) after being rear-ended by a DUI driver while stationary at a red light to the tune of $6k in damage.

Comment by HeraC Wednesday, Jan 6, 16 @ 8:02 pm