How Do Insurance Companies Take Advantage of Their Customers?
Insurance industry misconduct costs Americans an estimated $308.6 billion every year, according to a study commissioned by the Coalition Against Insurance Fraud and cited by the National Association of Insurance Commissioners.
That figure includes both consumer-side fraud and insurer-driven practices that reduce or deny legitimate claims. The financial incentive for insurers is enormous.
The U.S. property and casualty insurance industry recorded a $35 billion net underwriting gain in the first nine months of 2025, on $740.7 billion in net premiums written (AM Best, 2025). Every dollar an insurer avoids paying on a claim goes directly to its bottom line.
Professor Jay Feinman of Rutgers Law School documented the industry’s systematic approach in his book Delay, Deny, Defend. The playbook is straightforward: stall the claims process, reject valid claims on technicalities, and aggressively fight claimants who push back.
Here are the seven most common tactics insurance companies use against their own customers.
What Are the Most Common Insurance Company Tactics?
According to a Nolo/Martindale-Nolo survey, personal injury claimants who hired an attorney received an average of $77,600 in compensation, compared to just $17,600 for those who handled claims on their own. That 4.4x gap exists largely because unrepresented claimants are more vulnerable to the tactics described below.
1. Lowball Settlement Offers
The most widespread tactic is making an intentionally low first offer, often within days of the accident. Insurers know that injured people facing medical bills and lost wages may feel pressured to accept whatever is offered — even if it is a fraction of what the claim is worth.
The Insurance Research Council found that claimants represented by attorneys received settlements 3.5 times higher on average than those without legal representation. That gap is not accidental. It reflects how aggressively insurers lowball claimants who do not have a lawyer pushing back on their behalf.
2. Manipulating Damage Reports
A September 2024 CBS 60 Minutes investigation exposed one of the most brazen forms of insurance misconduct: the systematic alteration of damage reports to reduce payouts. Licensed adjuster Jordan Lee testified that 44 of 46 Hurricane Ian damage reports he filed were changed by desk adjusters who never visited the properties.
In one case, Lee’s on-site estimate of $488,000 in storm damage was slashed to just $13,000. A second whistleblower, Ben Mandell, reported that 18 of 20 reports he wrote for a different insurer were similarly altered.
Doug Quinn, executive director of the American Policyholders Association, described these practices as “systematic criminal fraud” in the same broadcast. Policyholders whose reports are manipulated often have no way of knowing their claims were altered unless they hire an independent appraiser or attorney.
3. Delaying the Claims Process
Intentional delays are a core part of the “delay, deny, defend” strategy. Insurers drag out the claims process by requesting redundant documentation, reassigning adjusters mid-claim, and slow-walking approvals. The goal is to pressure claimants into accepting less out of frustration or financial desperation.
In a 2025 Nevada case, a jury awarded $114 million — including $100 million in punitive damages — against USAA after finding the insurer delayed and mishandled a traumatic brain injury claim for years. USAA initially accepted fault but reversed its position mid-litigation, a tactic the jury found constituted bad faith (Expert Institute, 2025).
4. Denying Valid Claims
Some insurers deny claims outright, even when coverage clearly applies. Common justifications include citing policy exclusions the claimant was never clearly informed about, disputing the cause of injury, or claiming the policyholder failed to meet a procedural requirement.
In a 2025 Colorado case, a construction worker who suffered a traumatic brain injury had his transfer to a specialized rehabilitation facility denied by NorGUARD Insurance. The insurer initially covered his emergency care but then refused to pay for the rehab his doctors said was critical. His condition deteriorated significantly.
A jury awarded $145 million, including $60 million in punitive damages (Expert Institute, 2025). The verdict sent a clear message that denying medically necessary treatment carries serious legal consequences.
5. Misrepresenting Policy Coverage
Insurance agents may describe policies in ways that overstate coverage or downplay limitations. Exclusions for specific types of damage, caps on certain benefits, or conditions that void coverage are often buried in fine print that policyholders do not discover until they file a claim.
This tactic is particularly effective because most consumers do not read their full policy documents. The NAIC Consumer Insurance Search tool allows consumers to look up complaint histories for specific insurers before purchasing a policy — a resource that can help identify companies with a pattern of misrepresentation complaints.
6. Using Surveillance Against Claimants
Insurance companies routinely hire private investigators to conduct physical surveillance on claimants. Investigators may follow you, photograph you in public, and record your activities to find anything that contradicts your claimed injuries. Even ordinary activities like carrying groceries or walking your dog can be presented out of context to argue that your injuries are exaggerated.
Insurers also monitor claimants’ social media accounts for photos, check-ins, and posts that can be used against them. For a deeper look at how surveillance works, see our guide on common surveillance tactics used by insurance companies.
7. Pressuring Recorded Statements
Insurance adjusters frequently request a recorded statement shortly after an accident, often before the claimant has had time to consult an attorney or fully understand the extent of their injuries. These statements are designed to lock claimants into a specific version of events that the insurer can later use to minimize or deny the claim.
Adjusters may ask leading questions, press for details you are unsure about, or frame questions in ways that elicit responses favorable to the insurer. In most states, you are not legally required to provide a recorded statement to the at-fault party’s insurance company. Consult an attorney before agreeing to any recorded interview.
What Can You Do If an Insurance Company Is Acting in Bad Faith?
In 2025 alone, juries awarded $145 million, $114 million, and $40 million in three separate bad faith insurance cases across Colorado, Nevada, and Texas (Expert Institute, 2025). These verdicts reflect growing judicial intolerance for insurers that prioritize profits over their legal obligations to policyholders.
“Bad faith” is a legal term for an insurance company’s breach of its duty of good faith and fair dealing. Every insurer has an obligation to investigate claims promptly, communicate honestly, and pay valid claims within a reasonable time. When an insurer violates these duties, policyholders may have grounds for a bad faith lawsuit that can result in compensation beyond the original claim amount — including punitive damages.
If you believe your insurer is acting in bad faith, take these steps:
- Document everything. Save all correspondence, record the names and dates of every phone call, and keep copies of all documents you submit to the insurer.
- Do not accept the first offer. The Nolo survey found that 91% of claimants who hired a lawyer received a payout, compared to just 51% of those without representation.
- File a complaint with your state department of insurance. The NAIC provides a guide to filing complaints and researching insurer complaint histories.
- Consult a personal injury attorney. An experienced lawyer can evaluate whether your insurer’s conduct rises to the level of bad faith and advise you on your legal options.
How Can You Protect Yourself from Insurance Company Tactics?
Consumers can research insurer complaint histories before purchasing a policy using the NAIC Consumer Insurance Search tool, which compiles complaint data from state insurance departments nationwide. Prevention starts with choosing a reputable insurer and understanding exactly what your policy covers.
Follow these steps to protect yourself:
- Read your policy thoroughly. Understand coverage limits, deductibles, exclusions, and the claims process before you need to file a claim.
- Review your policy annually. Life changes — a new home, vehicle, or family member — may require adjustments to your coverage.
- Document all interactions. Keep records of every communication with your insurer, including the representative’s name, date, and what was promised.
- Never give a recorded statement without legal counsel. You are generally not required to give a recorded statement to the opposing insurer, and doing so can harm your claim.
- Get independent estimates. Do not rely solely on the insurer’s damage assessment. Obtain your own repair or medical cost estimates from independent professionals.
- File complaints when necessary. State departments of insurance investigate patterns of unfair claims practices and hold insurers accountable.
Frequently Asked Questions
What is insurance bad faith?
Insurance bad faith occurs when an insurer unreasonably denies, delays, or underpays a valid claim in violation of its duty of good faith and fair dealing. Every state has laws that allow policyholders to sue for bad faith, and successful claims can result in compensation beyond the original policy amount — including punitive damages that reached $100 million in a single 2025 case (Expert Institute).
Can I sue my insurance company for denying my claim?
Yes. If your insurer denied a valid claim without a reasonable basis, you may have grounds for a bad faith lawsuit. You can also file a complaint with your state department of insurance. Consult a personal injury attorney to evaluate whether the denial was legally unjustified.
How do I know if I am getting a lowball settlement offer?
If the insurer’s first offer comes quickly and feels too low to cover your medical bills, lost wages, and pain and suffering, it is likely a lowball offer. The Nolo survey found that claimants with attorneys averaged $77,600 compared to $17,600 without — a gap driven largely by insurers’ lowball tactics against unrepresented claimants.
Should I give a recorded statement to the insurance company?
You should consult an attorney before giving any recorded statement to the at-fault party’s insurer. In most states, you are not legally required to provide one. Recorded statements can be used to lock you into a version of events that the insurer may later use to reduce or deny your claim.
How long do I have to file an insurance bad faith claim?
The statute of limitations for bad faith claims varies by state, typically ranging from two to six years depending on whether the claim is based on contract or tort law. Some states require you to exhaust internal appeals first. Contact a personal injury attorney promptly to ensure you do not miss your state’s filing deadline.
If you believe an insurance company is using unfair tactics to reduce or deny your claim, contact the experienced personal injury attorneys at Goldberg & Loren. Call 1-888-352-9243 or fill out the form for a free consultation. We are a nationwide personal injury law firm.
