Hurricanes Katrina, Rita and Wilma made 2005 the worst year ever for hurricane disasters.

Despite those storms, the insurance industry made billions of dollars in profits.

According to the Consumer Federation of America, Allstate insurance made a net income after taxes of $1.8 billion. And in 2006, when it was still paying claims from those hurricanes, profit jumped to $5 billion. 

New Mexico attorney David Berardinelli stated that Allstate betrayed its commitment to policy holders by cutting claims to boost profits. He based that allegation on internal Allstate presentation slides he acquired in the 90s in which the McKinsey consulting company told Allstate how to boost profits. 

He said the company was told that it should come up with a settlement amount on claims that best helps the company’s bottom line, and that anyone who agreed to the amount would receive ‘good hands’ treatment, while those who wished to contest the amount, would be met by boxing gloves.

Berardinelli said the changes in Allstate's business approach led to reduced payouts in claims and much higher profits.

According to Allstate's own numbers, from 1986 to 95 profits totaled $820 million - an average of $82 million a year.

From 96 to 2005, total profits jumped to $22,523,000,000 – or more than $2.2 billion per year for an increase rate of 2,700 percent.

“Now there's only one place that money can come from,” said Berardinelli. “And that's from the pockets of policyholders. That's precisely what the company did.”

Consumer Federation of America, a consumer watchdog group, accused Allstate of "excessive prices and poor claims practices" in a study it issued in July.

Among its findings?

Between 1987 and 1996 Allstate paid back policyholders 73 cents of every dollar it collected in premiums.

But from 1997 to 2006 Allstate paid back just 59 cents of every dollar it collected in premiums.

Despite increased claims from the 9-11 attacks, and despite hurricanes Katrina, Rita and Wilma. That's a decline of 14 cents on the dollar or 19 percent.

At a time when people in the hurricane recovery zone need every penny they can get to rebuild homes and lives how does this happen?

“People don't know any better,” said Berardinelli. “People are desperate. They’re willing to accept pennies on the dollars just to get something.”

How does Allstate respond to those allegations?

Rich Halberg, a director with the company said that Allstate has buffeted its bottom line by adding millions of customers.

According to Allstate, the number of car insurance customers rose from 14.6 million in 1996 to 18.1 million in 2006.

The number of homeowner insurance customers increased from 6.2 million in 1996 to 7.8 million in 2006.

Yet according to AM Best Reviews, which is a financial service that tracks the insurance industry, Allstate's share of the insurance market was virtually the same in 2006 as it was in 1993.

And how does the company explain the numbers that show its claims payouts below industry average at a time when its profits are above industry average?

“I'll tell you one thing for certain,” said Halberg. “We pay the fair and reasonable amount for each claim that we receive as a company.” 

Allstate said it paid more than $3 billion on claims after Katrina and Rita and settled 98 percent of those claims within 12 months. It was the most costly catastrophe in U.S. history.

So how was it possible for Allstate to cut its average payout on the premium dollar from 73 cents over the previous ten year period to 59 cents over the most recent ten years without slashing payouts to claimants?

“When you have independent third parties who are not trial lawyers look at the processes you will see that we came out with a clean bill of health,” said Halberg. “That happened when the Louisiana Department of Insurance looked at how we handled claims following Katrina and Rita.” 

Louisiana's Department of Insurance did conduct a market review of Allstate's response to Katrina and Rita and came to the conclusion: "Allstate Insurance Company was found to be compliant with the state statutes, rules and regulations applicable to the handling of claims in a catastrophic loss situation."

But insurance Commissioner Jim Donelon also ordered Allstate to scrap what he called ‘It’s flawed property inspection process and reinstate policyholders after Allstate cancelled the policies of more than 4,700 homeowners.

“It's a very solemn commitment that we make to our customers so that, we realize that we are helping customers protect their homes,” said Halberg.

Halberg said it’s Allstate's reputation for standing behind policyholders that enabled it to attract new customers.

The Consumer Federation of America said Allstate had the second worst complaint ratio among eight major home insurers in 2005, and the lowest ranking in 2006.

Attorney David Berardinelli said Allstate leads a disturbing trend in the industry … threatening the insurance safety net that has traditionally protected America's middle class.

“People who fall through the holes that these companies create in the safety net find their homes destroyed, their lives shattered, in fact the whole course of their life altered,” he said.

Halberg said Allstate has nothing to apologize for and is proud of its response to hurricanes Katrina and Rita.