In 2020, State Farm began planning for a future in which artificial intelligence, not humans, would handle most elements of insurance claims. As Americans grapple with the accelerating impacts of AI on society, documents revealed this week in the high-profile Hursh lawsuit shine light on the “expense/efficiency aspirations” of a corporate giant seeking “outcome-based claim handling.”
“Human capital will be shifted towards focusing on negotiation/defense strategy,” is listed among “outcomes” in a 30-page “Op Model” draft crafted for State Farm by a consultant.
Dated Sept. 10, 2020, the new “Op Model” was among 11 documents declassified Monday by Oklahoma County District Court Judge Amy Palumbo in the insurance bad faith case brought by Billy and Lacy Hursh.
Within hours, the “Op Model” and a 2021 “Fire Property Claims Quality Plan” report touting reductions in full-roof replacements appeared as exhibits in a new filing by the Hurshes’ attorneys (embedded below). They say State Farm executives have been making “contradictory statements” in court to deny their “blatant bad faith plotting to reduce claim payouts” in violation of Oklahoma law.
“These documents attached to this notice are crucial due to numerous State Farm executives’ depositions taking place in Judge Palumbo’s courtroom, as well as CEO Jon Farney’s deposition that was ordered by this court and is currently scheduled to take place on Oct. 19,” wrote attorney Hannah Whitten in Monday’s Hursh filing.
Last month, 31 State Farm documents were declassified in a similar Comanche County lawsuit brought by Neil and Lacy West. Both cases are scheduled for trial before the end of the year.
Insurance as a ‘fully optimized experience’
The two documents now in the public record are often difficult to decipher in their inscrutable corporate cant.
“The three ‘landing points’ were leveraged to assess detailed work packages & initiatives and ensure iterative progress through execution,” reads the title on an early page of the “Op Model.”
But the documents are revealing for how they detail elaborate plans to go all-in on artificial intelligence.
The three “points” seem to reference a three-phase plan — also called “horizons” — that establishes a series of graduating benchmarks and metrics carrying “aspirations” in the hundreds of millions of dollars. Across multiple charts, graphs and bulleted lists, the operating model avoids using the word “profits” but fixates on increased “efficiency” from AI and automations.
- Horizon 1 calls for “maximum repair options through virtual channel” and “automated claim routing”;
- Horizon 2 escalates to “increase in touchless claims” and additional profits through reduced “field inspection needs”; and
- Horizon 3 envisions a “fully optimized experience from intake to resolution” and “reskilling and realignment of workforce to fully support target model.”
Another chart estimates “expense/efficiency aspirations” of $218 million to $300 million for Horizon 1, $250 million to $500 million for Horizon 2, and “TBD” for Horizon 3.
As described in insurance industry expert Jay Feinman’s Delay, Deny, Defend, an industry-wide transformation of the claims handling process began in the 1990s when Allstate, recently separated from Sears, Roebuck, and Co., called on the consulting giant McKinsey & Company to advise them on how to increase profits. McKinsey suggested revamping claims handling. A short McKinsey document published several years later, reflecting on the company’s suggestions, preferred corporate emphasis on “investments” and “accuracy” to the more human-centered “art” that claims handling had once been. Notably, however, not even McKinsey advised full dependence on technology.
“While they are certainly part of the answer, IT solutions can never address the broader challenge of claims — applying properly executed human judgement in every case,” the undated, unsigned document reads.
State Farm executives appear to have set out to prove otherwise. The documents filed publicly on Monday speak at length about greater automation leading to “labor expense reduction,” “increased % of automated offers without handler intervention,” and “embed[ding] Artificial Intelligence in most workflows.”
Stated goals recommended comprehensive takeover by machine intelligence to levels yet-undefined in the September 2020 document:
- “XX% of estimates are initiated through automation”;
- “XX% of estimates are completely automated”; and
- “XX% of total loss settlements are completed virtually.”
The operations model describes a time in which even State Farm’s legal strategy will be guided by AI and “informed by data from both internal and external sources.”
“Litigation will be more automated based on expected path for litigation claim scenario,” the document’s “Injury / Treatment Settlement Strategy” chart explains.
Judge: State Farm in ‘very dangerous sanction territory’
As battles over data centers that fuel artificial intelligence rage from Chickasha to Edmond to Piedmont, Monday’s hearing before Palumbo — populated by people, or so it seemed — began with a battle all its own.
Minutes into the nearly five-hour proceeding — the Hursh case’s longest in a year of court appearances — Whitten began to read from the deposition of a State Farm executive.
At that, the proceedings were interrupted. An individual seated in the gallery alongside journalists stood and called out that Whitten was reading from confidential documents.
“I object, your honor!” the person proclaimed.
The individual turned out to be Paige Masters, an attorney who represents State Farm in the West case from Comanche County. For a time, there was little by way of order in Palumbo’s courtroom, and she again grew frustrated by State Farm requests that seemed primed to delay the case.
“We have another issue that is going to tack months onto the proceedings,” Palumbo said. “I want to flesh this out so that the public, and the court, and this record understands what is happening, and why.”
Rather than granting a delay, Palumbo delivered an admonition to State Farm’s counsel: As in previous hearings, they were tempting her to entertain procedural penalties.
“State Farm’s inability or unwillingness to comply with these discovery orders is putting you in very dangerous sanction territory,” Palumbo said.
State Farm attorney Lance Leffel pushed back against a suggestion from Hursh attorneys that the insurance giant was attempting to “weaponize” the legal process.
“This idea that we are trying to ‘weaponize’ something is absurd,” Leffel said.
Palumbo did not address the semantic dispute, but she did agree to clear the courtroom of observers so that as-yet confidential documents and depositions could be presented freely for her decision making.
Hursh attorneys: State Farm acted in ‘pure bad faith’
Outside the courtroom, Masters refused to comment on her unorthodox objection from the gallery. State Farm officials did not respond to an interview request about the de-designated documents.
The Hursh attorneys’ motion to de-designate documents Monday focused less on State Farm’s embrace of robot overlords than on the documents’ call for “outcome-based claim handling.”
“Oklahoma law is clear that an insurer can never treat its insureds as an adversary, and engaging in outcome-based claim handling to save State Farm $218-300 million on claims that have not happened yet is the most adversarial conduct an insurance company could engage in,” Whitten wrote. “State Farm leadership is openly bragging about total roof payments decreasing, and calling that positive, including tracking how many claims closed without payment.”
After four-and-a-half hours, Palumbo permitted observers to return to the courtroom. She ordered 11 documents made available immediately. Others may still be released. In one case, Palumbo asked for a document to be presented in a larger font as the text was too small to read. In another, she said the corporate lingo was too dense — in effect, Palumbo ordered State Farm to provide a translator.
Speaking to reporters immediately following the hearing, Whitten characterized the newly-released documents.
“The public can see for themselves how State Farm handles these claims in secret,” Whitten said. “In these documents, you can see them continuing to laugh about the money they are cheating first party insureds.”
Read the full Hursh filing from Sept. 28
