What are the three Ds of insurance? What do insurance companies gain by slowing down the payment process? How are these tactics exploitative?
In his book Delay, Deny, Defend, legal scholar and insurance expert Jay Feinman argues that major US insurance companies are profit-seeking entities that systematically avoid paying legitimate claims. He explains the tactics they use, and how and why they often work.
Continue reading to learn about the three Ds insurance strategy.
The “Delay, Deny, Defend” Strategy
Once insurers have sorted their claimants and paid those willing to accept below-fair offers, they turn to those who hold out—subjecting them to what Feinman calls the “delay, deny, defend” strategy, or the “three Ds” of insurance. This strategy includes systematically slowing down claim payments; refusing to negotiate and selectively interpreting policy language to deny legitimate claims; and aggressively fighting against claimants in court. We’ll walk through each prong of the strategy in detail, then discuss the broader societal costs it imposes.
Delay: Slowing Down the Payment Process
Feinman explains that under the “delay” part of their three-pronged approach to profit maximization, insurance companies deliberately slow down claim payments through various stonewalling tactics. These can include requiring excessive documentation, transferring claims between multiple adjusters, failing to return phone calls promptly, and using complex technical language in communications. This systematic delay serves two financial purposes, which we’ll explore below.
(Shortform note: Some states have begun to push back on these aggressive delay tactics. California’s insurance regulations establish strict time limits for handling claims. Insurers must acknowledge claims within 15 days, simultaneously providing necessary forms and launching investigations. They must respond to inquiries within 15-21 days and accept or deny claims within 40 days unless they provide written explanations for delays. Moreover, payments must be issued within 30 days after determining the amount of coverage or reaching a settlement with the claimant.)
Financial Benefit of Delay #1: Investment Income
The first benefit of delay is that insurers earn income on their premiums. Every day an insurer delays payment, they continue earning investment income on funds that would otherwise be paid to claimants. It’s essentially free capital that insurance companies can invest while payout decisions remain pending.
| The Libertarian Case Against Fractional Reserve Banking The principle by which insurance companies invest the funds they collect through premiums is the same by which banks invest the deposits they collect from shareholders: It’s called fractional reserve banking. Essentially, banks and insurance companies don’t hold cash in reserves equal to their deposits. When you deposit $100 in the bank, the bank might keep $5 on hand, and the remaining $95 is loaned out, at interest, to borrowers—which is how banks make a profit. However, some critics—notably Murray Rothbard, a prominent Austrian School economist and libertarian theorist—argue that fractional reserve banking constitutes fraud and is fundamentally immoral. Thinkers like Rothbard view deposits as property rights rather than loans. They maintain that when customers deposit money, they reasonably expect 100% of their funds to remain available on demand. When banks represent themselves as holding all deposits while secretly lending most of their funds, libertarians like Rothbard consider this to be fraudulent misrepresentation. They argue that fractional reserve banking effectively creates money out of nothing, distorting the economy and leading to business cycles of boom and bust. |
Financial Benefit of Delay #2: Wearing Claimants Down
Second, delay creates mounting financial pressure on claimants. Most people filing insurance claims face immediate expenses—whether it’s medical bills, repair costs, or lost income. As Feinman points out, insurers understand that prolonging the process gradually wears down claimants’ financial and emotional resources. When customers become desperate, they’re far more likely to accept any payment, even settlements far below what their policy actually entitles them to.
For example, let’s imagine someone who has a homeowner’s insurance policy on their house in Oklahoma. After a tornado tears through their house, they file a claim for their damaged home. However, suppose the insurer employs delay tactics against this policyholder. First, they might take two weeks to send an adjuster. When the adjuster finally arrives, she may demand extensive documentation on the history of the house to prove that the damage was actually tornado-related, itemized lists of everything stored in the house, and three separate contractor estimates for repairs. While all of this is happening, the company continues to earn investment returns on the family’s premium payments.
| Dealing With a Power Imbalance in Negotiation The wrangling between claimants and their insurers is a negotiation: a situation where each party wants something from the other. The insurer wants the claimant to cave and accept a low payment, while the claimant wants their full payout. When looking at these situations as negotiations, the willingness of insurers to use claimants’ financial desperation against them is just a form of leverage. In Getting to Yes, Roger Fisher and WIlliam Ury define leverage as the ability to walk away from a negotiation or to seek a better offer elsewhere. The desperate claimant doesn’t have any leverage, especially when they’re being subjected to endless delays. They already have a contract with their current insurer, and they’ve already suffered a loss, so they’re not in a position to shop around for better offers from rival insurers after the fact. The insurance companies, meanwhile, are vastly wealthier and more powerful than their individual claimants: They can afford to stall, dither, and avoid engaging in any negotiation for years. Fisher and Ury write that when you’re facing a significant power imbalance in a negotiation, it’s effective to know your BATNA, or best alternative to a negotiated agreement. Knowing your BATNA will protect you from accepting a bad agreement, as well as from rejecting a good agreement. A BATNA offers more flexibility than a rigid bottom line because it encourages you to evaluate the full picture of your alternatives. For example, imagine your insurer offers you $50,000 for a claim you believe is worth $80,000. With a bottom line approach, you might have decided “I won’t accept anything under $75,000” and automatically reject the offer. But with a BATNA, you’d compare that $50,000 offer against your best alternative—perhaps hiring a lawyer, which might cost you $15,000, but could potentially win you the full $80,000. In this case, the litigation route could net you $65,000, making the insurer’s $50,000 offer inadequate. However, if litigation costs were higher or your chances of winning lower, the same $50,000 offer might actually look more attractive than your BATNA, even though it falls short of your original $75,000 bottom line. |
Deny: Stonewalling Policyholders
Feinman writes that after the initial delays to claims processing, many policyholders—worn down by the stall tactics—will accept a lowball offer from their insurers. But some people persist in pursuing their claims—and the insurance companies respond with a more aggressive strategy: denial. This usually happens once the insurance company has either reached the maximum legal limit on how long they can delay a claim or they calculate that shifting to a denial strategy is the more profitable option.
Denial tactics typically take two forms: obstruction and policy interpretation manipulation. We’ll look at each in turn.
Denial Tactic #1: Obstruction
Feinman explains that obstruction blends delay with outright denial: Insurance companies simply refuse to engage in meaningful negotiation after making their initial low offer. This is because insurers understand that most claimants face mounting medical bills, repair costs, and lost wages. As financial pressure builds, policyholders often lack the resources—both financial and emotional—to sustain a long dispute, forcing them to accept whatever is offered or abandon their claim entirely.
| Push Back Against Insurance Company Obstruction Some experts write that when insurance companies ignore your valid claims, you need to meticulously document every interaction with them, including dates, times, representatives spoken with, and discussion details. This creates a paper trail that, in the event of future litigation, can be used to demonstrate that you made repeated and consistent good-faith efforts to work through the proper channels and get your claim approved. If an adjuster fails to respond within the promised timeframe, you can escalate by contacting their supervisors and managers. If that proves ineffective, you can file formal complaints with regulatory bodies like your State Department of Insurance, State Attorney General, and local legislators. National consumer advocacy groups like the National Association of Insurance Commissioners can also provide additional pressure through their complaint systems. |
Denial Tactic #2: Policy Interpretation Manipulation
Feinman details how insurance companies train adjusters to find creative interpretations of policy language that often contradict the plain language and obvious meaning of the policy. Further, policies are written with deliberately complex language that can be twisted in ways customers can’t anticipate. Common techniques include claiming that certain damages aren’t covered under the language in the contract or selectively interpreting clauses in the policy to maximize exclusions (things the insurer isn’t responsible for covering) while minimizing coverage.
For example, after a car accident, a patient requires emergency treatment for a broken arm and internal bleeding. Her health insurance policy explicitly covers “emergency medical care” and lists trauma treatment as a covered benefit. The reviewer argues that while the broken arm treatment is covered, the internal bleeding constitutes a “separate medical condition” that may have existed before the accident and therefore is considered a “pre-existing condition.”
In this example, the claim reviewer doesn’t mention that the “pre-existing condition” label only excludes coverage for chronic illnesses or prior diagnoses, not acute trauma or injury (such as internal bleeding, which is an emergency regardless of whether or not it was caused by the car accident). This effectively splits the injuries sustained in a single accident into separate conditions to minimize the company’s responsibility.
(Shortform note: One common way that insurers manipulate contract language to minimize their financial obligations is through aggressive depreciation calculations. Depreciation represents the calculated loss in value of an item over time due to age, wear and tear, and obsolescence. Previously, companies typically limited depreciation to 50% of an item’s initial value, meaning a $1,000 couch would be valued at no less than $500. Today, however, some insurers depreciate items up to 90%, reducing that same $1,000 couch to just $100 in reimbursement value.)
Aggressive Defense Strategies
If policyholders push past delays and denials, insurance companies hit them with an aggressive legal defense as their final tactic. This strategy deliberately forces people into costly, drawn-out court battles that most consumers cannot afford to pursue.
According to Feinman, this aggressive approach systematically exploits the economic realities of how personal injury litigation works. Most personal injury attorneys operate on contingency fee arrangements, which means they only get paid if they win—typically taking 30-40% of any final settlement. This puts attorneys in a bind: They have to assess whether a potential case will generate a large enough settlement to justify their investment of time and costly resources like obtaining medical records and hiring expert witnesses.
Feinman writes that insurance companies know that lawyers typically work on contingency fees, so they deliberately exploit this by assigning disproportionate legal resources even to minor claims. Their strategy is to ensure they’ll win by overwhelming claimants with legal firepower. In the short run, this approach is expensive for insurance companies—they might spend more defending against a claim than the claim itself is worth. For example, an insurer might pay $50,000 in legal fees to avoid paying a $25,000 claim.
However, this seemingly irrational spending serves a long-term purpose: It makes personal injury litigation economically infeasible for attorneys. Since lawyers working on contingency only get paid if they win, and insurance companies’ aggressive tactics make winning unlikely, attorneys become reluctant to take on these cases at all. Also, those attorneys who do still accept personal injury cases have a powerful incentive to pressure their clients into accepting lower settlements—ensuring the client gets at least some compensation (and the attorney receives their percentage) rather than risking a complete loss in court.
| Tort Reform: Protecting Insurance Companies at the Public’s Expense On top of aggressively contesting litigants in court, the insurance lobby has vigorously pushed tort reform legislation in state legislatures across the US. Tort reform is often presented as a way to reduce frivolous lawsuits and create a more efficient legal system by either limiting victims’ ability to bring tort litigation or by putting a monetary limit on how much juries can award to a plaintiff. However, some experts note that tort reform’s true purpose appears to be protecting insurance companies’ profits rather than serving the public interest. They argue that insurance companies support tort reform because fewer lawsuits and lower payouts increase profits. However, insurance industry leaders have admitted that insurance costs won’t decrease even if laws make it harder for victims to seek compensation, undermining the entire rationale for these changes. |
