Consumer Group Warns Against Computer-Driven Claims Payouts

In a consumer advocacy report released Monday, a former insurance executive says claims software used in major insurers’ computing systems are being used to broadly adjust payouts and produce illegitimate savings for the company.

Mark Romano, claims project director for the Consumer Federation of America, authored the report, titled “Low Ball: An Insider’s Look at How Insurers Can Manipulate Computerized Systems to Broadly Underpay Injury Claims,” and focuses much of the report on Colossus, a software product from Computer Sciences Corporation (CSC).

Colossus, an injury evaluation software program, is currently or has been used by many of the nation’s largest insurers, including Allstate, which was the first company in the U.S. to test the product in the ’90s.

Publicly, CSC says that such programs “are tools that insurers can use to achieve consistency in bodily injury claims evaluations for its software,” according to Romano, who described another scene that he said occurs “behind closed doors” between insurance executives and those marketing the software.

“The real reason insurers are willing to invest millions of dollars into software licenses, installations, employee training and maintenance for these products [is] insurers can use the programs to save millions of dollars by making ‘low-ball’ claims offers on a broad scale that are less than what injured consumers should receive under the terms of their insurance policies,” he said in the report.

Manipulation and “tuning” of criteria used in the software to evaluate a policyholder’s injuries, their location and other factors can generate “tens of millions of dollars” in savings for the insurer with bottom-dollar compensation to policyholders, according to Romano.

Specific tuning methods include targeting higher-cost claims for removal from data sets that establish payout limits for injury types, in effect lowering all payments for that injury type, according to the report.

“Few consumers have knowledge of these practices, while even less understand the significant impact that the practices can have on their financial lives,” the report stated.

​Allstate Penalized for Use of Colossus in 2010

In 2010, Allstate was forced to pay $10 million to dozens of states in the U.S., including $1.2 million to New York regulators, in a settlement stemming from a National Association of Insurance Commissioners (NAIC) investigation of their use of Colossus software. The investigation, which lasted about 18 months, found that the insurer inconsistently handled bodily injury claims but did not conclude that the software produced generally underpaid claims.

As part of the settlement, Allstate was prohibited from offering incentives to adjusters and consultants to settle claims at levels based on Colossus criteria. The insurer was also forced to disclose to policyholders that Colossus was used in their cases.

In the recent report, the CFA delved into that settlement, saying that, while it “commended the NAIC” for its actions, several parts of the agreement have since proved ineffective.

For example, according to Romano, while incentives were eliminated at the adjuster level, according to the report, regulations for compensating “bonus-eligible” executives remained intact. Romano added that he was one such bonus-eligible employee whose salary was at least “partially tied to severity results.”

And as more customers get auto insurance coverage online and the industry becomes increasingly computerized, insurers have adjusted their workforce accordingly, according to the report.

“Since the computer programs conduct much of the decision making” behind payouts, insurers have been able to hire “less-experienced employees to handle these types of claims.”

Other similar software used in the industry include Claims Outcome Advisory, sold by Insurance Services Office, and Claims IQ, sold by Mitchell International, according to the report.

About Matthew Morisset
Matthew Morisset is a proud alumnus of the University of Redlands, where he obtained a degree in English Literature. Utilizing his passion for analysis and writing, Matthew looks for important trends in the auto insurance industry and their implications for consumers and the market as a whole.

No comments yet.

Comment on this article