Report: Insurers manipulate software to underpay injury claims

Major insurance firms pay less than they should on injury claims by manipulating the computer programs that determine final payouts, according to a recent report by a national consumer advocacy group.

The Consumer Federation of America (CFA) alleges that insurers "tune" software used during claims adjustments to save themselves as much as 15 percent to 20 percent on settlements related to vehicle or home accidents.

"This report is a wake-up call for consumers and regulators who are not aware of the many ways that computer claims software can be manipulated to produce unjustifiably low injury payments to consumers and tens of millions of dollars in illegitimate 'savings' for insurers," Mark Romano, CFA's claims project director, said in a statement. (See: "10 tips for getting a fair car insurance settlement.")

The CFA report on Colossus -- which CFA says is the leading claims software in the insurance industry - is called "Low Ball: An Insider's Look at How Insurers Can Manipulate Computerized Systems to Broadly Underpay Injury Claims." Romano is the primary author of the report. He previously held the position of Colossus Subject Matter Expert in the home office of Allstate Insurance in Northbrook, IL. Colossus is sold by Computer Sciences Corp. (CSC).

"When CSC and its competitors talk publicly about computer-based claims systems, they stress that the programs allow insurers to more consistently evaluate bodily injury claims," says Romano. "Consistency is a legitimate goal [but] software marketing representatives acknowledge that the real reason insurance companies are willing to invest millions in these systems is that they can dial down claims payments to thousands of consumers at a time."

Allstate, along with some of the biggest insurers in the country, has faced numerous lawsuits in recent years alleging that the software is marketed to them as a way to raise profits by cutting costs, which is documented in the report. Allstate did not respond to interview requests from Insurance.com.

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The report alleges various ways insurers shrink payouts to policyholders, including:

• Directly trimming payments by a predetermined amount across the board without determining whether this will lead to unjustifiably low payouts for individual claims.
• Selectively removing higher-cost claims from data used to determine the acceptable range of payments for particular injuries. This lowers payments for all claims of this type.
• Requiring insurance adjusters without medical training or credentials to second-guess medical professionals by altering injury determinations, which results in lower payments for certain injuries.
• Encouraging adjusters to downplay or even ignore the likelihood that injured consumers will need future medical treatment or will be permanently impaired, which lowers payouts.
• Encouraging adjusters to determine that drivers are partly at fault for the accident that injured the drivers, even when they may not be.

Rebuttal: Injury claim payouts are going up

The Insurance Information Institute (III) criticized the report's accuracy, noting that payout amounts for injury claims have climbed in the past decade and beyond.

"They've gone up over the last 10 or 15 years," says Steven Weisbart, the III's senior vice president and chief economist. "If [the charges] were true and insurers were keeping a lid on payouts, wouldn't the amount be going down? If this is actually happening, it is not a pervasive problem."

He adds that the software helps process claims more quickly, which gets settlement checks to claimants faster. Weisbart says the software is also useful in identifying fraudulent claims.

The CFA also calls on state insurance regulators to be more vigilant and suggests steps to better protect consumers, including:

• Regulate companies that sell the claims software. "Currently, neither the states nor the National Association of Insurance Commissioners (NAIC) does this for all vendors of these products," according to the CFA.
• Examine and monitor how insurers use the systems. "The NAIC should thoroughly investigate methods that all large insurers can or do use to directly or indirectly reduce claims payouts in an illegitimate manner," the report says.
• Require insurers to notify consumers in writing that the software was used to process their claim and provide them with a copy of the computer-generated report.

In a press conference following the report's release, Romano said policyholders can protect themselves by asking their agent if Colossus or similar software was used to process a claim. If so, and the settlement seems low, they should consider talking to an attorney or filing a complaint with their state's insurance department.