Consumer Group Says Auto Insurers ‘Lowball’ Injury Payments with Computerized Systems

A report by the Consumer Federation of America (CFA) raises concerns that computerized claims systems used by many of the nation’s largest auto insurance companies can be easily adjusted to make “lowball” claims payments to injured motorists.

The group said its findings affect thousands if not millions of insurance consumers.

Mark Romano, CFA’s claims project director, said the handling of injury claims has changed dramatically. Where evaluations were once based on the judgment of claims adjusters, today’s systems rely upon accurate data input and tuning of computerized software systems.

“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,” Romano said. Romano was the “subject matter expert” on the Colossus injury claims evaluation system at Allstate and Encompass insurance companies for almost 10 years. Colossus, considered the dominant claims’ system on the market, is sold by Computer Sciences Corp. (CSC).

The report, “Low Ball: An Insider’s Look at How Insurers Can Manipulate Computerized Systems to Broadly Underpay Injury Claims,” relays the history of the use of Colossus and similar software products by auto insurance companies. The report describes how the programs are set up, “tuned” to reach particular claims’ payment monetary goals and adjusted over time.

According to Romano, while these systems can be used to achieve consistency in injury claim evaluations, they can also be employed to save insurers billions more by underpaying claims.

“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,” said Romano. “Consistency is a legitimate goal, but these companies tell a different story behind closed doors. 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, regardless of whether these payouts are fair.”

The report identifies specific techniques that insurers may use to directly and indirectly produce “lowball” claims.

Roman said direct manipulation by an insurer may include reducing tuning across the board and selectively removing or excluding higher cost claims from the tuning sample.

“Many of the concerns about Colossus and similar programs have focused on the potential for insurers to manipulate these systems directly in order to reduce claims’ payouts,” said Romano. “But insurers can also use many techniques to unjustifiably lower payments in a more subtle manner, by putting biased or incomplete information into the system.”

He said indirect manipulation by an insurer may include requiring adjusters with no formal medical education to select injury codes for a less severe injury, resulting in substantially lower settlement payments; encouraging adjusters to downplay or even ignore the final prognosis code that may indicate a claimant’s need for future medical treatment; thus lowering payments; and encouraging the use of comparative negligence to reduce settlement payments.

The report includes excerpts from recently released court records in a class action lawsuit, Hensley v. Computer Sciences Corp., that provide insight into company marketing tactics and suggest how insurers could adjust Colossus to produce virtually any claims payment reduction they wanted, whether or not it was justified. One CSC executive told the court that Colossus could be “tuned” up or down like a water spigot to achieve a particular level of savings, such as 15 percent, for all claims. A CSC executive told the court that on average Colossus achieved savings of around 19 percent on overall claims payouts for some of its insurer clients.

CFA said the court records also show CSC misled regulators about the purpose of Colossus, claiming the main function of the product is to achieve consistent payouts rather than enormous claims’ savings, which might be illegitimate, and indicate that CSC altered its advertising message when the company determined the word “savings” was viewed negatively. The company substituted the word “consistency” in its place.

According to J. Robert Hunter, CFA’s director of insurance, former federal insurance administrator and former Texas insurance commissioner, CSC marketing materials noted that 13 of the top 20 insurance companies use Colossus.

The court records showed that CSC’s competitor Insurance Services Office (ISO) claimed that it could maintain even higher savings over time through the use of it product, Claims Outcome Advisor.

ISO declined to comment on the report or its findings.

Calls and an email placed to CSC requesting comment were not returned.

Hunter provided recommendations to state insurance regulators on how to better protect consumers from insurers that manipulate settlement payments through Colossus and similar systems:

1. Directly regulate companies that sell claims’ adjustment software products.

2. Examine and monitor use of computerized claims’ assessment systems by major insurers immediately.

3. Require insurers to notify claimants in writing that a computerized claims’ assessment was used to process their claim and to provide a copy of the report generated by the system.

When asked why state insurance departments’ market conduct exams hadn’t revealed this manipulation of data, Hunter said that most market conduct examinations are superficial at best.

“The NAIC examination of computer adjustment systems was incomplete and flawed,” Hunter said. “They only investigated a single company, Allstate, which used only one of these systems, Colossus. And their agreement with the company did little to change how Allstate adjusted Colossus to make claims payments or to protect consumers from potential abuses.”

According to the NAIC, state regulators monitor claims settlements through the Unfair Claims Settlement Practices Laws.

“Computerized claims systems are generally geared for use in the claims settlement portion that involves pain and suffering, which can be a very subjective process. It is the expectation of state insurance regulators that these systems are just one factor in helping a claim representative reach a settlement conclusion,” the NAIC said in a statement.