Auto insurers’ software may produce ‘low ball’ bodily injury claims, critics say

Software programs that determine bodily injury claims in car accidents – programs that are used by the vast majority of major auto insurance companies – are drawing criticism from a consumer group and attorneys who think these systems spit out “low ball” offers.

The Consumer Federation of America and personal injury attorneys warn consumers to ask insurance companies exactly how the amounts they’re offered for bodily injury claims were determined, and suggest consumers ask to see the range of amounts the computer programs generated for those claims. A bodily injury claim is filed with an auto insurance company when a driver is hurt because of another driver’s negligence.

This all stems from an 18-month investigation by the National Association of Insurance Commissioners. In 2010, the association reached a $10 million settlement with Allstate over the auto insurer’s use of a software program called Colossus, the most prevalent program among insurers to determine bodily injury claims.

Critics complain that software programs used to determine bodily injury claims arising from auto accidents are skewed toward saving money for insurance companies. Defenders of the software programs say they promote objectivity and efficiency in processing bodily injury claims.

For its part, Allstate says the insurance commissioners’ multistate review of its claims process confirmed the use of Colossus “provides significant benefits to the public in increased objectivity and efficiency” and didn’t pinpoint any internal issues involving underpayment of claims, spokeswoman Christina Tyler Loznicka says.

Colossus software, produced by a company called CSC, is used by close to one-fourth of the top 100 U.S. insurers.

Ed Charlton, a vice president at CSC, says consumers shouldn’t be concerned about the potential for “low-ball claims” being churned out by Colossus. The software — relying on advance computer science — promotes the use of “best practices” in the claims process, Charlton says, while allowing claims professionals to consider various circumstances before figuring the “fair value” of an insurance claim.

Despite those assurances from Allstate and CSC, criticism over Colossus and similar software programs has been mounting for years. The criticism reflects the growing trend of applying automated systems to all sorts of insurance purposes, such as using credit scoring to set insurance rates.

Colossal criticism

“The important message is that when you are injured in an automobile accident, your case is not being evaluated by real people but by a computer, so you’re not being treated like a real person,” says Michael Bryant, managing partner of law firm Bradshaw & Bryant and past president of the Minnesota Association for Justice, a group of the state’s personal injury attorneys.

Robert Hunter, director of insurance at the Consumer Federation of America, says Colossus and similar systems — primarily Claims Outcome Advisor and InjuryIQ — evaluate general damages for many bodily injury claims, such as pain, suffering and anguish. However, they are not used to:

• Estimate “special” damages, such as past or future bills related to losses and wage reductions.

• Determine liability-related questions, such as comparative negligence (a legal strategy aimed at reducing the amount of damages that plaintiff can recover).

• Gauge the credibility of witnesses.

Hunter explains how Colossus works. When an adjuster is presented with a bodily injury claim, he examines the medical records and determines which of the 600 injury codes in the Colossus software best reflect the injuries involved. Then, depending on the severity measurement accompanying the injury code and the accompanying dollar value, Colossus will provide a general range of monetary damages to the adjuster.

“Claims have often been low-balled to save costs, and adjusters receive incentives for settling claims at or near the Colossus value,” Hunter says.

CSC’s Charlton responds: “The system is certainly not designed to ‘low ball’ insurance payment claims.”

In a 2007 report, the Consumer Federation of America said literature from CSC claimed “the program will immediately reduce the size of bodily injury claims by up to 20 percent.”

Following a multistate investigation by the National Association of Insurance Commissioners, Allstate now must tell policyholders that software may be used to handle bodily injury claims stemming from auto accidents.

‘Goofy’ numbers

Bradshaw, the Minnesota attorney, says he can tell when an insurer begins using a computer program to determine bodily injury claims because “you see goofy, weird offers like $10,651.53. That’s a number a computer kicks out, not a real person.”

Those “weird, goofy offers” tend to be lower than those prepared by human adjusters, he says. “I’ve never seen an offer from one of these computer programs that made me go, ‘Wow – I can’t believe they valued the case so highly,’” Bradshaw says.

Because these programs determine amounts based on averages of other claims, Bradshaw says they can overlook important elements of a case.

“Imagine that you are a hairdresser who sustains soft-tissue damage in your neck, making it difficult for you to raise your arms,” Bradshaw says. “The computer program wouldn’t know that you work in a salon that does a lot of perms, and your injury would prevent you from doing perms — preventing you from making a living.”

‘Inconsistencies’ in use of software

The examination by the National Association of Insurance Commissioners “found inconsistencies in Allstate’s management and oversight of the Colossus software program.” In particular, the commissioners determined Allstate didn’t “tune” the software in a uniform, consistent manner. New York State Insurance Superintendent James Wrynn, who announced the 47-state settlement with Allstate, stressed the investigation found no universal underpayment of bodily injury claims.

In its agreement with the National Association of Insurance Commissioners, Allstate said it would make a number of changes to its claims process, including notifying claimants that Colossus software may be used to adjust their bodily injury claims, strengthening its internal auditing, and not giving claims adjusters any incentives to settle claims at or near the amount recommended by the software.

“Historically, when insurance companies start to get regulated, they tend to do the right thing for a while and deal with claims the way they should,” Bryant says.

When consumers are offered a claim following an injury in an auto accident, the Consumer Federation of America suggests they take the following steps:

• Find out whether your offer was generated by a computerized system like Colossus. (Allstate is required to disclose this information, but Hunter says other auto insurers probably will reveal what software which use if they’re asked directly.)

• Ask to see the high and low offers generated by the system; the offers are called “consultations.”

• Do not accept any offer that’s not in the high end of the range.

• If the insurer fails to agree to an offer at the high end of the range, consider filing a complaint with your state insurance commissioner or seeking help from an attorney.

–Joe Mullich