I’ve been writing here since 2006 about the Colossus software program used by most insurance companies to evaluate auto injury claims. The basic effect of the software use has been to tie the hands of insurance adjusters and prevent them from taking into account subjective issues that, in the old days, might have altered the evaluation of the case.
A recent article in ComputerWorld, of all places, expresses some concerns about the use of such software in the evaluation of claims. Here are excerpts:
Claims software used by many large auto and homeowners insurance vendors in the U.S. has allowed the companies to manipulate claim payments and “low-ball” customers, according to a new report from the Consumer Federation of America.
Injury evaluation software, including CSC’s Colossus package, allows insurance companies to “tune” payment perimeters and reclassify injuries as less serious than the diagnosis from a doctor, said the report, by Mark Romano, a former Colossus expert at Allstate Insurance, and Robert Hunter, a former insurance commissioner for Texas.
The claims software, adopted by many U.S. insurance companies in the past 15 years, “has enabled many insurers to increase profits by reducing the amount paid to consumers who filed bodily injury liability claims,” the report said.
Some insurance vendors have touted savings of about 20% after moving to claims software from using human adjusters, the report said.
CSC said Colossus helps insurers assess the severity of injuries, but does not make payments.
“Because the Colossus application helps insurance adjusters bring fairness and consistency to the claims process, we do not believe that consumers should be concerned about the potential for ‘low-ball’ claims,” Ed Charlton, a vice president in CSC’s property and casualty insurance division, said in an email. “Payments are negotiated between the insurance company and its claimants.”
The software contains a large knowledge base of medical and insurance-adjusting information, he said. The software brings consistency to claims, “while still allowing the claims professional to consider and factor in unique claim attributes before determining the fair value for any individual claim,” he added.
More than half of the 20 largest auto and property insurance companies in the U.S. use CSC’s Colossus, and many others use similar products from competitors, Hunter said. The claims software market is largely unregulated by state insurance agencies, and “I’m convinced there are millions of Americans still at risk,” he said.
CSC originally marketed Colossus as a cost-savings product, but shifted to talking about the software as a way for insurance companies to achieve consistency in claims payouts, the report said. Some insurance companies were uncomfortable with the software marketing as a money-saving package, said the report, referencing CSC materials made public during a class-action lawsuit against the software vendor settled in 2009.
“Consistency, in and of itself, is a legitimate goal,” Romano said. “However, insurers aren’t investing millions of dollars in this software just to achieve consistency. They’re looking to save millions more by underpaying injury claims.”
Insurance companies can tweak Colossus and similar software packages in several ways to lower claims payouts, the report said. Insurance companies can use the software to reduce payments by a predetermined percentage, and they can exclude high-cost claims from original tuning results used to determine the costs of injuries, the report said.
Insurers can also use the software to downgrade, en masse, the diagnosis of certain injuries, or pair the claims software with medical repricing software that reduces the “usual and customary” medical costs to be reimbursed, the report said.
The Consumer Federation of America called on state insurance commissioners to investigate claims software vendors and insurers for unfair business practices or unfair claims settlements.