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Report: Insurers ‘tune’ claims software to pay less for injuries, p. 2

Fri Jul 13th, 2012 on     Insurance Claims,    

In our last post, we were discussing a report about computer-based claims systems. The author alleges that the software allows insurers to underpay claims, especially auto and property insurance claims for bodily injury. Companies market the software as a tool to help insurance companies be more consistent in evaluating injury claims, according to the report. The more consistent the payouts are, the more consistent the rates will be. In the end, the theory goes, everyone will save money.

Saving money is one thing; being paid what you’re due is quite another. The chief criticism of these systems is that insurance companies can, with one programming tweak, dial down claim payments to any number of injured parties. Fairness is not a concern, the author says.

Court documents from a class action lawsuit against the company that markets the most widely-used software help to explain how this works. According to an executive with the company, the software can be “tuned” to save a certain percentage per payout. If the insurer wants to save 15 percent on all claims, the program makes it possible.

The practice brings new meaning to the term “claims adjusting.” The consumer group that sponsored the report believes the National Association of Insurance Commissioners should lead the charge to change the process.

First, the NAIC should seek permission to regulate the companies that write and sell these software products, the group urges. Second, the NAIC should investigate the illegitimate ways that insurers go about reducing claims payouts.

The courts have a role, too: They should force insurance companies to open the black box, to disclose how they evaluate claims and determine what to pay. Unfortunately, when courts have tried this, the company declined to produce the documents and agreed to pay the fines instead. Apparently, whatever is in that black box is what gives the insurance company its competitive edge.

Source:, “Report: Insurers Manipulate Systems To Underpay Claims,” Becky Yerak, June 11, 2012

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