Filed Under:Markets, Personal Lines

CFA Defends Claim-Manipulation Accusation Amid Industry Criticism

NU Online News Service, June 26, 12:18 p.m. EDT

The Consumer Federation of America issued a fact sheet responding to industry criticisms of its recent report alleging insurer misuse of computer-claims systems to reduce payouts.

CFA notes six points insurers have made since the report was issued, and the consumer group counters each point in its new fact sheet.

However, an industry representative says CFA’s latest effort is nothing more than setting up “straw men” and knocking them down.

CFA’s initial report argues that the use of Colossus, the computerized claim system produced by Computer Sciences Corp. (CSC), and other similar systems “likely has resulted in lower reimbursement to injured consumers” for reasons under the control of insurers.

CFA says insurers have countered by arguing that, over the past 10 to 15 years, their payouts for injury claims have risen. But CFA says much of those increases stem from factors beyond insurers’ control, such as the rising cost of healthcare.

Where they can control costs, they are doing so, such as pain and suffering claims, CFA says.

The group also contends that insurers have “huge financial incentive” to use computerized systems to “unjustifiably reduce claims paid to injured consumers,” contrary to the industry’s arguments that the systems are used to deliver greater consistency in claims’ payouts.

In fact, CFA says the industry should have to show regulators that there was a problem with payouts to begin with to justify use of the systems.

The consumer group goes on to say that while the industry claims it uses more than one tool in the adjusting process, in reality Colossus is used “like a sledgehammer” to force adjusters to make settlements within specified parameters.

The consumer group also claims that states have not exerted enough oversight to make sure Colossus produces fair claims practices.

Bob Hunter, CFA’s director of insurance, says by e-mail that CFA issued its latest fact sheet because of the industry’s assertions that claim payouts increased over the past 10 to 15 years. “We agreed we would respond if that point was made since we knew that argument was false,” says Hunter.

However, Robert Detlefsen, vice president, public affairs for the National Association of Mutual Insurance Companies, responds in an e-mail, “CFA trots out several straw men dressed up as ‘insurer responses’ and then proceeds to knock them down.

“This crude debating tactic cannot disguise the fact that CFA’s pathetic report consists of nothing more than speculation and hearsay based on court documents involving allegations against a single insurance company. And like the report itself, CFA’s responses to its straw-man critics completely ignore crucial evidence compiled by the Insurance Research Council showing that auto insurers routinely overpay BI [bodily injury] and PIP [personal injury protection] claims due to fraud and buildup.”

Bob Passmore, senior director, personal lines policy for the Property Casualty Insurers Association of America, says that when insurers do not overpay for claims, both consumers and the industry benefit.

Concerning CFA’s assertions that insurers could use the technology to manipulate a claim’s outcome, Passmore says that is what market-conduct exams are for.

“[Regulators] look to make sure that the claims-handling procedures are being done properly,” he says. 

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