WASHINGTON--Claims handling software being marketed to insurersis creating a system where underwriters profit by unfairly reducingcustomers' claims payments, a consumer insurance expert saidtoday.

J. Robert Hunter, Consumer Federation of America director ofinsurance, speaking at the CFA's financial services conferencehere, said that such software is often marketed to insurers ascapable of providing immediate cost savings. In fact, he added,they "are designed to systematically underpay" the claimant.

As evidence to the problem, Mr. Hunter noted that the amount ofmoney being paid by insurers relative to claims has decreasedsignificantly. In 1987, he said, insurers paid roughly 75 cents foreach premium dollar they collected. Today, he said that number hasdecreased to 65 cents and appears to be headed furtherdownward.

Insurers, Mr. Hunter said, are able to do this because theindustry "marches in lockstep" and is protected by an anti-trustexemption granted in the McCarran-Ferguson Act that he added has"clearly outlived its usefulness."

Mr. Hunter made his comments as part of a panel titled "NewInsurance Claims Settlement Practices: Are They Fair toConsumers?"

Craig Berrington, a partner with the law firm of Wiley Rein LLP,who was also on the panel, said the discussion came with a"subtext" that was far less neutral than it's official title, onewhich he said carried the "allegation, if not the assumption, thatthese practices are unfair."

Prior to joining Wiley Rein, Mr. Berrington served as counselfor the American Insurance Association, and he noted that many ofhis current clients are insurance companies.

Much of the debate, Mr. Berrington said, "has been fed by thevery personal stories of houses destroyed, of memories of alifetime being washed out to sea or buried under the muck of NewOrleans," in the wake of Hurricane Katrina.

In examining the facts of the industry's response to Katrina,Mr. Berrington said the story appears significantly different thanhas been reported.

He said 89 percent of Louisiana homeowners were happy with howtheir claims were handled, and 93 percent of Mississippi homeownerswere similarly satisfied. In total, he added, only 2 percent of allKatrina-related claims have gone to mediation or litigation.

The claims software issue is involved in a lawsuit filed byLouisiana Attorney General Charles Foti, alleging a conspiracyamong insurers and claims software providers.

His action alleges they combined to charge premiums based on aset of expected costs for rebuilding materials while paying farless when the time comes to rebuild. Mr. Berrington, disputingthis, said that insurers, like any other business, will shop aroundto get the best price possible. The criticism would be justified,he added, "if they just shoveled out money."