JavaScript Claim handling software being marketed to insurers is creating a system where underwriters profit by unfairly reducing customers' claims payments, a consumer insurance expert says.

J. Robert Hunter, Consumer Federation of America director of insurance, speaking at the CFA's financial services conference here, said that such software is often marketed to insurers as capable 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 of money being paid by insurers relative to claims has decreased significantly. In 1987, he said, insurers paid roughly 75 cents for each premium dollar they collected. Today, he said that number has decreased to 65 cents and appears to be headed further downward.

Insurers, Mr. Hunter said, are able to do this because the industry "marches in lockstep" and is protected by an anti-trust exemption 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 "New Insurance Claims Settlement Practices: Are They Fair to Consumers?"

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, one which he said carried the "allegation, if not the assumption, that these practices are unfair."

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

Much of the debate, Mr. Berrington said, "has been fed by the very personal stories of houses destroyed, of memories of a lifetime being washed out to sea or buried under the muck of New Orleans," 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 than has been reported.

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

The claims software issue is involved in a lawsuit filed by Louisiana Attorney General Charles Foti, alleging a conspiracy among insurers and claims software providers.

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

This article originally appeared in The National Underwriter P&C. For the complete article, please HYPERLINK "http://www.propertyandcasualtyinsurancenews.com/cms/NUPC/Breaking%20News/2007/11/30-CONSUMERS-mb?searchfor=mistreats%20customers"click here.

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Claims Software Mistreats Customers, Says CFA

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