NU Online News Service

Allstate Corp. said it has reached a $10 million multi-state agreement to create what it calls an "education fund" for regulators.

The settlement was the result of an 18-month National Association of Insurance Commissioners (NAIC) market conduct examination led by four states into the insurer's use of claims-handling software, Colossus.

The program was a "black box to regulators," Steve Nachman, deputy superintendent for frauds and consumer services at the New York State Insurance Department, told NU Online News Service.

Once the box was opened, regulators found some irregularities in the use of the Colossus software, but no "systemic or institutional underpayment of claims," said Nachman.

The examination found some breakdowns when it came to management and oversight of the software program regarding the payment of bodily-injury claims, Nachman added. Specifically, Allstate's use of Colossus did not always "account for regional discrepancies" and did not reflect recently-settled claims, he said.

Nachman said Allstate agreed to notify claimants when Colossus may be used, enhance oversight of the program, strengthen internal auditing of Colossus and make it clear to adjusters that they do not have to settle claims based solely on what Colossus recommends.

"As a concept, there is nothing wrong with using this software. You just have to do it right," Nachman said.

New York's share of the $10 million will be $1.2 million. Allstate will also pay the state and the three other lead states in the examination--Florida, Iowa and Illinois--$50,000 each for expenses related to the examination.

Forty-one other states have signed on to share the $10 million education fund, which will be distributed based on market share. If states can earmark the funds for a specific purpose, it will be used for education. Otherwise it will go into the insurance department's general fund. It remains unclear whether New York can earmark the money, said Jared Wilner, assistant counsel.

Allstate said the agreement states insurance department personnel need better training about claims-handling technology and its uses.

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