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

The Consumer Federation of America issued a fact sheetresponding to industry criticisms of its recent report alleging insurer misuse of computer-claimssystems to reduce payouts.

CFA notes six points insurers have made since the report wasissued, and the consumer group counters each point in its new factsheet.

However, an industry representative says CFA's latest effort isnothing more than setting up “straw men” and knocking themdown.

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

CFA says insurers have countered by arguing that, over the past10 to 15 years, their payouts for injury claims have risen. But CFAsays 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 painand suffering claims, CFA says.

The group also contends that insurers have “huge financialincentive” to use computerized systems to “unjustifiably reduceclaims paid to injured consumers,” contrary to the industry'sarguments that the systems are used to deliver greater consistencyin claims' payouts.

In fact, CFA says the industry should have to show regulatorsthat there was a problem with payouts to begin with to justify useof the systems.

The consumer group goes on to say that while the industry claimsit uses more than one tool in the adjusting process, in realityColossus is used “like a sledgehammer” to force adjusters to makesettlements within specified parameters.

The consumer group also claims that states have not exertedenough oversight to make sure Colossus produces fair claimspractices.

Bob Hunter, CFA's director of insurance, says by e-mail that CFAissued its latest fact sheet because of the industry's assertionsthat claim payouts increased over the past 10 to 15 years. “Weagreed we would respond if that point was made since we knew thatargument was false,” says Hunter.

However, Robert Detlefsen, vice president, public affairs forthe National Association of Mutual Insurance Companies, responds inan e-mail, “CFA trots out several straw men dressed up as 'insurerresponses' and then proceeds to knock them down.

“This crude debating tactic cannot disguise the fact that CFA'spathetic report consists of nothing more than speculation andhearsay based on court documents involving allegations against asingle insurance company. And like the report itself, CFA'sresponses to its straw-man critics completely ignore crucialevidence compiled by the Insurance Research Council showing thatauto 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 theProperty Casualty Insurers Association of America, says that wheninsurers do not overpay for claims, both consumers and the industrybenefit.

Concerning CFA's assertions that insurers could use thetechnology to manipulate a claim's outcome, Passmore says that iswhat market-conduct exams are for.

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