On December 1, 2012, for the second time this year, the Market Regulation and Consumer Affairs (D) Committee of the National Association of Insurance Commissioners heard presentations about insurers’ use of computerized systems to assist in the adjustment of bodily injury and property claims. The hearing concentrated on three products: Computer Science Corporation’s “Colossus,” ISO’s “Claims Outcome Advisor” and Xactware Solutions, Inc.’s “Xactimate.”
The Committee’s interest in this issue was prompted, in part, by a report criticizing Colossus that was issued last June by the Consumer Federation of America. The report discusses issues that were addressed in a multi-state examination of Allstate’s use of Colossus, which resulted in a 2010 Regulatory Agreement and in a class action over Colossus that was filed in Miller County, Arkansas, in February 2005. That case, Hensley v. Computer Science Corp. et al., included over 500 insurers as defendants and was resolved by a series of settlements over the course of several years. (Full disclosure: A Jorden Burt attorney worked on the Hensley case on behalf of one of the insurer defendants.)
The Committee heard presentations from the developers of the three tools, as well as presentations by consumer advocacy groups. The Committee reported that other vendors of computerized claims systems were invited to present, but declined to do so.
Colossus uses customer-specific data to generate a range of values, consistent with the user’s past settlements, on the general damages component (e.g., pain and suffering) of a claim for bodily injury. The Committee heard that it is currently in use by 23 insurers in the United States. The “Injury Advisor” component of Claims Outcome Advisor is a similar system that uses three different models to produce an assessment of general damages.
Xactimate is a tool for estimating the cost of repairs to damaged property. The Committee heard that “hundreds” of insurers use Xactimate – approximately 70% of all insurers that use automated systems for property claims. In addition, about 50 insurers – including three of the top ten US property-casualty insurers – use Xactware’s “360Value” tool for underwriting and rating of risks.
The Committee also heard from representatives of the Consumer Federation of America and United Policyholders, which have published reports regarding, respectively, the use of Colossus and the use of Xactware software. These groups assert that state insurance commissioners should regulate the use of computerized claims systems and conduct periodic market conduct examinations regarding insurers’ use of these systems.
With respect to Colossus, the advocacy groups propose that market conduct examinations go beyond issues of “tuning” (roughly speaking, selecting and organizing data about past settlements to establish a baseline for future claims) to consider (1) whether the data that Colossus uses to generate values for general damages includes information about medical bills that have already been reduced by other automated systems, such as DecisionPoint, and (2) whether adjusters are encouraged to account for the claimant’s comparative negligence or fault by inputting unduly optimistic codes for the claimant’s final prognosis.
With regard to Xactimate, the groups expressed concern that the software is used primarily by insurers and adjusters, but not contractors and builders. They suggest that market conduct examinations monitor the differences between estimates produced by the software and actual repair costs.
The advocacy groups have also questioned whether regulators could designate the vendors of computerized claims tools as insurance advisory organizations and regulate them on this basis. Consumer advocates would like insurers to disclose the use of computerized software to assess an insured’s claim, as well as to provide the insured with the claims software report, if requested.
Near the end of the meeting, Committee Vice Chair Stephen Robertson of Indiana asked a representative of America’s Health Insurance Plans (“AHIP”) about health insurers’ use of computerized claims systems; health insurers reportedly use a variety of different claims software products with varying features. The AHIP representative indicated that many of these claims systems have been examined by state insurance regulators.