A consumer advocacy group published a report last month that provides some valuable insight into auto and property insurance companies and how they process claims. The author focused specifically on a brand of claim evaluation software that is widely used in the insurance industry. He maintains that the software saves money by ensuring that the insurance company underpays claims, especially bodily injury claims.
The allegation does not come out of thin air. Class action lawsuits and regulatory actions have forced insurance companies and the software company to share documents that support the author's argument. The author also has personal experience with the subject matter: He worked with the injury claims evaluation system at two of the largest insurance companies in the country.
The report digs into the "black box" that claims evaluation has become. If you think back on your own claim history, there will probably be at least one time when you asked yourself how the insurance company came up with that number. With property damage, the process is a little more straightforward -- in a fender-bender, you get an estimate or two and haggle with the customer service representative over how much the insurance company will pay.
But with an injury? How does an insurance company decide that a soft-tissue injury suffered in a car accident is worth $2,000? A few years ago, it was common knowledge among personal injury attorneys (not in Florida) that the "going rate" for a neck injury was $5,000. For the most part, consumers have no idea how insurers assign dollar values to an injury. Fortunately, this report explains it.
The answer is algorithms. Insurance companies use sophisticated computer software that calculates a number of variables and comes up with a dollar amount.
The next question is who decides what the variables are? We'll get into that in our next post.
Source: InsuranceNewsNet.com, "Report: Insurers Manipulate Systems To Underpay Claims," Becky Yerak, June 11, 2012