In August 2012, during the Summer Meeting of the National Association of Insurance Commissioners, the NAIC’s Market Regulation and Consumer Affairs (D) Committee discussed the Consumer Federation of America’s request for an investigation of computerized claim systems. The impetus for the discussion was the CFA’s report on a tool called “Colossus,” which helps insurers evaluate the non-monetary component of bodily injury claims. Consumer advocates urged that regulators implement immediate reforms on monitoring and regulating claim review tools.
The report warns that “computer-based assessment” of claims has replaced “the experience and knowledge of” adjusters, and that automated systems are susceptible to system-wide manipulation to lower valuations. Colossus, for example, uses each insurer’s historic claims data to suggest a range of payments for new claims that is consistent with past practice. If the data is improperly limited or modified, the tool can mislead an adjuster, suggesting a range that is artificially low.
At the Committee meeting, representatives of two consumer groups, United Policyholders and The Center for Economic Justice, asserted that Colossus and another tool (Xactimate, which organizes and processes information about property claims) are causing insurers to undervalue both bodily injury and property damage claims. The groups urged the regulators to conduct an investigation, with testimony from vendors and insurers, into how various claim systems were developed, how they work, how insurers actually apply them, and whether they have provoked consumer complaints.
Witnesses also suggested the NAIC could directly regulate vendors of claim review systems, on the ground that their tools facilitate rate setting, and so that the vendors are analogous to rating agencies. They urged the Committee to investigate the effect that claim tools have had on determining rates. The Committee adjourned the meeting without action, but took these suggestions under advisement.