An insider's thoughts on how insurance carriers manipulate data when evaluating claims.

I saw a great article online the other day and George Bellas linked to it as well. Becky Yerak, an writer for the Chicago Tribune, wrote about how insurance companies using computer software to evaluate injury claims can manipulate the data. And Yerak had a particularly valuable source – Mark Romano – a former Allstate Insurance Claims Manager. But Romano wasn’t just a simply Claims Manager. He was also the guy that oversaw Colossus – the software program that Allstate uses to evaluate injury claims.

The article details that in October, 2010, Allstate agreed to pay $10 million dollars as part of a settlement regarding Allstate’s use of certain software programs to evaluate payments to policyholders[presumably on underinsured, or uninsured automobile injury claims]. Despite that large number, Romano felt the settlement amounted to a slap on the wrist.

Romano says that the software programs at issue are manipulated to skew the numbers downward. And, in a rather shocking admission, Romano ommented that while overseeing claims at Allstate, “I did not feel many of the things I was directed to do were proper and that I was hurting policyholders and claimants.”

Last June, Romano co-authored a Report entitled “Low Ball: An Insider’s Look at How Some Insurers Can Manipulate Computerized Systemsto Broadly Underpay Injury Claims – which in layman’s terms would be retitled: “How Insurers Use Software to Screw Claimants”. In the Report, Romano describes the ways insurers keep their payments down. For example, insurers periodically remove large settlements from the database. Poof!! One day those large settlements are just gone. The big numbers go missing but the small numbers remain. Then the adjusters use those artificially created numbers and tell claimants: “Hey the numbers don’t lie…here is what people typically recover for your type of injury.”

The report also details how insurance software has hundreds of codes representing various types of injuries. Collossus, for example, has approximately 600 injury codes. Experienced adjusters, in evaluating specific claims, can pick codes that typically result in lower settlements. Again, manipulation of the software to lead to a specific result -low offers. Lawyers who suspected these types of shenanigans were going on eventually filed a multi-state class action lawsuit against Allstate that led to the $10 million dollar settlement. Additionally, as part of the settlement, Allstate agreed to tell policyholders that software was being used to assess claims.

And that gets us back to Romano’s thoughts on the settlement. He doesn’t think that the investigation into what Allstate was doing was complete. For example, the investigators claimed to have interviewed 40 Allstate claims personnel in 4 states. But Romano -the Allstate Claims Manager who also supervised the Colossus program – was never contacted. And, Romano thinks that significant issues – like precisely what medical bills adjusters consider – were left unanswered.

Interestingly, Romano ended up suing Allstate in federal court. He claims that he took some time off work under the Family and Medical Leave Act in 2008. And, he claims, upon his return, Allstate punished him for taking time off by putting him in a new position and refusing to return him to his former job. That lawsuit was settled for what Romano described as a “nominal” amount. Romano insists however, that his fight against computerized claim analysis isn’t sour grapes.

Allstate claims that the way it evaluates claims is perfectly legal and gives customers and claimants fair payment in a timely manner. Right.