By Dave Lieber
watchdog@star-telegram.com
We know that computers collect information about what we like to eat, the music we listen to, even what we write in e-mails. Computers are taking over our lives. That's what happened in the 1970 movie Colossus: The Forbin Project. That computer talked, announcing that it was "the voice of World Control."
"In time," Colossus said, "you will come to regard me not only with respect and awe, but with love."
The movie was 40 years ahead of its time. A modern-day Colossus is at work in our lives. It's a powerful software program that goes by that name. And Colossus is truly regarded with respect, awe, even love by one segment of society.
The insurance industry.
Most major insurers use Colossus to help them decide how much to pay for auto-injury claims. Computer Sciences Corp., which has produced software almost as long as computers have been sold to companies, sells Colossus to major insurers to bring across-the-board "fairness and consistency" to claims.
Critics say companies can manipulate the software after installation to make across-the-board savings in claims.
Lower payouts to claimants, of course, can mean increased profits for insurers and their shareholders.
The Consumer Federation of America says millions of Americans filing auto-injury claims are being shortchanged because of Colossus -- and they don't know it.
The federation's researchers released a report last week that paints a picture of a powerful yet little-understood program that deceives both claimants and state insurance regulators with its ability to reduce payments to injured people.
Most top insurers use Colossus or competing software.State Farm is the exception, the only major insurer the researchers found that doesn't use such programs to calculate payouts.
In a class action lawsuit against Computer Sciences in 2009, one of its executives testified in a deposition that an insurer could tune the software up or down to increase profits "like a water spigot," the federation reported.
A Computer Sciences marketing presentation introduced as evidence shows the company bragging that Colossus develops a range of payouts, eliminates subjectivity and improves the insurer's negotiating position.
"What does Colossus really do?" the presentation continues. The answer: "lowers indemnity payouts ... lowers loss ratios ... improves surplus/profitability."Critics say the software doesn't take into account problems that can't be summarized with a number, such as pain and suffering, loss of work, and unforeseen future losses. These are factors that juries consider if lawsuits come to trial.
After the federation released its report, Computer Sciences Vice President Ed Charlton said in a statement that the software is not used to low-ball claims.
"The system is not designed that way," he said. "And the system does not make payments."
Adjusters enter information into the system based on the severity of the injury, he said. Actual payouts are agreed upon by insurance company staffers (humans) and the recipients, not by Colossus.
Mark Hanna of the Insurance Council of Texas said manipulating data to reduce payouts is wrong and illegal.
He also said insurers use the software "to save time and expedite the processing and payment of claims, not arbitrarily cutting a certain percentage off every claim."
Two years ago, Allstate settled an 18-month investigation by the National Association of Insurance Commissioners into its use of Colossus. Investigators found no systematic underpayment. Colossus did, however, make it easier for adjusters to undervalue specific claims.
Allstate paid $10 million that is to be used to train state regulators on how to spot problems better with this claims technology.
Hanna said that if there is a problem with the software, Texas regulators can monitor its use and determine wrongdoing.
But the consumer federation says state regulators are not very good at catching manipulations. Federation Insurance Director Robert Hunter, who was Texas insurance commissioner under Gov. Ann Richards, called on regulators to delve deeper into how the software is used. The federation wants states to regulate the software makers, too.
A Texas Insurance Department spokesman told me that staffers there had not read the federation report. "We will determine whether there is a need for further investigation after reviewing the report," he said.
The federation says claimants should ask their adjuster whether the company uses software to help decide the payout. If so, they should ask for a copy of the software's report and an explanation.
Only Allstate, because of the lawsuit, is required to inform customers that the software is used.
For help to understand how a claim has been changed and why, start by asking the company. If you're dissatisfied, file a complaint with the Insurance Department.
After that? Possibly a lawyer.The Watchdog column appears Fridays and Sundays.Dave Lieber, 817-390-7043Twitter: @davelieber
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