Putting a price on auto injuries:
How software called Colossus evaluates your pain
By Joe Frey, Insure.com
(Last updated June 26, 2000)
Insurance company claims adjusters use computer software to appraise just about every auto and home insurance claim you make. There are software programs that evaluate damage to your vehicle after an accident, damage to your home after a storm, and even your injuries after you've been involved in an auto accident.
One of the most widely used software programs is Colossus, from Computer Sciences Corp. (CSC), a company based in El Segundo, Calif., that provides cost-containment and profit-management software for insurers and other businesses. Colossus, according to CSC spokesperson Marian Kelley, is used by more than 50 percent of the nation's claims adjusters and by 38 agencies that represent more than 300 insurance companies. Kelley says Colossus (which is the market leader in bodily injury claims-handling software) gleaned its name from the Colossus of Rhodes, a statue that stood over the harbor of Rhodes in ancient Greece.
To use Colossus, an adjuster inputs data about a claim and Colossus calculates a range of values for the claim's worth. The Colossus program can evaluate more than 600 injuries, according to Kelley. A broken arm, pinched nerve, strained back, bruised ribs, and torn muscles from an auto accident are examples of injuries for which Colossus will produce a suggested settlement price.
Adjusters then offer to settle a policyholder's claim based on the Colossus calculation. Insurance companies say that while adjusters are required to use Colossus, they're not required to settle within the suggested Colossus calculations. Colossus is just a guideline for their adjusters, insurers say.
The main value of Colossus is that it provides consistent estimates of injury costs. Insurance company claims adjusters have varying degrees of knowledge and experience, which can lead to varying judgments in the value of claims. "When adjusters evaluate claims, the one they last handled is the freshest in their minds," says Dennis Smith, director of claims of the eastern division at American National Property and Casualty Co. That freshness can influence the evaluation of a new claim, causing an adjuster to pay too much or too little, Smith says. What's more, inexperienced adjusters can be ill-prepared to properly evaluate bodily-injury claims because they may conduct inadequate investigations or collect insufficient data, which also can lead to overpayment or underpayment of claims.
Consistent injury estimates are crucial because, as a 36-page CSC marketing brochure about Colossus asserts: "The insurance industry loses billions of dollars each year because insurers pay claimants inconsistently."
Insurance companies that spoke to insure.com about their use of Colossus note that Colossus could help contain costs, but it is first and foremost used to settle injury claims consistently within a given region, so that customers don't receive wildly different claim checks for similar injuries. Colossus has helped contain costs to a certain degree at The Hartford, says Julie Kraft, the insurer's assistant vice president of cost containment for property/casualty claims. But she was adamant that Colossus is primarily a claims-adjusting tool. "It forces the claims adjusters to have all the medical information before they settle a claim," Kraft says. "It helps our employees do their job better."
Smith of American National also acknowledges that Colossus can save money for his company in certain cases, but he emphasizes that the software program has eased the hardest job for an adjuster: evaluating a bodily injury claim. "No two claims adjusters will come up with the same value for the same injury. Colossus puts consistent values on bodily injuries," he says.
By requiring adjusters to rely on a computer program to help settle claims, insurance companies can eliminate adjuster guesswork. Competing software is made by ADP Claims Solutions and Mynd, but the 21 companies insure.com polled say that they use only Colossus and no other software program to evaluate bodily-injury claims. In addition, CSC has agreed to purchase Mynd for approximately $568 million in cash, which would eliminate one competitor if the deal is approved by Mynd's shareholders.
Colossus is able to calculate a range of bodily-injury claim values because auto insurers using the software select a number of closed, already-settled claims from each region in which they do business to provide the "baseline" settlement value for each type of injury. For example, an insurer might pick 300 soft-tissue injury cases — such as neck or back strains — from a particular region that previously settled for between $2,000 and $5,000 and enter them into the Colossus program. Based on this past settlement data, Colossus calculates a settlement range for similar claims. Insurers update Colossus annually with their new closed-claims data. The number of closed cases used to calculate the baseline differs by insurer, and because insurers update Colossus annually with their new closed-claims data, the baseline differs by insurer.
The software itself makes a lot of demands on adjusters, requiring them to enter scores of information. "You have to have a good medical record of what the injury is," says Smith of American National Property and Casualty Co. "Any injury can have many peripherals attached to it. A neck injury might cause a pinched nerve, which may or may not cause injury down to the finger tip, for example. Colossus is very good at finding out what kind of injuries are actually present," he says. And the more information an adjuster inputs, the more accurate Colossus' calculation becomes.
Colossus "tells you what the case is worth in pain-and-suffering damages based on thousands of closed bodily-injury cases within a geographical area," explains Kevin McDonald, president of Arrowhead Claims Management, a San Diego-based company that handles the claims-adjusting services for Clarendon National Insurance Co.
But Colossus' usefulness ends when serious injuries, such as quadriplegia, are in question. Further, Smith specifically notes that Colossus is not designed to handle claims involving dental injuries, scarring, head injuries, or psychological problems.
Why? Kraft of The Hartford says that Colossus' purpose is to aid the adjuster in calculating the legitimate medical and pain-and-suffering expenses that arise from a claim, but with severe injuries, there are many other factors that outweigh medical costs. For instance, in the event of a car crash that results in a fatality at impact, the amount of the pain-and-suffering reimbursement due often can't be measured by using a computer formula.
Insurance companies insist that Colossus is just one of many tools that adjusters use to review the facts of a claim. It is no substitute for an adjuster's experience, knowledge, and training, they says, and that adjusters are not required to settle claims within the range that Colossus provides. However, because insurers have invested big-time bucks in Colossus, every adjuster is expected to use the computer program for all applicable claims, whether or not they go with the suggested claim value. Colossus' price is a well-kept secret, but it's "very expensive," according to Smith of American National.
You won't be able to see how the program works yourself. Colossus' calculation of your claim is based on insurance data to which you don't have access, and neither insurers nor CSC will divulge exactly how they determine the Colossus baseline value. This unwillingness to share inevitably sets off alarm bells among lawyers.
Allstate Insurance Co. has become the lightning rod for trial lawyers who are suspicious of the industry's use of Colossus.
Plaintiff lawyers assert, and Allstate has acknowledged, that the insurer takes a hard line when it comes to paying bodily injury claims — especially ones it judges to be inflated. Colossus is at the heart of Allstate's Claims Core Process Review (CCPR), a program instituted in 1996 at Allstate to cut claims-department expenses. Allstate's own CCPR users' manual states that the inflation of minor soft-tissue injury cases is a "national problem" that "can and should [be managed] to provide greater financial support to the company." The CCPR manual cites Colossus as an integral part of reducing costs at Allstate.
Kevin Mahoney, a trial attorney based in Waldorf, Md., says that Allstate's stringent use of Colossus makes the settlement of bodily-injury claims tough. "We've never had as difficult a situation in settling claims with any company as we've had with Allstate," Mahoney says.
In one of Mahoney's recent cases, an Allstate claims adjuster told him that Colossus would not calculate an injured person's future medical expenses for an injury, even though it is standard practice in the industry to anticipate those claims. "I was so stunned by the comment. Allstate's making it so no one can settle a claim fairly," Mahoney says. Payment for future medical expenses directly caused by the auto accident is an integral part of getting a fair settlement for a bodily-injury claim.
"Allstate uses Colossus differently than everyone else," accuses Chip Merlin, a trial attorney based in Tampa, Fla. "Come Hell or high water, Allstate won't offer anything over the Colossus value of ranges," he says. Merlin alleges there is a great deal of pressure on Allstate adjusters to settle only within the limits recommended by Colossus because adjuster bonuses at Allstate are tied to it.
A lawsuit filed in Bernalillo County, N.M. (Truong vs. Allstate Insurance Co.), is seeking class action status and further outlines Allstate's alleged misuse of the Colossus program. The suit claims that Allstate's primary objective is to reduce fair claims payments by requiring its adjusters to use Colossus to settle claims, and by rewarding and promoting adjusters who lowball claims payments.
Whitney Buchanan, the Albuquerque, N.M., trial attorney who filed the case, says that Allstate's rigorous use of Colossus is specifically what drives fair claims payments downward. Allstate calculates the median Colossus settlement amount at the 10th percentile, charges Buchanan, which means that the amounts of only the lowest 10 percent of settled claims are the basis for Colossus' bodily injury calculations. For example, if 200 settled cases are initially entered into Colossus, the settlement values of only the lowest 20 claims allegedly will be the baseline for Allstate's future payouts on all similar injuries.
Allstate shrugs off the trial lawyers' allegations. "We're not concerned about what the trial lawyers are saying about our processes," says Christine Sullivan, a director in Allstate's property/casualty claims service organization. She says that Allstate adjusters are required to use Colossus for the majority of bodily-injury claims, but they aren't required to settle within Colossus' suggested values. Allstate has used Colossus since 1995, and Sullivan notes that the software has helped Allstate's claim offers become more consistent, but that it hasn't necessarily saved the company money.
Despite the lack of litigation against any other insurer over the use of Colossus, Merlin charges that such software could harm unwitting consumers because adjusters might not be adequately trained to use Colossus, resulting in a "garbage in, garbage out" scenario — misinformation input into Colossus could lead to poorly evaluated claims. Merlin also contends that policyholders should be able to verify the settlement amounts on which Colossus bases its calculations. However, such claim-settlement data isn't publicly available. "A lot of people get awfully suspicious when one party has the claim estimate and can manipulate it anyway they want," he says.
Sullivan of Allstate says her company does not tell its claimants about Colossus, even if they ask if it's in use. She asserts that Allstate's use of Colossus is no different than that of other insurers: "It's just a tool, a guideline the adjusters use."
However, attorneys say that those guidelines — since they're not available to the public — put consumers at a disadvantage. "There's something sinister and surreal about a computer becoming the arbiter of the value of human life," says Karen Greig, an attorney based in Bellevue, Wash., who's litigated dozens of bodily injury suits against Allstate. "You can't negotiate with a computer."