UPDATE: Allstate In $10 Million Regulatory Accord On Claims Software
October 18 2010 - 5:17PM
Dow Jones News
Allstate Corp. (ALL), the largest publicly traded home and auto
insurer, reached an agreement with 45 states to pay $10 million and
change the way it uses a software program that calculates how much
to pay on injury claims.
Allstate agreed to pay the $10 million to the states--led by
Florida, Illinois, Iowa and New York--to set up a fund to help
train state regulators on the use of software in adjusting
insurance claims, according to a statement from the New York State
Insurance Department on Monday.
The department stated that Allstate will be "enhancing its
management oversight" and "strengthening its internal auditing" of
the use of the software, called Colossus. As part of the regulatory
settlement, the company agreed it wouldn't pay added incentives to
claims adjusters who settle claims for amounts close to what the
software said was appropriate.
The examiners found there had been "too much subjectivity" in
deciding which earlier claims to include in the Colossus program to
determine proper payments in the future, and that awards for injury
claims from court cases weren't included in the model, said Steve
Nachman, New York's deputy superintendent of frauds and consumer
services.
"Conceptually, there's nothing wrong with using this type of
program," which can be helpful in paying injury claims in a
consistent manner, Nachman said. "But it had been a black box."
The settlement concludes a so-called market conduct exam, in
which state insurance regulators evaluate an insurer's practices
and determine if they're in compliance with applicable regulations.
New York's insurance department said in the statement the exam
"found no systemic underpayment of bodily injury claims" and that
the Northbrook, Ill., insurer cooperated with the exam.
Allstate, in a separate statement, said the exam found that the
use of the Colossus software "provides significant benefits to the
public in increased objectivity and efficiency" and concluded that
"insurance department personnel need to be better trained to
understand claim-handling technology and its use," which it said
was the impetus for the $10 million fund.
Allstate shares rose 13 cents to $32.56.
-By Erik Holm, Dow Jones Newswires; 212-416-2892;
erik.holm@dowjones.com
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