Storm of Money coverage

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The S.C. Department of Insurance wasn’t aware that an insurer could have manipulated software in South Carolina to boost profits by lowering payments for injury claims.

The department, however, is part of a multi-state effort to study Allstate’s use of a computer program called Colossus, Ann Roberson, an executive assistant with the department, said Thursday.

On Sunday, The Post and Courier reported that the program had been “tuned” in the early 2000s to reduce settlements for claims made to Allstate’s Encompass division in South Carolina.

Roberson said agency staffers had no knowledge of this situation but that they searched files for complaints about Allstate and Colossus and didn’t find any.

She said the department is part of a group of states looking at Allstate’s use of Colossus, and that the agency hasn’t ruled out anything. “We will see this process through and if warranted take the necessary actions.”

J. Robert Hunter, director of insurance for the Consumer Federation of America, urged the department to do its own probe.

“Every state has the absolute duty to regulate unfair claims payments in their state,” he said, pointing to a state law that prohibits insurers from settling claims “for an amount less than the amount otherwise reasonably due.”

Hunter said misuse of Colossus would violate this statute. “The department is supposed to enforce the law and with what they now know, must act in my estimation.”

The company that owns Colossus, CSC, said it leaves adjustments to its program up to insurance companies.

Allstate said in statements to the newspaper that it uses Colossus to more efficiently handle claims, and that state regulators took an in-depth look at its Colossus procedures and policies in 2010 and found no violations of state statutes.

Sunday’s story outlined how insurance companies increasingly use computer programs to help determine how much people get paid for injury claims. Critics call these programs “black boxes” because their inner workings are cloaked in secrecy.

The report documented how a former high-level Allstate employee, Mark Romano, “tuned” Colossus to dramatically reduce payouts to South Carolinians seeking money for injury claims.

Romano said Allstate’s Encompass division in 2000 divided South Carolina into two territories, one called “Charleston” and another dubbed “Palmetto” for a region outside the Charleston area. By adjusting Colossus, payments for claims in the Charleston region could be reduced by 57 percent from previous levels and 18 percent in the Palmetto region.

Romano eventually left Allstate and became a consumer advocate with the Consumer Federation of America.

In 2010, New York, Florida and other state insurance regulators examined Allstate’s use of Colossus, an investigation that was done in coordination with the National Association of Insurance Commissioners. The investigation resulted in a $10 million fine and an agreement by Allstate to change some of its Colossus procedures.

Roberson said the new examination is a “follow-up” to the 2010 investigation, and that the department is “part of the exam process.”

Romano has been critical of the original NAIC examination.

“The exam focused almost exclusively on the tuning process of the software,” he said Sunday during an NAIC meeting in Washington, D.C. “The tuning data that was reviewed for this exam came from me.”

But the NAIC investigators never contacted him. He urged regulators to take a deeper look at these computer programs. “If not, insurers are free to continue to take advantage of the public.”

Reach Tony Bartelme at 937-5554.