Jan. 20--Mark Romano can remember the moment in October 2010 that his life changed.
He was in his North Aurora home, on the Internet, Starbucks coffee in hand, when he saw the news about the outcome of a multistate investigation into Allstate Corp.'s methods for handling injury claims after automobile accidents. The Northbrook-based insurer agreed to pay $10 million as part of a settlement into its use of computer software to help determine payments to policyholders.
Having an insider's knowledge about industry practices, the former claims project manager was disappointed by what he believed was an incomplete examination and a financial slap on the wrist.
"At that moment, I knew that I could no longer remain silent and would have to find a way to warn consumers and the regulators of what had gone on," recalled Romano, who had taken an early retirement package from the nation's second-biggest auto insurer in August 2009.
For its part, Allstate says its claims handling complies with state laws and helps give "customers and claimants fair payments in a timely manner." The company said that its settlement with state insurance regulators found that the industry's use of software in claims handling "can provide significant benefits to the public in increased objectivity and efficiency." The settlement also stated that examiners found no systemic underpayment of bodily injury claims through Allstate's software, called Colossus.
The investigation, however, determined "the need for enhanced management oversight of Allstate's use of the" software program.
Romano insists such software programs can be manipulated, including by omitting the costliest incidents from settlement calculations, to produce low-ball offers to consumers.
Romano should know. His claims job at Allstate included working on the injury software that he is now criticizing.
"This is an admission that I did not feel that many of the things I was directed to do were proper and that I was hurting policyholders and claimants," he told the Tribune recently.
Today Romano is a whistle-blower of sorts, as the insurance claims projects director for nonprofit watchdog Consumer Federation of America.
In December, Romano spoke to the National Association of Insurance Commissioners in National Harbor, Md., about what he believes were flaws in the group members' 2010 settlement with Allstate. At the event, Romano, 54, was flanked by Robert Hunter, the federation insurance director whose work has been backed by consumer activist Ralph Nader.
"Mark Romano is a guy who knows from the inside what happens with claims," Hunter, 76, also a former Texas insurance commissioner, said in a recent interview.
The issue of claims payments takes on new resonance with superstorm Sandy, which pounded the East Coast last fall. A Staten Island couple whose home was damaged in the storm recently complained that Allstate had skimped on their claims payments while featuring their property in a feel-good advertisement.
In June, Romano and Hunter co-wrote a report for the consumer rights group titled "Low Ball: An Insider's Look at How Some Insurers Can Manipulate Computerized Systems to Broadly Underpay Injury Claims." Years ago, the payment of bodily-injury claims was based mostly on the knowledge of adjusters, but now many insurers increasingly rely on computer-based assessments.
Here's how such systems work, according to the "Low Ball" report: When an insurer buys the software, it conducts a "benchmark session" in which, with help from adjusters familiar with certain areas of the country, hypothetical claims are used to set the initial "tuning." The system that Allstate uses, Colossus, has about 600 codes representing various types of injuries, each of which has a dollar value settlement range. Periodically, an insurer might modify the software, perhaps removing or excluding certain outlying claims or settlements from the database. Those might include cases in which an insured driver has a major disfigurement.
By excluding that data, the recommended dollar settlement range to consumers is lower. The low end of the range is usually 20 percent less than the value of the claim being studied, Romano said.
Romano, a Tampa, Fla., native who has a bachelor's in risk management and insurance from Florida State University, began working at Allstate in 1999, when it acquired a unit of CNA Financial, his previous employer.
Romano, in an interview and in his "Low Ball" report, says he was Allstate's top Colossus expert. His work included "tuning" Colossus, upgrading the system, training employees on it, analyzing trends, and representing the company at industry conclaves about Colossus.
"Skewing occurred initially upon the installation of the product and continued via various methods," including subjective data scrubbing in which outliers were removed or in which adjusters picked injury codes that yielded lower settlement values, he told the Tribune.
By 2005, Colossus, which is sold by Computer Sciences Corp., had become the subject of class-action lawsuits by consumers who thought that they were being low-balled on claims payments.
In 2009, the lead states in the exam that was ultimately published in 2010 included Illinois, Florida, New York and Iowa. More than 40 states received part of the $10 million settlement with Allstate. Allstate also agreed to tell policyholders that it might use the software to assess their claims.
But Romano told insurance regulators last month that he thought their investigation into Allstate came up short.
For starters, the settlement had said the regulators visited Allstate offices in four states and interviewed more than 40 current and former Allstate claims workers, but Romano said he was never contacted.
He said state insurance regulators need to ask more of insurers using the software systems, including telling policyholders if, in the adjuster's analysis, any of their medical bills were reduced or excluded from the database.
Romano also told the National Association of Insurance Commissioners, the support group for state regulators, that the watchdogs' exam failed to delve into other ways the recommended settlement offers and tuning can be manipulated.
For example, some adjusters are also encouraged to determine that claimants are negligent to some degree, and therefore responsible for paying for some of their treatment. Romano also asked association members to monitor whether Allstate begins using such systems at Esurance, the online insurance retailer that it acquired in October 2011. Allstate is a profitable underwriter of insurance, but Esurance isn't.
Under the settlement, Allstate must undergo an annual review through 2015.
Romano, who like his mentor Hunter works pro bono for the consumer federation, now makes a living through two businesses: Romano Claims Consulting LLC, for which he has been an expert witness in a handful of cases for plaintiffs' lawyers, and a kitchenware store in Geneva that Romano likens to Williams-Sonoma.
He and his wife, who has had a mild form of multiple sclerosis since 2003, have owned the "very successful" store for about two years. Its business is growing fastest on the Internet, and so Romano has hired a Web developer to build out the store's online presence and improve its search-engine optimization. Romano's wife was working for another insurance carrier as a commercial claims adjuster, but she quit in October to work on the couple's ventures.
Romano, the father of two and grandfather of two, said he sometimes hears from former Allstate colleagues, but he said he discourages them about keeping in contact, worried that they'll get into trouble.
In 2007, Romano began suffering from vertigo and migraines, including during his commute to Allstate. Doctors prescribed motion-sickness drugs, tranquilizers and physical therapy. That same year, Allstate awarded Romano a "distinguished performance award."
He said his work took a physical toll.
"I just didn't feel good about some of the things I was involved in," he said.
In January 2010, Romano sued Allstate in a U.S. District Court in Chicago. According to the suit, in April 2008, Romano took time off under the Family & Medical Leave Act. But they transferred his position to another claims unit for which he lacked the experience. He was set up to fail, the suit said.
He returned to work in May 2008 and requested repeatedly, to no avail, that he be transferred back to his previous claims unit, which included Colossus.
In August 2009, he was offered an early retirement package. He said he figured he'd better take it or they'd find an excuse to fire him with a less-generous benefits package.
The January 2010 suit claimed that the company had violated the medical leave act by retaliating after he returned to work. His lawsuit claims that Allstate violated the act by transferring him to a nonequivalent position during his leave and by denying him the right to transfer to an equivalent position after he returned to work. He asked for, among other things, a return to his old job or a similar job.
Allstate said it doesn't comment on employee litigation. In its response to the lawsuit, the company acknowledged that Romano's tenure at Allstate included working on Colossus. The two sides settled for a nominal amount, Romano said. He said his speaking out against computerized claims systems such as those used by Allstate isn't a matter of sour grapes over his medical-leave lawsuit.
Hunter said that, at the consumer federation, Romano also fields calls from the public with claims questions that stump other staffers. He also brings an insider's perspective to the consumer advocacy job. For example, Romano also wrote, available on the federation's website, "Guide to Navigating the Auto Claims' Maze: Getting the Settlement You Deserve." He advises, for example, that policyholders who are unhappy with their claims adjusters need to aim higher up the food chain, to at least an office manager or higher. Their compensation, Romano explains, at least partly depends on customer service scores. An earlier federation guide about how to dispute claims didn't include that perspective.
"He knows where to complain at the company," Hunter said.
Getting your insurer to address your concerns
"Guide to Navigating the Auto Claims' Maze: Getting the Settlement You Deserve" is available at ConsumerFed.org.
Among its tips:
-- Ask the claims adjuster if your medical information will be assessed using an injury evaluation software program or a third-party firm. If so, the company might make you a low-ball offer to settle your claim.
-- Request a copy of the evaluation software program, also called a consultation report.
-- Most consumers ask to speak to the adjuster's supervisor if they're not satisfied with an adjuster's response to their concerns, but claims supervisors have little authority or inclination to make changes in how the claim is handled.
-- At the very least, determine who runs the office in which the adjuster works. That individual's title could include "manager" or "director" to "regional vice president." Explain your situation to them, referring to your notes if necessary. Supervisors at that level are often interested in customer service because a component of their annual bonus is based on how they resolve complaints. "The last thing a local or regional claims office wants is a call from the home office," it said.
-- If you're unable to resolve the problem with your insurer, file a complaint with your state's insurance commissioner.
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