COLUMBIA, S.C., December 14, 2004 — Following a new study by the Insurance Research Council (IRC), which found that auto injury claims in four no-fault states have escalated at dramatically different rates, ISO has identified three key areas where software can help reduce the dramatic rise in no-fault auto insurance claims costs. According to ISO, companies should examine procedures to combat the massive increase in fraud, control spiralling personal injury protection (PIP) costs and determine thresholds to control payments.
The IRC report, entitled Analysis of Auto Injury Insurance Claims in Four No-Fault States, found that from 1997 to 2002 average claims increased by 122 percent in Colorado, 60 percent in New York, 37 percent in Florida and just 2 percent in Michigan, which also had fewer claims per number of insured drivers. Types of treatment and medical charges varied dramatically from state to state. The report highlighted injury thresholds, which varied from a monetary threshold of at least $2,500 of medical expenses in Colorado to a strict verbal threshold in Michigan that restricts bodily injury claims to injuries that lead to permanent serious disfigurement, serious impairment of a bodily function or death.
"The variations in the no-fault state costs show just how much the industry as a whole still has to gain by adopting new procedures," said Lee Fogle, vice president of ISO. "Using the power of new software technology that is available now to address these three critical areas, organizations can substantially reduce the estimated $6.3 billion annual cost of auto insurance fraud nationwide."
At present, 12 states have no-fault insurance, and though Colorado repealed its no-fault insurance in July 2003 and reverted to a tort system, it still has a backlog of claims to settle.
The statistics are alarming in states that do not have no-fault insurance. According to Bob Nuemann, director of the Florida Department of Insurance Fraud Division, more than 80 percent of PIP claims in Miami are fraudulent. A report on Bankrate.com shows the frequency of claims in New York is 20 percent higher than the national average, and the state's severity of claims is 130 percent higher.
Fraud — a critical issue
A number of legislative and regulatory reforms have been made to help level the field between auto insurers and law enforcement on the one hand and perpetrators of staged accidents and medical mills on the other. These proposals include stiffer penalties for fraud, shorter deadlines for submitting medical bills, mandatory guidelines for treatment and the decertification of medical professionals convicted of insurance fraud.
However, software already exists to help insurers identify fraudulent claims. ISO ClaimSearch® improves claims processing and tracks fraud. It furnishes essential data for researching prior loss histories, identifies claims patterns and detects suspect claims. ISO ClaimSearch enables investigators using its NetMap for ClaimsTM and ViewLink ManagerTM software tools to sift through databases and visually represent hidden relationships, such as parties linked to multiple addresses, telephone numbers, vehicles or claims.
Controlling PIP costs
It is extremely difficult for insurers to assess the level of medical expenses being presented to them by insured drivers. "Reasonable" or "appropriate" treatment and time off from work are difficult to determine accurately without any industry benchmarks.
Insurers using systems that integrate a medical encyclopedia of injuries and their severity are able to provide claims adjusters with an in-depth understanding of injuries and benchmarks to assess appropriate medical treatments and costs. Those insurers are better equipped to consider the reasonable and appropriate nature of treatment programs and time off from work. Insurers using the ISO Claims Outcome AdvisorTM (COATM) database have set benchmarks and have saved as much as 9.8 percent per point of severity in bodily injury claims.*(*Severity is ISO's unique measurement of pain and suffering related to a specific medical condition and its related treatments, complications and preexisting conditions. ISO then ties this medical severity to specific dollars within company-defined regions and territories for purposes of measurements and negotiations.)
There are typically two types of thresholds that states use to determine the injured party's ability to sue, but these do vary from state to state. Dollar thresholds prescribe a specific monetary limit, whereas verbal thresholds use a written description of the types of injuries, such as broken bones or lost limbs, to define eligibility for a tort claim and lawsuit.
At present, there is no solution that enables insurers to conduct an independent injury assessment and compare it to thresholds on a state level. However, injury-assessment databases such as ISO's COA, which is continually incorporating both injury and threshold information, allow this sort of intelligence to be built in and enable adjusters to determine which claims comply and which do not.
"It is important that users are able to assess whether a claim will exceed the state threshold — either verbal or monetary — and we are expanding the intelligence already built into our COA database to enable claims professionals determine this more easily and objectively," concluded Fogle.
About ISO Claims Outcome AdvisorTM (COATM)
ISO Claims Outcome AdvisorTM (COATM) is the industry's first personal injury claims management database that manages the multiple dimensions of organizations' personal injury claims portfolios. The COA database understands the severity and recovery implications of over 18,000 injuries, treatments, complications and preexisting conditions and 14,000 occupations and creates for an insurer a historic database of all of its injury claims. COA helps claims handlers, managers and actuaries manage the unique and complex medical, legal and occupational issues presented by personal injury claims and helps ensure appropriate financial arrangements are agreed upon and implemented. Claims handlers can manage all aspects of a case from first notice of loss to return-to-work plans, rehabilitation and damages.
ISO is a leading provider of products and services that help measure, manage and reduce risk. ISO provides data, analytics and decision-support solutions to professionals in many fields, including insurance, finance, real estate, health services, government and human resources. Professionals use ISO's databases and services to classify and evaluate a variety of risks and detect potential fraud. In the US and around the world, ISO's services help customers protect people, property and financial assets.
Manuela Whittaker, IBA – ISO (U.K.)
01144 1780 721433