Colossus: The Controversial History of Insurance Claims Management Software and Its Australian Origin
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In the Shattered Episode - 'The Punishment of Money' we examine the need for greater transparency and lived experience co-design for all Claims Management Software used in Workers' Compensation pointing to a troubling history of claims management in insurance that has spread from Australia around the globe.
A computer software program first introduced into the 1990's appears to be the villian. The software, Colossus, is an “artificial intelligence” program insurance companies use to lower the amount they pay on insurance claims.
Research suggests that the name Colossus came from a science fiction book on Artificial Intelligence called Colossus by D.F Jones about super computers taking control of mankind which was later turned into the movie Colossus: The Forbin Project
Apparently according to the website AutoAccident.com adjusters can set Colossus to intentionally underpay claims, typically by 12-20%.
This is the primary way the software saves the insurance company money. This intentional underpayment of claims is often bad faith or failure to settle the claim fairly, promptly, and reasonably.
Other Versions of Software That Accomplish the Same Goal
There are several claims evaluation software programs today, the most popular being Colossus, ClaimIQ, Liability Navigator, Guidewire and others. Each program works differently, but they are all built on the Colossus model and made to achieve the same goal.
Colossus’s Internal Point System
Colossus evaluates claims based on a severity scale by providing weight to injuries and other factors as “severity points.” Injuries or “factors” do not have specific monetary values. Instead, each injury is given a certain number of severity points. The value of each point changes based on the number of other severity points in the claim. The more points per claim, the more value each point in the claim has.
The system totals all the points to give an internal Colossus score for the claim and uses complex algorithms to assign a dollar value to this point total by weighing massive amounts of data. The system programmers assign severity points to an injury, and the insurance company sets the sliding dollar value per point.
Using Lawyer Data
It is reported that Colossus’s tracking algorithms also track lawyers and law firms. The program knows the record of each lawyer – how eager they are to go to trial, how often they win, and their trial verdicts. It does this for every lawyer and firm and often tracks individual paralegals. By building these aggregated data profiles, the program can very accurately determine what course to take with a given law firm or lawyer to get the result the insurance company wants. Sometimes, the programs will even generate “negotiation advice” for adjusters.
To us at Shattered, we understand the purpose of claims management software, however, the intrusive nature of the data collected on the injured appears biased and intensely unfair for those already suffering. There is little hope of equity in this system unless all of this is addressed. The fact that most of this has been buried out of sight by insurance companies who aggressively market their 'promises and products' to consumers, that they are there for them during life's critical moments is disturbing.
Moreover this evidence confirms the outcry with regard to poor claims management more broadly across the entire sector of insurance - both General Insurance and Social Insurance (Workers' Compensation).
This raises the question therefore:
Why is the NSW Government collecting mandatory premiums from employers, investing their money to benefit the Government only to be abusing its vulnerable injured citizens in order to make more money? Is it not government's role to care for its citizens and provide the safety net that workers' compensation is meant to offer. It requires answering.
The notion that reform can fix all of this without addressing these abusive practices is ludicrous.
Please Explain: Clarification Required By iCare on Underpayment Scandals
At least three major underpayment issues were unearthed during the 2020 iCare Scandal. A review of press coverage indicates that at least one of these major underpayment breaches resulted from claims service providers not applying relevant indexation to payments, so weekly benefits were not properly tied to movements in the Consumer Price Index (CPI) during 2012 - 2019.
With this information to hand there is now an urgent need for iCare to explain the underpayment scandals they uncovered in 2023 and how was it that this occurred in the first place.
1: What was the root cause of this?
2: What claims management software was being used?
3:Which insurance agents were responsible for the underpayments?
4: What has been done to ensure it does not occur again?
Additional Reading
Icare executives spruiked software company despite delays and blowouts - $98million to software company Guidewire to develop iCare's bespoke billing and claims management platform. Claims platform was running one year behind and employers were complaining they were receiving the wrong premium notice and inaccurate EML who was appointed to manage all new claims for iCare's workers compensation scheme in 2018 told a parliamentary inquiry it had to wait 13 months for the Guidewire platform to be ready.
Current iCare Claims Service Providers (Insurers) - Icare Increases number to Six - Allianz, Gallagher Bassett, GIO, DXC Technology, QBE, EML (from June 2024)
https://www.icare.nsw.gov.au/employers/understanding-workers-insurance/About-CSPs-and-Choice
"A report in 2019 from the State Insurance Regulation Authority (Sira), however, laid out a damning picture of the competence of icare’s management.
It listed incorrect weekly payments to injured workers, duplicate payments for diagnostic services and serious failures in its automated claims management system. The failures had allegedly led to 50% of cases being incorrectly classified."
Background Of Colossus
The story of Colossus, one of the most influential claims management systems in insurance history, is a complex tale of technological innovation, corporate profits, and human consequences. While it began as a solution to rising claims costs in Australia, its legacy raises serious questions about the ethics of automated claims processing and its impact on injured people.
The Australian Origins
In the late 1980s, facing claims costs rising at 14% annually, the General Insurance Organization of Australia (GIO) partnered with Computations International Insurance Systems Pty. Ltd. (Computations Pty Ltd) to develop Colossus. After implementation, GIO's claims costs decreased dramatically - a result that would attract attention worldwide, but also raise questions about whether these savings came at the expense of fair compensation for the injured.
Birth Of GIO
In 1925 a NSW Labor Government came to power enacting major social reforms which included widows' pensions, child endowment and reformed workers' compensation. UnderJ.M.Baddeley, Minister for Labor and Industry, Ralph Perdriau, later to become first Chairman ofthe Workers' Compensation Commission, drafted the Workers' Compensation Bill making compulsory insurance by every employer o f his workers' compensation liability.
The definition of worker was widened and benefits increased, a controversial disease benefit was introduced, premium rates for different occupations were set, and risk was to be spread by reinsurance. Insurers were to provide three year balance sheets and lodge a deposit in order to be licensed to insure in this field. The preliminary draft provided for establishment of a Government Insurance Office such as was already a monopoly in Queensland, but this aspect was eliminated from the Bill before going to Parliament.
The Worker's Compensation Bill 1926 had an unprecedented hostile reception from the press, well organised by both insurers and employers' organisations. Postponement of its enaction was refused when, on June 24th, a deputation from the Accident Underwriters Association of New South Wales representing 71 insurance companies objected to its terms.
The following day Premier Jack Lang announced that the Treasury Insurance Branch would enter into competition for the business as the Government Insurance Office. It was expected that this would eliminate the excessive charges by insurers.
The Mutual Indemnity Co. reduced its disease premium from 40s% to 30s%, and the Premier announced the GIO rate as 20s% (There were 20 shillings to each pound so that 20s was in fact 1%).
Parliament had not been in session during the crisis which brought the GIO into being, and it was not until 20th January 1927 that William McKell, as Assistant Treasurer, introduced the Government Insurance (Enabling and Validating) Bill to give legislative authority, by which time the Office's rates had already been lowered, thus lending an argument to the lengthy debate. Following assent to the Act, all powers that it conferred upon the Colonial Treasurer were delegated to the General Manager, William McFarlane, previously manager of the United Insurance Company, and with experience of workers compensation.
In 1923 the Commonwealth Royal Commission on National Insurance had proposed a National Insurance Fund to cover workers' compensation. In his first annual report, Mcfarlane recommended that, in order to reduce premium rates to a minimum, insurance be scrapped and a State Compensation Fund set up to which employers should compulsorily contribute at a flat rate chargeable on wages. Such a simple but radical proposal attracted little support.
GIO & Technology - Intelligent Computer System Named Colossus
In 1986 the Information Services Division of GIO was set up in St Leonards, north of the harbour, with over 100 technical staff providing computing, communications, applications and consulting staff, the central computer complex supporting a network of 575 terminals and 460 printers in more than 60 locations. The Division implemented a modem voice communications network consisting of 8 NEC PABXs covering all localities in the Sydney metropolitan area.
It is this division we speak of when we introduce the radical software that was to change the landscape of international insurance and build the entrenched stigma and adversarial strategies used by insurers today that gaslight and terrorise injured and sick people while trying to recover from workplace injuries.
The company Jecha was formed in 1984 as a joint venture between GIO and Computations Pty Ltd a company which develops IBM based application software packages for the finance industry. By 1987 it had two large NAS computers. Jecha network served GIO head offices and regional centres supporting Commercial, Funds Administration, Finance Company and Investments Division business, also connecting Computations locations in UK, USA, Sydney and Melbourne. GIO subsequently purchased Computations interest in the joint venture and all computer processing facilities and most staff transferred to GIO Information Technology Division which provided processing facilities to Computations.
By 1990 an "intelligent" computer system COLOSSUS had been developed by GIO, capable of assessing personal injury claims and eliminating inconsistencies in assessments.
You can read more of the historical context of Government Insurance Office (GIO) prepared by the NSW Parliamentray Library for period 1926 - 1991: https://www.parliament.nsw.gov.au/researchpapers/Documents/Historical%20Notes%20on%20the%20GIO%20of%20NSW%201926-1991.pdf
Summary of Colossus Impact
Development Context (Late 1980s)
- GIO Australia's Claims Crisis
- 14% annual claims cost increases
- 100% variation in assessments
- Need for standardization
- Over 250 assessors requiring guidance
Colossus System Architecture
- 15,000 rules in knowledge base
- 600 injury classification codes
- Up to 700 assessment questions
- Five key assessment elements:
1. Trauma
2. Impairment
3. Disability
4. Loss of enjoyment of life
5. Disfigurement
Implementation Impact
- Reduced assessment variation from 80% to 15%
- 74% of claims settled within 9% of assessment
- Stabilized general damages costs
- Global export and influence
This success led to other insurers licensing the product
GIO Evolution
- Government ownership origins
- 1991 Corporatization
- 1992 Privatization
- 1999 AMP acquisition
On 1 July 2001, Suncorp acquired AMP's Australian general insurance interests, including GIO. On acquisition, the Suncorp's general insurance customer base doubled and the business mix became more diversified, with growth in personal and business lines and the addition of workers compensation.
McKinsey 1990's Era Influence
- Focus on claims profitability
- Industry-wide standardization
- Cost containment strategies
- Process optimization
Global Export
- International system adoption
- Industry standard setting
- Framework for modern AI
- Influence on global practices
The American Expansion and Controversy
Continuum acquired Colossus and brought it to the United States in 1992, with USF&G among the first adopters. However, the system's most controversial implementation came in 1995 when Allstate integrated it into their Claims Core Process Redesign (CCPR), developed with McKinsey & Company. What followed highlighted the darker side of automated claims processing.
Allstate faced civil contempt fines in multiple states for refusing to disclose the "McKinsey Documents" detailing their profits from the system. The situation became so serious that Florida threatened to prohibit Allstate from writing insurance in the state. These events revealed how Colossus had become a powerful profit machine - not through efficiency, but by systematically reducing settlement offers to injured people.
Technical Problems and Corporate Indifference
In 1996, Computer Sciences Corporation (CSC) acquired Continuum. During this transition, the original programming team identified serious problems with Colossus's programming and repeatedly tried to alert CSC management. When their concerns were ignored, they left to form GS Computing (later NeuronWorks Pty. Ltd.) in Australia. One of the co-developers, Graham Bartholomew, went on to develop Claims Outcome Advisor (COA) with Policy Management Systems Corporation, aiming to address Colossus's technical shortcomings.
The Human Cost
While CSC proudly announced that Colossus was being used by 34 insurers representing 60% of US Direct Written premiums for personal auto insurance, plus 38 claims agencies serving over 300 additional insurers, this widespread adoption had a darker significance. It meant that the majority of injury claims in the United States were being processed through a system designed to minimize payments to injured people.
The system spread globally, with significant usage in Germany, France, Spain, Italy, the United Kingdom, and Australia. But with this expansion came growing concerns about its impact on injury victims.
Note: Colossus is now a registered trademark of DXC Technologies, formerly CSC. DXC is the new name for a merger between CSC and a fromer division of Hewlett Packard. Colossus is licensed by DXC to individual insurers for their use in evaluating bodily injury claims. Since much of the history of Colossus relates to its ownership by CSC we often refer to CSC in this blog post.
Legal Challenges and Ethical Questions - Class Action
In 2006, these concerns culminated in a multistate class action lawsuit, Hensley v. Computer Sciences Corporation, filed in New Mexico. The lawsuit alleged that CSC had collaborated with insurance companies to systematically undervalue bodily injury claims. Over 500 Colossus users were sued, with CSC, in the class action. The case ended after the insurers agreed to pay hundreds of millions of dollars to members of the Arkansas and Oklahoma Bars.
Key allegations included:
- Deliberate manipulation of baseline values to reduce settlements
- Lack of transparency in how values were calculated
- Removal of human judgment from the claims process
- Prioritization of corporate profits over fair compensation
Court records in this major class action lawsuit, revealed disturbing information about how Colossus and similar products are marketed to and used by insurance companies:
Insurers could adjust Colossus to produce virtually any claims’ payment reduction they wanted, whether or not it was justified. One CSC executive told the court that Colossus could be “tuned” to potentially achieve a particular level of savings, such as 15 percent, for all claims.
CSC claimed insurers could produce huge reductions in claims’ payouts, which insurers achieved in many cases. A CSC executive told the court that Colossus achieved savings of around 19 percent on overall claims payouts for some its insurer clients. Meanwhile, CSC’s competitors, like the Insurance Services Office (ISO) claimed that they could maintain even higher savings over time.
CSC misled regulators about the purpose of Colossus, claiming that main function of the product was to achieve consistent payouts rather than enormous claims’ “savings,” which might be illegitimate.
Further Reading:
Low Ball:
An Insider’s Look at How Some Insurers Can Manipulate Computerized
Systems to Broadly Underpay Injury Claims
https://consumerfed.org/wp-content/uploads/2010/08/Studies.ComputerClaims06-04-12.pdf
See Defendant Insurer Party Names:
https://www.govinfo.gov/app/details/USCOURTS-arwd-4_05-cv-04081
The Consumer Federation of America made a number of recommendations to state insurance regulators to better protect consumers from insurers that manipulate Colossus and similar systems to unjustifiably reduce claims’ payouts. It is unknown what is and has been done to protect injured consumers in Australia:
Regulate all companies that sell claims’ adjustment software products, such as CSC. Currently, neither the states nor the National Association of Insurance Commissioners (NAIC) does this for all vendors of these products.
Examine and monitor the use of computerized claims’ assessment systems by major insurers. The NAIC should thoroughly investigate methods that all large insurers can or do use to directly or indirectly reduce claims’ payouts in an illegitimate manner.
Require insurers to notify consumers in writing that a computerized claims’ assessment was used to process their claim and to provide a copy of the report generated by the system. This will help injured consumers to determine if they received a fair payment.
The Troubling Legacy
The real story of Colossus isn't just about technological innovation or cost savings. It's about:
- Systematic underpayment: Programming designed to reduce settlements, potentially leaving injured people without adequate compensation
- Lack of transparency: Insurance companies fighting to keep their methods secret
- Limited human oversight: Claims adjusters required to use Colossus values, regardless of individual circumstances
- Corporate profit over people: The use of automation to prioritize financial gains over fair compensation
Modern Implications
As we move into an era of increasing automation and AI in insurance, the Colossus story serves as a crucial warning. While technology can improve efficiency, we must question whether these improvements come at the cost of fair treatment for injured people. The fundamental question isn't whether such systems can save money, but whether they serve justice and treat injured people with the dignity they deserve.
The success of Colossus, measured in reduced claims costs and corporate profits, masks a more troubling reality: countless injured people potentially receiving less compensation than they deserved. As we continue to develop and implement automated claims systems, this history reminds us that efficiency and profit should never come at the expense of fair compensation for the injured.
Further Reading:
https://settlementintelligence.com/blogs/news/colossus-demand-letters-by-settlement-intelligence
https://autoaccident.com/what-is-colossus/
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