How Do Insurance Companies Calculate Loss?
Every personal injury claim begins by submitting a claim to the Defendant’s insurance company after the client is done with medical treatment. At that point, an attorney prepares a “demand letter” that spells out the insured’s liability and the client’s damages. Once received, the insurance company evaluates the claim and decides whether to settle the matter or deny the claim, due either to a problem with damages or because their insured is not liable for the client’s damages. If an insurer accepts liability, the question then becomes what damages will that insurer agree to pay for?
An insurer is liable for the following damages caused by their insured:
- Medical expenses;
- Lost income;
- Future medical expenses related to treatment of permanent disability or disfigurement
- Loss of family, social, and educational experiences, including missed school or training, vacation or recreation, or a special event;
- Emotional distress; and
- Damaged property.
We can explain more about your claim’s value during a free consult.
As a general rule, insurance companies apply the following formula to determine damages:
- Pain Multiplier X Medical Expenses + Loss of Income = Damages
The “pain multiplier” is a number typically between 1.5 and 10. The actual multiplier employed by insurance companies in a case depends upon the severity of the injury and the nature of the conduct which caused the injury; the more serious the injuries, and the worse the conduct, the larger the multiplier.
For example, a minor injury like a sprained neck which is the result of an auto accident that caused minor vehicle damages is more likely to draw a low multiplier, usually 1.5 to 2. While a more serious and painful injury, like a broken leg, which occurred as a result of reckless conduct, like a drag race on a suburban street, would get a higher multiplier, between a 3 to 5.
This multiplier is applied to medical expenses, known in personal injury jargon as “special damages.” These expenses include the cost of medical treatments, hospital visits, ambulance, X-Rays, pain medication, etc.
Finally, in determining damages, loss of income is added to the equation. This refers to the amount of income a Plaintiff loses as a result of his injuries. For example, if a Plaintiff’s injuries forced him to stay home from work, then his lost income would equal his daily pay rate times the number of work days missed.
Percentage of Fault (Comparative Negligence)
After damages are actually calculated based on the formula above, insurance companies, and Judges, Jurors and Arbitrators, will consider comparative fault, or comparative negligence. That is, was the Plaintiff in any way to blame for his injuries and, if so, to what extent? For example, an accident occurs in which a Plaintiff is injured due to Defendants negligence. However, after investigation it is determined that Plaintiff could have avoided the extent of the damages had he been paying due care to the road. In that instance, the Plaintiff will be assigned blame consistent with his own negligence. If, for example, he is deemed to be 20% at fault, then the Defendant is responsible for no more than 80 % of the total damages.
Of critical importance is the rule that comparative negligence on the part of Plaintiff which exceeds 50% will defeat any Defendants liability entirely. That is, if a Plaintiff’s negligence for a car accident is 51% or more, then the Defendant is not liable at all for any of Plaintiff’s injuries.
Colossus Software in Claims Assessment
Colossus is a computer program developed by Computer Sciences Corp. that values personal injury claims for half of the insurance claims in the United States. Colossus was introduced and popularized by Allstate in the American insurance industry in the 1990’s. Allstate turned to Colossus because they wanted to standardize and simplify the evaluation process. In addition, Allstate turned to Colossus because it was billed as a means to save money on payouts.
Of greatest import to Allstate, using Colossus, Allstate was able to identify Plaintiff’s attorneys and their habit of either heavily litigating cases and achieving good results or taking the first offer insurance companies make. In that way, Allstate was able to take the risk and uncertainty of negotiating claims out of the equation, saving them untold amounts of money. Specifically, Colossus considers whether an attorney has a record of taking cases to court, if they get an inferior offer or whether they always just take the best offer given by the insurance company. Colossus also considers the jurisdiction in which the claim arises.
The insurance industry claims that Colossus provides consistent estimates of injury costs. Insurance company claims adjusters have varying degrees of knowledge and experience, which can lead to varying judgments in the value of claims.
How does Colossus valuate a claim?
- Colossus performs a “calculation” to attribute “severity points” to claims.
- Injuries have an injury profile that assigns a base severity rating, which is the starting point in the personal injury claim evaluation.
- After consideration to the personal injury attorneys involved and the venue, the system counts up the points and converts them to a dollar value.
In short, by using Colossus, insurance companies will try to decrease the value of any claim, and will not take into consideration the intangible factors that humans will: stress, pain, inconvenience, loss of enjoyment of life, loss of consortium (relationship), inability to participate in the things Plaintiff’s otherwise enjoyed but for the injury, or any number of other things that a judge or jury must consider.
We can help you fight back against insurance companies who attempt to devalue your injuries. Call our office today at (702) 423-3333.