How Insurance Companies Are Using AI to Shortchange Accident Victims

If you have been injured in a car accident, a slip and fall, or any other incident and filed an insurance claim recently, there is a growing chance that the offer you received was not evaluated by a human being. Across the insurance industry, carriers are deploying artificial intelligence systems to assess injury claims, calculate settlement values, and even generate the letters and emails you receive from adjusters. While insurers tout these tools as faster and more efficient, a mounting body of evidence suggests that AI-driven claims processing is systematically undervaluing what injured people are owed, and most claimants have no idea it is happening.

The use of computer software to evaluate injury claims is not entirely new. For decades, many major insurers have relied on programs like Colossus, a claims evaluation system that assigns numerical values to injuries based on diagnostic codes, treatment types, and other data points. In 2005, a class action lawsuit was filed against several hundred auto insurers alleging that Colossus was being used to systematically underpay uninsured and underinsured motorist claims. The resulting settlements exceeded one billion dollars. What has changed in 2026 is the scale and sophistication of these systems. Modern AI tools do not just calculate a number. They read your medical records, analyze the language your doctor used in treatment notes, flag words and phrases that the algorithm associates with lower-value claims, and generate a recommended settlement range that many adjusters treat as a final answer rather than a starting point.

The way these systems work is revealing. Every document you submit to an insurance company — every email, every doctor's note, every diagnostic code — feeds the algorithm. The AI assigns numerical weights to specific words and treatment descriptions. Terms like "conservative care," "delayed complaint," or "pre-existing condition" can trigger automatic deductions in the algorithm's valuation, even when those terms are medically appropriate and do not reflect negatively on the legitimacy of a claim. If your recovery timeline deviates from what the system considers "standard," your claim may be flagged as an outlier and valued downward. The system does not know you. It does not understand the specific circumstances of your life, your pain, or how your injuries have affected your ability to work, care for your family, or enjoy your daily activities.

The area where AI falls shortest is in valuing noneconomic damages — the pain, suffering, emotional distress, and loss of enjoyment of life that often constitute the largest component of a personal injury claim. These are inherently subjective and individualized determinations. A jury evaluating pain and suffering listens to testimony, observes the plaintiff, considers the totality of the circumstances, and renders a judgment informed by human empathy and experience. An algorithm cannot do any of that. It reduces deeply personal experiences to data points and statistical averages, and the result is frequently an offer that does not come close to reflecting the true impact of the injury.

There is also a serious concern about bias embedded in these systems. AI models are trained on historical data, and if an insurer historically paid lower settlements to certain demographic or socioeconomic groups, those patterns are baked into the algorithm. The insurer may have updated its official policies, but the AI does not know that. It continues to replicate and reinforce the old patterns, producing outcomes that may be discriminatory while appearing neutral and objective on the surface. A 2025 McKinsey report noted that insurers using AI-driven systems have cut their total claims processing time by 70 percent, but faster processing does not necessarily mean fairer outcomes for the people filing those claims.

Perhaps the most troubling aspect of AI-driven claims processing is the lack of transparency. When an algorithm generates a settlement offer, the claimant — and often even their attorney — has no way to see how that number was calculated. The software is proprietary. The weights assigned to various factors are confidential. The insurer is not required to disclose that AI was used at all, let alone explain how it influenced the valuation. This makes it extraordinarily difficult to challenge an offer that appears unreasonably low, because you cannot examine the methodology behind it. You are essentially being asked to accept or reject a number produced by a black box.

Regulators are beginning to take notice. The National Association of Insurance Commissioners has adopted a model bulletin addressing insurers' use of AI systems, emphasizing the need for accountability, transparency, and fairness. Several states have introduced legislation in 2026 that would require insurance companies to disclose their use of AI in underwriting and claims handling, though a tension exists between state regulators who want to protect consumers and federal policymakers who have been more cautious about imposing AI regulations. As of now, there is no comprehensive federal law requiring transparency in AI-driven insurance claims processing, and the regulatory landscape remains fragmented.

What can you do to protect yourself? First, understand that you are not obligated to accept an insurance company's initial offer, regardless of how it was calculated. You have the right to ask how the offer was determined, and while insurers rarely disclose their proprietary formulas, they must be able to justify their reasoning. Second, be meticulous about documentation. Detailed medical records, thorough treatment notes, and clear evidence of how your injuries have affected your daily life make it harder for an algorithm to minimize your claim. Third, do not rely on online "AI settlement calculators" that purport to tell you what your case is worth. Serious injury valuation depends on the specific facts of your case, the applicable insurance coverage, the venue where your case would be tried, your credibility, and the long-term impact of your injuries — factors that software routinely oversimplifies or ignores entirely.

Most importantly, consider hiring an experienced personal injury attorney. The increasing sophistication of insurance company AI makes knowledgeable legal representation more valuable than it has ever been. Attorneys who handle personal injury cases are developing their own strategies and tools to counter algorithmic undervaluation, including independent medical evaluations, expert testimony on the limitations of AI-driven assessments, and detailed life-care plans that document the full scope of an injury's impact. An insurance company's algorithm is designed to minimize what it pays. Your attorney's job is to make sure it does not succeed.

The insurance industry's embrace of artificial intelligence is not going to slow down. The global market for AI in insurance is projected to grow from roughly 15 billion dollars in 2025 to over 246 billion dollars by 2035. Claims processing is one of the largest use cases driving that growth. For accident victims, this means the days of having your claim reviewed by an experienced human adjuster who considers the full picture of your situation are rapidly fading. The best defense against being shortchanged by an algorithm is knowing that it is happening, understanding your rights, and making sure you have someone in your corner who can fight for what your claim is truly worth.

CONTACT PHILLIPS & ASSOCIATES TODAY

If you or a loved one has been injured in an auto accident, contact Phillips & Associates at (818) 348-9515 for a free consultation today. You will immediately be put in touch with John Phillips or Patrick DiFilippo, who can help determine whether you have a case and advise you on the best course of action moving forward.