How Insurance Companies Use AI to Deny Injury Claims

Artificial intelligence has transformed nearly every industry, including insurance. While technology can streamline claim processing and reduce fraud, it also introduces serious concerns for injured victims seeking fair compensation. More and more insurance companies are now using AI algorithms to analyze claims, detect inconsistencies, and even decide who gets paid and who gets denied.

The problem? These systems often prioritize cost savings over human fairness. In many cases, claimants find their legitimate injuries undervalued or rejected outright by a computer program rather than a real person.

In this blog, TSR Injury Law explores how insurance companies use AI to deny injury claims, the potential risks involved, and what you can do to protect your rights when facing automated claim decisions.

The Rise of Artificial Intelligence in the Insurance Industry

In the past, insurance adjusters manually reviewed injury claims, checked medical records, and determined settlement amounts based on experience and internal guidelines. Today, that process is increasingly being outsourced to machine learning models and data-driven algorithms.

Insurers claim that AI speeds up claims, reduces fraud, and ensures “consistency.” But behind those promises lies a system designed primarily to minimize payouts and increase profits.

Common AI tools used by insurance companies include:

• Predictive analytics software that assesses claim risk and potential cost.
• Natural language processing (NLP) systems that scan medical records, police reports, and claim forms for patterns or red flags.
• Automated decision-making platforms that approve or deny claims without human oversight.
• Computer vision tools that analyze photos of vehicle damage or accident scenes.

Some of the biggest insurance companies, including Allstate, State Farm, and Progressive, have publicly stated they’re investing heavily in AI-driven claim systems. While these tools can improve efficiency, they also create new challenges for fairness and transparency.

How AI Denies or Devalues Injury Claims

AI systems are designed to look for patterns in massive amounts of data. They rely on statistical correlations, not human judgment. That means when you submit an injury claim, a computer algorithm may decide whether you get paid based on past data, cost models, and risk scores, not the full story of your unique situation.

Here’s how that process can unfairly harm claimants:

1. Automated Red Flags

AI models are trained to detect “anomalies” in claim data. If your medical treatment timeline or accident report differs slightly from the norm, the system may flag it as suspicious. For example:

• Visiting a chiropractor instead of a hospital may be seen as “minor care.”
• Delayed medical treatment could signal to the system that you weren’t seriously injured.
• Submitting a claim after a certain number of days might trigger an automatic denial.

These red flags often have little to do with actual medical evidence, but once flagged, your claim may be routed for denial or low settlement offers.

2. Pre-Set Settlement Algorithms

AI systems often use historical settlement data to determine payout amounts. If most claims in your area for “minor back pain” average $2,000, the algorithm may automatically cap your claim at that amount, even if your injury requires months of physical therapy or surgery.

This one-size-fits-all approach ignores individual differences and prevents victims from receiving full compensation.

3. Medical Record Scanning

Natural language processing tools now read through medical reports and records, summarizing them into data points for the AI to analyze. However, these programs can misinterpret notes, overlook nuance, or fail to detect complications.
For example, a doctor’s note stating “pain improving but not resolved” might be interpreted by the system as “recovered.”

That misinterpretation can lead to reduced offers or outright claim denials.

4. Behavioral Tracking and Data Profiling

Some insurers are experimenting with social media monitoring and data mining to evaluate claimants’ credibility. AI can scan online profiles, photos, and activity to look for inconsistencies, such as vacation pictures posted during recovery.

This data is often taken out of context and used to question your honesty, even when the evidence doesn’t reflect your true condition.

5. Automated Claim Denials Without Human Review

Perhaps the most troubling trend is that many insurers now allow AI systems to deny claims automatically based on risk scoring. These decisions are made in seconds, with little to no human input. The burden then falls on the injured person to appeal the denial, often facing a long and confusing process designed to discourage persistence.

Why This Is a Problem

AI may be efficient, but it lacks empathy and context. A computer can’t understand chronic pain, emotional trauma, or the financial toll of missed work. It simply measures numbers and probabilities.

The biggest issues with AI-driven claim handling include:

• Lack of transparency: Most insurers refuse to disclose how their algorithms work, citing “proprietary technology.” Victims have no way to know why their claim was denied or undervalued.
• Bias and discrimination: Algorithms learn from past data, and if that data reflects biased patterns, those biases continue. Claims from certain zip codes, occupations, or demographic groups may be unfairly scored as “high risk.”
• Profit-driven motives: The primary goal of many AI systems is cost reduction. This creates an inherent conflict of interest between the insurer’s financial goals and the claimant’s right to fair compensation.
• Limited oversight: Regulators are still catching up to the technology. There are few laws requiring human review of AI claim denials, leaving consumers vulnerable.

Real-World Examples

There have already been lawsuits and investigations into AI’s misuse in insurance decisions.

• In 2023, several major insurers were accused of using AI systems to automatically deny disability claims without reviewing medical evidence.
• An investigative report revealed that some insurers use “delay and deny” algorithms that intentionally stall claims to pressure victims into accepting lower settlements.
• Class-action lawsuits have alleged that AI claim tools systematically undervalue injury claims by using outdated data models.

While each case differs, the trend is clear: automation is increasing insurer profits while making it harder for injured individuals to receive fair treatment.

How to Protect Yourself

If your injury claim has been delayed, undervalued, or denied, especially after a suspiciously fast review, AI may have played a role. Here are key steps to protect your rights:

1. Request a detailed explanation.
   Ask the insurer to provide a written reason for the denial or reduction. Federal and state consumer laws may entitle you to an explanation.
2. Keep thorough documentation.
   Maintain all medical records, treatment receipts, and correspondence with the insurer. AI systems often misinterpret incomplete data, so having comprehensive evidence is vital.
3. Avoid sharing recovery details online.
   Even harmless social media posts can be misused by AI systems scanning for contradictions. Keep your health and accident details private.
4. Appeal immediately.
   Most insurance policies include an appeals process. File quickly and include supporting medical documentation and witness statements.
5. Consult a personal injury attorney.
   Lawyers experienced in dealing with insurance companies can identify patterns of automated denial and demand human review. An attorney can also subpoena internal claim data if necessary.
6. Contact your state insurance regulator.
   If you suspect your claim was handled unfairly by an automated system, report it. Regulators can investigate whether the insurer is violating consumer protection laws.

The Future of AI and Claim Accountability

As artificial intelligence continues to evolve, regulators and consumer advocates are calling for transparency and human oversight. Some proposed reforms include:

• Requiring insurers to disclose when AI is used in claim evaluations.
• Mandating human review for all claim denials or reductions.
• Implementing bias audits and algorithmic accountability measures.
• Allowing policyholders access to data used in AI decision-making.

These measures would bring balance between technological efficiency and ethical responsibility. Until then, injured victims must remain vigilant and assertive when navigating the claims process.

AI has changed how insurance companies handle claims, but not always for the better. Behind the promise of faster processing lies a system that often undervalues human suffering and prioritizes profit over fairness.

If you believe your claim was denied or reduced by an automated system, you don’t have to accept it. A personal injury attorney can help you challenge the decision, demand human review, and hold the insurer accountable for unfair practices.

Technology should make life easier, not harder. Until insurers use AI responsibly, vigilance and legal advocacy remain your best defense against being treated like just another data point.