Well, the roots of the name as applied here start during World War II with the very first computer used for code-breaking named Colossus after one of the Seven Wonders of the Ancient World. We then move forward to 1965 when D F Jones published a science fiction novel about a computer taking over the world. A few years later in 1970, the movie industry jumped on the bandwagon and filmed the book (or at least took the idea from the book and made a movie about a supercomputer first dominating the US and Russia, and then exercising control over the world. The movie is famous for its last line which is that "...freedom is just an illusion." Well this is an example of reality following science fiction predictions with a sense of irony. Go back twenty years and you find small armies of human actuaries slaving away to calculate the risk of anyone making a claim for losses suffered. Once the rates had been set, another army of humans took to the field as claims adjusters. These humans did something that was unthinkable and met with those claiming, worked out a value for their claims and then sent their regional offices a recommended settlement figure.
Labor is usually the most expensive element in any industry's cost profile. In a service industry, it's always the biggest cost. So with the arrival of ever more reliable computers, the insurance industry set out to make as many human beings as possible redundant. After all, when you are handling trillions of dollars, the last thing you want to do is pay a math geniuses to calculate risks and few hundred humans to talk to the claimants. Now we have scoring models that use "secret" algorithms to estimate when policyholders are likely to file claims, and programs to manage claims. The head office now sets the profit target for the insurer by adjusting the percentage payable on claims. So how does this work?
Every activity that a business carries out is broken down into an average cost from the data that has been collected by the insurance industry. So if you have a traffic accident driving a particular make and model, the computer will know how much it costs to repair state by state. If you have a business interruption, the computer will also know what the average settlement is for a business of your type with a turnover close to yours.
These figures were all relevant in setting the premium rates, i.e. the estimated cost of all the losses was divided between all the insured. But suppose the computer instructed claims adjusters to settle at figures representing only 80% of those estimated figures. This would pay you less and generate immense profits for the insurer. At a time when business insurance rates have been rising faster than inflation, it's disconcerting to hear of the power exercised through the new Colossus. Yet this is reality. Claims are being squeezed while business insurance rates rise. In this case, it's the insurance industry that's coming into control of the world.