The claim audit is a process, not a mere event
When done right, the process returns many multiples of its cost. When done wrong the result can be financial devastation. We recognize the importance of the process, and have the technique and the talent to make it a wise investment.
- We recognize one size does not fit all. We start the process by determining your specific and unique needs, and build the process around those needs.
- We work with you to develop action plans or other appropriate responses to audit findings.
- We can handle the entire process from pre-audit preparation to post audit follow-up.
- We can also handle specific audit tasks as part of your audit team.
The claim audit is frequently your best window into the overall claim handling process. You benefit from seeing a cross-section of claim handling, not merely those claims that the handler knows will be reported to you. It is sometimes your only opportunity to view unabridged claim files. The first-hand insights gained through the audit process are an invaluable part of the foundation you need for sound decision-making.
Types of Audits we do:
The purpose of the claim audit is often as diverse as the claims to be audited. We understand your needs, and tailor the audit to your specific objectives and needs. Below are some of the most common types of audits we do. Click on the audit name to show or hide more information.
The multi-purpose audit is a staple of sound claim practice. These days, budgets everywhere are constrained. Claim providers are told to do more with less. Unfortunately, that usually means less of their money and more of yours. The reality of claim handling mandates increased vigilance and oversight of the claim handler. Ineffective or inappropriate claim handling can be the largest cost-driver of claim dollars. Generally, we know the cost of the claim provider's service. What we don't know is the cost of allowing the claim provider to engage in sub-standard claim practices.
The audit process provides the most effective window into the claim office. The multi-purpose audit provides excellent insights into the overall quality of the claim operation. Additionally, it provides an opportunity to provide input with respect to client expectations. On a post-audit basis, the review serves as a starting point for developing an action plan to correct deficiencies, and as a benchmark for subsequent audits. Some of the main areas under scrutiny during a multi-purpose audit are:
- Timeliness and appropriateness of investigation. Are investigations being done on a timely, appropriate and effective basis? We go beyond a mere checklist of items done, but review and analyze the quality of investigation in terms of being on target with the issues and sufficiently thorough.
- Appropriate use of outside vendors. We review the circumstances and procedures used by the claim handler in retaining outside vendors. Are they being used under appropriate circumstances, or are they being used as an easy way for the handler to avoid work? Are they being given specific tasks under the adjuster's guidance, or are they given free reign to "do their thing"?
- Adherence to claim handling agreements. Claim handlers routinely make various service commitments through their contracts or claim service instructions. Are the claim handlers complying with those agreements in key areas?
- Soundness of reserves practice. Are reserves being posted on a timely and realistic basis? Do closed cases reflect a pattern of significant reserve adjustment at or near the conclusion of negotiations? Are there lots of "surprise" or "unforeseen" developments?
- Recognition, investigation, and handling of recoveries and third party opportunities. Does the investigation adequately seek to address third party and subrogation opportunities, and if so are these opportunities being vigorously explored?
- Settlement negotiation. Are settlement opportunities being recognized at an early and appropriate stage? Is the claim handler proactively seeking settlement opportunities, or only initiating offers when forced to do in connection with pre-trail hearings?
While these are the main areas targeted in the multi-purpose audit, they are not the only areas. We have the flexibility to construct the audit to your specifications, and to include special focus on concerns identified by the client.
Like a first impression, you have one shot at due diligence! We can't overemphasize the importance of solid due diligence in connection with a loss portfolio transfer, assumption agreement, or corporate acquisition. You have one shot at due diligence, make it your best one. The consequences of ineffective due diligence can be devastating. Long tail casualty claims need to be thoroughly analyzed to project ultimate loss values and most probable outcomes. Err on the side of caution, and you lose an opportunity. Err on the side of optimism, and you lose your shirt. Either way, the name of the game is recognizing your true future exposure.
- Frequently, due diligence audits involve very short notice or rigid time constraints. We have the flexibility and resources to accommodate highly demanding schedules.
- An actuarial analysis, addressing issues such as loss development factors, and IBNR, can be included as part of our audit, or we will gladly furnish our report as input to your actuary.
- We do not limit our audit to a review of claim files, but where practical and necessary, we include interviews with claim personnel, risk managers, industry sources, or other entities.
- When size mandates an analysis based on a sample, we analyze loss data to ensure selection of a representative sample of cases.
- We will present our findings to senior management in both written and verbal reports.
Good reserves are hard to define, but we know them when we see them. More insurance insolvencies are traceable to poor reserve practice than any other cause. While we recognize that reserving is more art than science, we also recognize that a reserve mentality must be consistent, and forecast the most probable closed case value.
While reserves are only one of many claim components, there are times when reserves take front and center stage. Those times may include:
- Collateral reviews, where the amount of collateral is based on outstanding reserves, and reserves need to be analyzed as input for making collateral adjustments.
- Retro adjustments, where retro premium is triggered by incurred claims, and reserves need to be reviewed or adjusted in connection with premium adjustments.
- Underwriters need input as to reserve practice and accuracy to make sound judgments in connection with renewal, or pricing issues.
- Actuaries or financial auditors may need input with respect to reserve practice in connection with making financial projections.
In addition to a review of claim files and loss runs, as part of the audit process, we will be there to advocate for our reserve recommendations on a case-by-case and overall basis.
You may have your own audit plans, your own audit schedule, and your own audit procedures. Everything is going just as planned, and then...
You get a special project. A member of your team is traded to another company.
One of your team members becomes ill or goes out on leave.
The scheduled audit is too large, or comes about too quickly for you to complete without outside help.
You decide you need an outside opinion.
Etc. etc. etc.
We are there to help by providing qualified audit personnel to work under your direction and guidance. Our pinch auditor will work using your forms and procedures, just as if that person was a member of your organization. We can provide one or more auditors. Our auditors have laptop computers that can run your audit, spreadsheet, or database programs. At the conclusion of the project, our auditor will give you all worksheets and data collected.
We recognize that this type of assignment can come about on short notice, and we have the resources and flexibility to provide the necessary support to your audit project.
The right to audit a cedant is one of very few claim entitlements.
Typically, the reinsurance contract provides precious few rights to the reinsurance claim department. One of those contractual entitlements is the right to audit the books and operations of the cedant. The audit process is frequently the only mechanism available to the reinsurer to validate the cedant's claim handling process. One size does not fit all. Despite the commonality of the process, the objectives of the audit represent an array of diversity. Some of those objectives can be:
- An opportunity to solidify beneficial business relationships.
- A mechanism to communicate the reinsurer's expectations to the cedant.
- Uncover flaws in the manner in which coverage is applied, claims are handled, or losses are reported.
- Guiding and assisting underwriting managers in making renewal and pricing decisions.
- Assisting the reinsurer in developing appropriate reserves, even if the cedant's reserving approach is different than the reinsurers.
- Identification of major losses or claim issues not easily recognizable via loss runs or other routine data sources.
In addition to a review of claim files, the audit process also reviews organizational structure, claim department procedures, key personnel, and other issues.
Post audit communication and follow-up, both to the reinsurer and cedant, are the final ingredient in the successful and effective reinsurance audit.
Hard as it is to believe, there are times when we can't "all just get along".
Ongoing, threatened, or contemplated litigation and arbitration, is unfortunately a part of today's claim handling landscape. Claim handlers for insurance companies or third party administrators are increasingly targeted when losses go far beyond expectations.
Whichever side of the dispute you happen to fall on, your needs are the same. A thorough analysis of claim handling will have to be made. Our forensic audits undertake that analysis with these special considerations:
- Contractual provisions, marketing materials, and special account instructions are all examined to make a fair determination as to the expectations and obligations of each party.
- The claims are reviewed not just in light of the above considerations, but taking into consideration the state of the art of the claim administration industry.
- Special effort is taken to ensure the audit process, as well as the accuracy and thoroughness of the audit will withstand adverse scrutiny.
- With no ownership by carriers, brokers, law firms, or claim handlers of any type, we have the special ability to make our conclusions on a completely independent basis.
- Like our work product, our auditors will hold up under adverse scrutiny.
- We can undertake this type of project from start to finish, or in more mature cases, can target specific issues that have been identified by our client or counsel.
The stakes are high. You need the type of quality and insight we can deliver.
