The following is a continuation from a previous article in which we introduced the mechanics of a claims audit, as well as the benefits that can be derived from the results of an audit. The most obvious positive benefits arising out of claims auditing are the identification of:

• Strong claims handling activities and strategies that should be retained and built upon.
• Areas where claims handling are not as efficient or effective as they should be and that should be strengthened to reach a “leading industry practices” standard. 

This identification process allows the insurer, third party administrator (TPA), independent adjuster (IA) or other entity to take steps to improve the overall claims program.  The outcome of the improved claims programs should be reaching claim resolutions promptly, providing the policyholders with a level of service that meets or exceeds their expectations, and controlling claims costs and expenses to the extent possible.

Property Claims Are Different

The primary focus here is on auditing property claims, which require significantly different claims handling than the workers' compensation claims that we covered last month. Effective property claims management requires more of a claims processing effort, as opposed to claims management that we emphasized in handling workers' compensation claims.

There are a variety of ways in which to handle property claims. An insurer may use in-house adjusters, or may use the services of TPAs or IAs to perform some or all of the tasks associated with handling the claim, including preparation of the repair/replacement estimates. The insurer, TPA, or IA may also use numerous external vendors, and the services of these vendors must be well coordinated during the relatively brief life of a property claim to achieve the optimal outcome.

Property claims require fewer touches, and in many cases can be resolved relatively quickly, at least as far as the claims management work is concerned. Property claims, except for the periodic large loss or catastrophic claim, should be handled, paid, and closed within a 30-day period, except for the possible need to reopen the claims later to pay replacement cost values. Property claims are generally categorized more as “short-tail” claims, and create fewer reserving issues.

Property losses, however, depending upon the type of loss and the time required to get the property back to pre-loss status, can also cause significant hardships for one or more persons. Homeowners' property losses disrupt a person's or family's lives, and can also cause financial hardships. Commercial losses lead not only to the need to re-build and re-stock over a period of time, but can also lead to financial loss for the policyholder and its employees if the business is interrupted for lengthy periods. A commercial loss may also have a negative impact on other companies that rely upon the company that sustained the loss as one of the links in its supply chain, or as a key customer. Therefore, it is critical to efficiently and promptly manage the claims to mitigate the losses to the greatest extent possible. 

Added Benefits of Claims Audits: Three Perspectives

Property claims management enhancements which are developed following objective claims audits can provide benefits to three different major parties—the policyholders, the insurer, and the TPA or IA. Several benefits apply to all three parties:

1. Improved communication/reduced conflict in resolving the claim.
2. More accurate payments.
3. Early resolution, thus allowing rebuilding to begin promptly. 

There are other benefits, however, that are specific to each party. For example, consider the items below.

What An Audit Reveals

In last month's article we emphasized that workers' compensation claims require more claims management rather than just claims processing.  Effective management of property claims, on the other hand, should be focused more on efficient processing of the claim.  Leading industry practices or “Best Practices” in property claims management place critical important on timely and coordinated activities and actions that allow the policyholder to recover from the losses as quickly as possible.  A claims audit can help to identify where there are impediments to efficient processing and resolution.

Reviewing Claims Activities

The claims audit should measure the performance of the insurer, TPA, or IA against leading industry practices while also evaluating the efficiency of the processes. A property review should include but may not be limited to, the following characteristics. There are numerous criteria under each major topic that should be considered while evaluating that component. Refer to the examples listed on the next page.