However, for the most part, these are manual or semi-automated processes that cant adequately improve this significant loss control issue.

Until just recently, virtually all insurance companies have employed a manual “management by exception” method for reviewing both employee and outside estimates. For the most part, employee monitoring is done after the fact, as part of a formal review process. On the other hand, outside estimates are reviewed as part of the repair process.

While some insurers target between 10 and 25 percent of estimates to be audited, the lack of automation in the process means that the goal is highly subjective and in some cases wildly optimistic. In cases where insurers use employees exclusively for this process, estimate auditing may not be done at all.

Theres no question that insurance companies want to link their existing claim processing, electronic assignment and electronic estimating systems together. The ultimate goal is to have these systems seamlessly linked to estimating audit tools in such a way that all estimates can be reviewed in an identical manner, regardless of vendor or communication arrangements.

The good news is that there are numerous efforts to provide an all-in-one solution for the claims handling process–and an integrated auditing solution is not far behind. These real-time auditing programs can spot errors and inconsistencies in estimates at a critical point in timeduring the estimate preparation and approval processes.

And unlike the manual processes insurers have employed to date, these rules-based systems are designed to review every estimate that is submitted. The technology allows the insurer to create a set of rules for various coverages, departments or special purposes.

These automated auditing systems can significantly increase efficiencies throughout the automotive insurance claims process by automating a labor-intensive task and ensuring total consistency in estimate auditing. On a good day an auditor might be able to manually review 100 estimates with the same level of detail provided by the automated audit tools.

For operations with thousands of claims per dayor even just a few hundredit is apparent that the overhead and variability are greatly reduced by automating the process. The new applications use a systematic, rules-based claim review formula that is based on pre-established criteria customized by each user.

Rules-based systems are designed as stand-alone tools for the desks of adjusters, investigators, or other claims professionals. As e-business increases the velocity of business transactions, opportunities for negative cost impacts from inefficient and error-prone processes are increasing exponentially. In the future, claims technologies such as those used for fraud detection must move from being stand-alone business applications to part of the overall enterprise system architecture and infrastructure.

These stand-alone auditing systems also work well with the evolving insurance workplace. With increased competition and commoditization of many insurance products, insurers are investigating all avenues to streamline key processes and reduce costs.

In the process, e-business means insurers will become increasingly externalized, with business processes and systems interconnected with those of an increasing number of business partners and suppliers. The need to accurately measure performance within these interrelationships will continue to grow within the financial services community.

When considering the move to automated auditing, insurers should also note the re-training and re-teaching benefits inherent in implementation. For instance, instead of using these audit tools simply to document and enforce a procedure change, the tools can be used to detect training needs (such as inappropriate labor times) and get the matter resolved prior to it occurring again.

In addition, instead of having to set aside countless investigative hours to find out where the auditing problems lie, these tools can be used to locate unorthodox practices by estimators and to ensure that they are discontinued. If well implemented, this “training” approach can significantly reduce the number of flagged or failed audits

Ten years ago the promise of so called “expert systems” left most users with high expectations and low results. These systems have now resurfaced as rules-based systems and have dramatically improved in terms of customization, flexibility, ease of use and reporting.

Rules-based systems for auditing estimates are no exception. They essentially allow the insurance company to establish acceptable boundaries within which estimates meet company policy. They also allow for multiple levels of criteria, easy editing and flexible reporting.

The result is that insurers can now electronically audit 100 percent of their estimates against their own pre-established criteria. Adjusters will no longer have to rely solely on personal judgment for identifying suspect estimates or patterns.

Insurers universally accept the value of auditing estimates as a proven method of controlling severity and loss adjustment expenses. With rules-based systems, claim estimate auditing tools allow insurers to audit 10 times as many files and do it more consistently, with greater accuracy and with fewer staff.

To this end, insurance consultants and information providers should be able to provide a return-on-investment projection that incorporates the key data elements for an organizations particular needs or situation.

Tate Linden is product manager for the ADP Claims Services Group, based in Roseland, N.J.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, April 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.