Before an auditor can fully understand what he or she is looking at—either in an insurer's or self-funding entity's overall loss data or in individual claim files—the auditor must understand that insurer's or entity's claims philosophy.

Every insurer or self-funding entity has a basic philosophy to dictate how claims should be handled. Some self-insureds are so paranoid that they believe every claimant is a thief and a fraud, even their own employees. They are ready to fight every claim all the way to the Supreme Court if necessary. A few insurance companies follow a similar philosophy: lowball everybody, stonewall to the bitter end, and don't settle until standing on the courthouse steps. These tactics work occasionally, wearing the claimants or insureds down to the point where the claim is surrendered out of sheer frustration. Other times, the claim ends up in court with the jury awarding punitive damages to the insured or claimant for the aggravation they have sustained. Fear not; there will be an appeal!

Handling claims in this manner is not a good way to save money. It can, however, result in the insurer saving some money and lowering premiums to remain competitive with insurers that offer better service. This is also difficult on the adjusters who have to fight with every insured or claimant in order to keep the boss happy. This can lead to unhappy employees. Examine any company in the risk business that has high turnover, and one may find a punitive claims philosophy behind it.