7 ways to prevent claims leakage
The insurance industry loses $30 billion annually to overpayment and expenses from claims.
A constant challenge for the insurance industry is the continual problem of overpayment of claims and expense, often referred to as “leakage”, by claims staff during the handling of losses. A long, drawn-out claims process can drain operational budgets, as can adjuster inexperience, reinforcing the need for improved claims processing tools.
Claims leakage costs approximately $30 billion each year, according to consulting firm The Lab, which estimates the problem accounts for between 20 and 30 percent of all claims paid.
Oftentimes, mistakes leading to claims leakage are found too late, typically through audits conducted on closed claims where there is no way to rectify an error.
Preventing errors
Inefficient claims handling that leads to payment errors typically involves process inconsistencies — whether manual or automated.
One example involves an insurer with a cumbersome legacy system, requiring repetitive manual input of information by the adjuster who may be saddled with too many claim files, as well as added pressure from management to close files quickly, leading to an increased risk of errors.
Another example highlights the knowledge gap the insurance industry is facing, with many senior employees who have or will be retiring soon. This can lead to file transfers among remaining adjusters on staff or newly hired adjusters who arrive with a fresh set of biases and expectations, furthering the possibility of inconsistent claims handling and irate policyholders.
Many new hires receive little onboarding before handling claims files. Without proper training on a carrier’s policies and procedures, adjusters may be faced with complex claims too early in their careers, leading to poor decision-making and eventual errors.
Whether the result of human error or fraud, erroneous claims payments are preventable. Adjusters entrusted with handling claims payments should receive training on the proper procedures and automated systems used by the insurance carrier to reduce these types of errors.
Another way to combat payment errors is by automating this function of the claims process. If that is not feasible, consider hiring an expert provider with the automation already in place to bring accuracy to each stage of the claims process.
Whether using internal systems or outside help, a delegation process is needed to address each step in the claims process to avoid increased personnel hourly costs and settlement overpayment. Initial investigation by an independent adjuster is one type of delegation embraced by the claims industry and isn’t likely to change anytime soon.
Contents valuation is another example of delegation that provides consistent results to battle overpayment and fraud. An outstanding feature of delegation is that instead of operating from a position of defense, the adjuster can retain a position of authority and fairness.
Mitigating leakage
Because leakage occurs in multiple and subtle ways, there must be a multi-faceted strategy in place to mitigate the problem. Below are eight ways insurers can mitigate the problem.
- Execute Claims Management System Changes: The cornerstone of efficient claims handling is the implementation of a robust system integrating information automatically with enforcement of core claim practices that make the decision process easy for claims managers and adjusters.
- Conduct Audits on a Regular Basis: File audits on both closed and open claims, as well as claims handled internally and externally, by third-party providers, aid in uncovering leakage. Doing so allows insurers the opportunity to detect inconsistencies in the handling of claims, revealing unusual patterns linked to suspected fraud or run-of-the-mill errors, and ensures compliance with industry standards and best practices.
- Invest in Analytics and Predictive Modeling: Advanced analytics and predictive modeling aid the claims handling process by digesting large datasets to identify patterns and trends that might not be seen by a human adjuster. Reviewing historical data to predict the likelihood of leakage on a claim gives insurers an opportunity to implement preventative measures.
- Partner with Third Parties: An operational workflow to reduce the potential for leakage is tantamount to remedying the problem. For example, an expert valuation service provider can offset future leakage by ensuring the process of assigning the right value to contents losses is consistent and efficient, thereby preventing the likelihood of fraud, pricing errors, and overpayment.
- Implement Robust Internal Controls: Regular training on proper work procedures, fraud detection, and ethics with the aim of enhancing adjuster awareness will go far in identifying and preventing claims leakage.
- Collaborate with Fraud Experts: Fraud investigators and law enforcement can assist insurers by providing information and resources to reduce the occurrence of claims leakage.
- Work with Industry Associations and Regulators: Staying abreast of the latest trends, best practices and regulatory changes are just some of the benefits insurers can see as a result of working with industry associations and regulators. Collaborating with other insurers offers the industry a chance to work together to address challenges and work together to establish industry-wide standards to combat claims leakage.
To stay ahead of emerging risks, evolving fraud schemes and the frequent causes of claims leakage, insurance companies will need to monitor performance metrics, and build systems and claims processes for the novice adjuster, who expects technology and automation to drive logical workflow.
Jane Nelson is the vice president of business development for Claimplus, North America’s longest-established property insurance contents valuation firm. Contact her at claims@claimplusonline.com.
Related:
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