The objective for anyclaim-paying organization is to strike the right balance in makinggood on the promise made by the coverage that was sold: Indemnifyand make whole the insured as quickly and efficiently aspossible.

Anyone purchasing an insurance policy is doing so with the ideathat someday a loss will occur, and a claim will be submitted.Given that very few policyholders actually read their policies —and those that do tend to not fully understand all the coverages —it's no surprise that once a loss happens, the insured often findshimself in uncharted waters with not much to go on.

Enter the claim adjuster. Their job is to evaluate the loss,manage outside experts, apply coverage, negotiate and settle withthe insured, pay the claim, and close the file. While they are atit, they are to use experience to identify potential fraud, andrecovery opportunities — all this while supervisors coach andauditors provide feedback.

Claim-Handling Best Practices

There is much talk in the industry regarding “best” or “leading”claim practices. Ongoing efforts across the industry seek todefine, codify, and implement these practices. However, in the realworld, adjusters spend most of their time reacting to outsidestimuli: phone messages, new mail, new claim assignments, and diaryprompts. They work at a rapid pace, but their activities arelargely dictated by their diary systems — open a claim, make aphone call, enter a note, and create a diary for a week later — notby the claim-handling best practices instilled in an organization.They spend their time trying to clear all of those to-do lists andkeep their heads above water rather than creating and executing ahandling plan appropriate to each individual claim, with a focus onidentifying and making decisions necessary to achieve the mostcost-effective claim resolution.

How should we best think about achieving high-quality outcomesthrough best-practices file-handling and an effective auditprocess? Below is a model that separates the claim-handling processinto discrete steps and makes a distinction between supervision andoversight as compared to the file audit process.

Claims intake/notice of loss. Once the lossoccurs, the policyholder contacts his agent, the carrier, the TPA,or whatever party is on the other end of the toll-free number ontheir insurance card. While some carriers are offeringweb-enabled/self-service loss intake and reporting capabilities,the majority of losses are reported telephonically. Capturingpertinent information, validating basic coverage, and getting theinformation into the claim process is the job of the intakefunction. Also, capturing complete and accurate information upfront is critical to the claim-handling process and any downstreamaudit or file review.

Claim triage and assignment. Effectivelyassessing the loss and making the proper assignment is an importantfeature in any claim process. This is done either throughautomation and business rules or by an experienced supervisorreviewing the loss information and assigning the loss to anadjuster who can best handle the claim based on severity and lineof business.

Claim handling and oversight. Once the claim isassigned to the correct adjuster, the “handling” begins. Firstcontact, interviews, information gathering, applying coverage,looking for third-party liability, and recovery opportunities areall part of the process. The most important element in this phaseis making sure that the correct level of oversight is being appliedto bridge any gaps between the demands of the file and theexperience of the adjuster. Oversight is typically provided byclaim supervisors or lead adjusters. Technology plays a role intracking the progress of the file through a prescribed process,calling for milestones to be completed, such as first contact,first report, follow-up reports, and closure. Keeping track ofthese time-in-process elements is important, and provides anindication or early warning of a file that is not being managedwell. Equally important, however, is monitoring reserve developmentas the file matures and determining whether the development is inline with the final payout on the claim.

Payment and file closure. After negotiating andsettling the loss, the adjuster pays the loss and the file isclosed. Supervisory oversight and a level of approval are necessaryfor all but the most experienced adjusters in making finalsettlement on the file. Once the payment is made, it's difficult torecover any potential overpayments or duplicate payments. Missedrecovery opportunities need to be identified.

Closed-file review/audit. The audit process,often taking the form of a closed file review, is critical toachieving high performance levels, even though it is moving to amore systematic and continuous approach rather than a point intime. Audit teams can be internal to the carrier or the TPA, or canbe an independent third party hired to provide an outside view. Thechoice whether to use one or the other — or both — is a managementdecision, based on the objectives of the audit and the requirementsof a given client.

An internal audit is a standing, ongoing file review team oftenstaffed from the production floor by senior adjusters withopportunities to rotate back into the claim unit. This “rotational”opportunity keeps the team fresh. Knowing what pitfalls await thosehandling files, understanding trends, and identifying common errorswill improve the knowledge and skills of the adjuster. The internalaudit team uses a consistent scorecard known to adjusters andsupervisors being audited, and findings are specific and actionabledown to the employee level for performance review/actions andemployee development.

An external audit consists of hiring someone to perform periodic(typically annual) reviews. The external auditors can be clientspecific, in the case of a carrier/TPA arrangement. There is thebenefit of an outside view supported by experience gained fromperforming audits at other carriers and TPAs, insights and bestpractices that can be shared. Audit results are based on a knownscorecard and results of the audit are fed back into thedevelopment of people and processes. The outside audit can providea second set of eyes and a fresh look at the data and processesused. It will provide an independent evaluation of the currentprocess and assist with individual issues and trends across thecompany. Additionally, an external audit can help validate internalaudit findings. By definition, the audit is reactive and there islittle opportunity to rectify errors, only to learn from them goingforward. This is the critical link that many companies do not havein place.

Process improvement and employee development.Conducting closed-file reviews and audits will be of limited useunless the findings are fed back into the process improvement andemployee development process. There is no better place to uncovertrends and tendencies, — even identify potential holes in thetraining program — than with an effective audit and closed-filereview. Results of the review can go down to the adjuster level andidentify specific needs, while trends can be identified that leadto overall changes in process, increased technological support, oreven improved policy language and underwriting decisions.

Ideal Audit Programs

Successful audit programs don't just tic-and-tie the file backto time-in-process metrics. Rather, they evaluate the final outcomerelative to indemnity payout and loss expense management. In otherwords, it's important to remember that a file can be handled withinall the specified parameters based on time-in-process metrics, butthe quality inside the file and the indemnity and expense outcomesmay be substandard. Coverage could have been “blown” or reservesnot developed timely or accurately. Outside vendors could have beenmishandled, or file control abdicated once attorneys becameinvolved. There could have been recovery opportunities ignored ornot followed up on. The list goes on. So while you should focus onitems that are readily able to be tracked, don't be satisfied withthis. Make sure to dive fully into the files to determine whetherlosses are being handled effectively and that money is not goingout the door unnecessarily.

Remember that the objective is to pay (and pay quickly), paypursuant to the promises made in the coverages sold, and execute asefficiently as possible. It's a tall order, to be sure. Customerand premium retention is on the line, and so is achieving anunderwriting profit. Despite best efforts, the potential foroverpayment and inefficiency remains.

This is where the feedback and findings from an effectiveauditing program can provide insights as to where processimprovements can be made and training and development opportunitieslie. Focusing resources on developing and maintaining solidclaim-handling and oversight processes, along with a strong andeffective audit program, will allow your claim department tooutperform.