Regardless of the coverage involved, those analyzing claims files can take two different approaches—either quantitative or qualitative auditing. The best audit involves both, whereas inferior audits involve only one.
Too often, auditors, especially those who do not come from an adjusting background, may tend to look at claims files only quantitatively, and may therefore declare an excellently adjusted file “inferior,” simply based on quantitative factors. Let’s look at both types of analyses to determine what an auditor must consider when reviewing a claims file.
Were the file notes detailed and kept current? Were any outside reports that might help “decorate” the file—such as a police report, a photo of the scene, a fire department or an EMT report, and so on—located in the file, and then discussed in the reports? Was there an acknowledgement of the assignment to the agent or (if the claim was on behalf of a self-funding entity) to the insured’s risk manager? Was the first report made within a week, and was a reserve set quickly? If not, then there had to be a good reason.
Certainly all of these things are important. In many cases, however, they represent time-wasters, serving only to clutter up the adjuster’s already busy day. They are easy to measure, which is why auditors—especially those hired to “isolate the problem” but who nevertheless have little, if any, personal claims experience—rely largely on them. None of these things reflect the true quality of a given claims adjustment. There is a police report in the file. So what? The cop was not there to investigate the insurance claim. He or she was there to see if there had been a traffic violation or to provide statistics for city, county, or state purposes. Such reports are helpful, but a savvy adjuster will conduct his or her own investigation.
The adjuster’s job consists of investigation, evaluation, and negotiation or disposition of the claim. It must start with the coverage investigation and evaluation. A properly handled file will reflect that the adjuster has looked at every aspect of the claim and has determined whether it matches the coverage. For many claims, coverage may apply only in part. The alert adjuster will determine what is covered, and explain those factors to the insured, perhaps even issuing a Reservation of Rights (ROR) letter, or an Excess Loss letter. Coverage is the first thing the auditor needs to check. Did the adjuster investigate and correctly evaluate the coverage? Should issues arise, did the adjuster correctly address they should be handled?
The next item the auditor needs to find in the file is the liability investigation. Regardless of whether the claim is a first- or third-party loss, a correct evaluation of the legal aspects of the claim—one that takes all contractual, statutory, and tort factors into consideration—is crucially important. The file should reflect the adjuster’s thinking regarding liability. If the claim involves an auto accident, has the adjuster evaluated the percentages of fault of the insured and the other parties under whatever the state rules are regarding contributory or comparative negligence? If the loss is solely a first-party claim, has the adjuster considered any possible source of contribution or subrogation? If so, have any other tortfeasors been placed on notice, and has there been any follow-up?