The following is a continuation from aprevious article in which we introduced the mechanics of aclaims audit, as well as the benefits that can be derivedfrom the results of an audit. The most obvious positive benefitsarising out of claims auditing are the identification of:

• Strong claims handling activities and strategies that should beretained and built upon.
• Areas where claims handling are not as efficient or effectiveas they should be and that should be strengthened to reach a“leading industry practices” standard.

This identification process allows the insurer, third partyadministrator (TPA), independent adjuster (IA) or other entity totake steps to improve the overall claims program. The outcomeof the improved claims programs should be reaching claimresolutions promptly, providing the policyholders with a level ofservice that meets or exceeds their expectations, and controllingclaims costs and expenses to the extent possible.

Property Claims Are Different

The primary focus here is on auditing property claims, whichrequire significantly different claims handling than the workers' compensation claims that we covered last month.Effective property claims management requires more of a claimsprocessing effort, as opposed to claimsmanagement that we emphasized in handling workers'compensation claims.

There are a variety of ways in which to handle property claims.An insurer may use in-house adjusters, or may use the services ofTPAs or IAs to perform some or all of the tasks associated withhandling the claim, including preparation of the repair/replacementestimates. The insurer, TPA, or IA may also use numerousexternal vendors, and the services of these vendors must be wellcoordinated during the relatively brief life of a property claim toachieve the optimal outcome.

Property claims require fewer touches, and inmany cases can be resolved relatively quickly, at least as far asthe claims management work is concerned. Property claims, exceptfor the periodic large loss or catastrophic claim, should behandled, paid, and closed within a 30-day period, except for thepossible need to reopen the claims later to pay replacement costvalues. Property claims are generally categorized more as“short-tail” claims, and create fewer reserving issues.

Property losses, however, depending upon the type of loss andthe time required to get the property back to pre-loss status, canalso cause significant hardships for one or more persons.Homeowners' property losses disrupt a person's or family's lives,and can also cause financial hardships. Commercial losses leadnot only to the need to re-build and re-stock over a period oftime, but can also lead to financial loss for the policyholder andits employees if the business is interrupted for lengthy periods. Acommercial loss may also have a negative impact on other companiesthat rely upon the company that sustained the loss as one of thelinks in its supply chain, or as a key customer. Therefore, it iscritical to efficiently and promptly manage the claims to mitigatethe losses to the greatest extentpossible.

Added Benefits of Claims Audits: ThreePerspectives

Property claims management enhancements which are developedfollowing objective claims audits can provide benefits to threedifferent major parties—the policyholders, the insurer, and the TPAor IA. Several benefits apply to all three parties:

1. Improved communication/reduced conflict in resolving theclaim.
2. More accurate payments.
3. Early resolution, thus allowing rebuilding to beginpromptly.

There are other benefits, however, that are specific to eachparty. For example, consider the items below.

What An Audit Reveals

In last month's article we emphasized that workers' compensationclaims require more claims management rather than justclaims processing. Effective management of property claims,on the other hand, should be focused more on efficientprocessing of the claim. Leading industry practicesor “Best Practices” in property claims management place criticalimportant on timely and coordinated activities and actions thatallow the policyholder to recover from the losses as quickly aspossible. A claims audit can help to identify where there areimpediments to efficient processing and resolution.

Reviewing Claims Activities

The claims audit should measure the performance of the insurer,TPA, or IA against leading industry practices while also evaluatingthe efficiency of the processes. A property review should includebut may not be limited to, the following characteristics. There arenumerous criteria under each major topic that should be consideredwhile evaluating that component. Refer to theexamples listed on the next page.

For property claims, it is critical to ensurethat the claim is handled as expeditiously as possible, thataccurate repair and/or replacement appraisals are prepared, thatthe policyholder is kept aware of the claim's status, and that theresolution is reached promptly so that the policyholder can get therepairs underway and completed as promptly as possible.

Expected Claims Audit Output

The audit report should provide information suchas:

• Observations regarding the timing and completeness of keyclaims activities, and any redundancies, unnecessary hand-offs, orother inefficiencies that slow the resolution of the claim
• Objective measurements when possible. This may extend tointervals between specific steps and activities that were or shouldhave been taken, such as the interval between the date of firstcontact and the date of field inspection, the interval between thefield inspection and completion of the appraisal.
• Examples and data to clearly illustrate and support thefindings
• Specific recommendations in any area where claims managementperformance did not meet “leading industry practices” and were notefficient.

The recommendations that the claims auditor provides should besupportable, and the auditor should provide specificrecommendations to retain strong claims-handling activities andimprove those that are suboptimal. It is through this objectivedocumentation of findings and recommendations that the insurer,TPA, or IA can achieve a greater performance level.

Property claims audits should be viewed as part of the processrequired for insurers, TPAs, and IAs to strengthen their programs.The goal is to reach prompt resolution of the claims whileproviding the policyholders with excellent service. This meansminimizing the number of surprises and disagreements. Policyholdersmay then continue with rebuilding their properties and returningtheir lives to pre-loss status as quickly aspossible.