Assessments, reviews, and audits are a fact of life for claim professionals. They are conducted by reinsurers, financial accountants, insurance regulators, home office staff, and occasionally by an external firm retained by senior management. The auditors look at processes, review claim files, talk to staff members, ask question after question, and take up a lot of valuable adjusting time.
Since claim departments are the subject of numerous audits each year, the process may become routine. In the vast majority, the results are what were expected with only a few occasional surprises. It may seem like it is almost impossible to gain points but highly possible to lose points. It is risk without benefits.
So the question becomes, how do you minimize the risk while creating and maximizing the benefits? The essential part is creating benefits. These have to be created or identified first in order to maximize. By maximizing the benefits, the risk will be minimized.
A significant benefit is the opportunity to enhance one's knowledge base concerning the effectiveness and efficiency of the operation in relationship to the industry and the company's business strategy and plan. These are generally addressed within the audit. However, they are not addressed with the detail or depth necessary to truly enhance the knowledge base. Enhanced learning is accomplished through multiple and focused discussions with the auditors throughout the process.
Through discussions with the auditors, valuable information can be acquired regarding the general trends and practices within the industry. It also serves as an informal gathering of benchmarking information. By asking probing questions, actively listening to the answers, and spending the time to go beyond the numbers, you can make assessments, reviews, and audits work to your benefit.
Audit Focus
Generally, audits focus on the company's compliance, process effectiveness, and best practices. It is the totality of the operation that is the subject of the audit. As such, it tends to provide more of an overview. The audit centers on the processes, procedures, and file types that constitute the majority of the operation. However, many times the 80/20 rule applies. It is the minority — the 20 percent — which drives the results.
Prior to the audit, identify specific areas and issues where greater information and performance feedback would be of assistance. Ask the auditors to pay specific attention to these areas. This is an opportunity to have another set of eyes with a different perspective review, evaluate, and provide feedback. It is an excellent learning opportunity incorporated into the normal audit process.
For example, say a new line of business has recently been introduced. Ask the auditors to review the processes and procedures implemented for the new line. Is it working the way everyone thought it would? Can the auditors identify any gaps and offer reasons for the gaps? Are there any unintended consequences?
Seek verification for new processes, philosophies, techniques, structures, business process outsourcing, and reorganizations that have been implemented recently. Are the results what were expected? If not, why not and what are possible solutions?
Are there troublesome areas within the operation that would benefit from a review? Possibilities include recent spikes in reserve increases, loss-adjustment expense increases, and a lengthening of the closure time frame.
Evaluation of teamwork quality and cohesiveness within and among the organization also can be reviewed. For example, what is the relationship between home office to branch offices concerning communications, approval requirements, turn-around time frames, resources, knowledge management, and sharing?
Ask for Feedback
During the audit period, arrive early and leave late. This allows time to communicate with the audit team. At the beginning of the day, discuss with the auditors their schedules. What will they be reviewing? Do they need any additional information, background briefings, or a more detailed understanding? Which members of the staff should be made available and when? Determine the appropriateness of each staff member and spend the time to brief them. This allows for open lines of communication with greater understanding on both sides.
At the end of the day, review with the audit team their activities and findings. Are there any items or areas that need further clarification or more review? How do their current findings relate to other operations that they have seen? What are their questions, suggestions, and recommendations? This is a prime opportunity to discuss with the auditors their experiences with industry best practices, benchmarking, process streamlining, trends, successes, and failures based upon their experiences.
Do not limit your questions to general ones such as, how are we doing and do you see any problems? Ask probing questions that will give you the outsider's perspective on your work product. This perspective will include what they have seen at other companies they have reviewed. Do not expect or press for the names of the companies as this may be confidential proprietary information. Ask questions such as, are there steps in our process that are redundant? If so, what are they? What would be the effect of eliminating them? What are some of the trends within the industry?
The more questions asked, the greater the level of understanding, knowledge transfer, and information shared. An increased knowledge base can lead to a better overall work product and assist in the ongoing implementation and execution of the business strategy. Once the question is asked, listen with an open mind. Be prepared to hear feedback that is not always expected or pleasant.
Beyond the Numbers
Often, the final results are numbers driven. While it is nice to know the percentage of files reviewed where contact was made within the required time frame, it is more beneficial to know the quality of the contact. How did the contact move the file towards resolution? Was future correspondence required for clarification of information received at the first contact? Was additional information needed that could have been obtained at the first contact? The numbers become more useful with this type of information.
In discussions with the auditors, try to determine what factors are driving the numbers and obtain the specifics of each factor. Are there relationships between and among the various factors? Do these enhance or hinder the operational results and quality? This is the information that is vital to implementing a business strategy.
When the factors driving the numbers are understood, the next step is to connect and compare the numbers that are being driven by the same or similar factors. Are the numbers at levels that one would consistently expect? Are any of the numbers in conflict, at odds, or not in sync with expectations? For example, initial contact statistics could be exceptional, but the average time from file open to close could be less than desirable.
By learning the quality and results of the initial contact, there can be more understanding on the date of assignment to closure issue. Are there gaps in skills, understanding, resources, training, standards, or goals?
Audits provide an opportunity to obtain objective feedback on the operation. This can be the time to verify that what you say you are doing is actually occurring. Are procedures being followed? It is particularly helpful when new procedures or work flows have been recently implemented. Ask the auditors to review not only the results of the new procedure but the procedure itself. Has it been implemented as planned? If not, what are the reasons? What are possible solutions?
In this era of Sarbanes-Oxley regulation, it is important that the established processes and procedures be followed by all throughout the workflow. Don't let the lack of negative feedback in the form of bad-faith lawsuits, judgments, and customer complaints lead you to a false sense of well-being.
Putting the Pieces Together
Often, assessments are centered on specific files, lines of business, procedures, or processes, and they are evaluated as individual components. This is the opportunity to put all of those components together and analyze the operation as a whole.
The auditors can advise if the total results being obtained are the results expected. In obtaining one set of results, are others hindered or compromised? How do the results compare with the rest of the industry?
Auditors also can identify opportunities to streamline processes. Are there bottlenecks? Does one process result in slowdowns in other processes? Based upon their perspectives and knowledge base, auditors may be able to discuss concepts for better, more cost-effective processes and procedures.
Audits, reviews, and assessments are a fact of life. They provide the opportunity to enhance one's knowledge base concerning the effectiveness and efficiency of the operation's policies, procedures, processes, services, and product quality. Through discussions with auditors, one can gain new insights and understandings into current successful industry patterns and practices. This can be accomplished only when another set of eyes reviews the operation, and only when one is willing to ask probing questions, actively listen to the answers, and spend the time to go beyond the numbers. An audit's benefit is in the maximization of an operation's effectiveness and efficiency while minimizing risk.
Kathleen J. Robison, CPCU, is president of K.Robi & Associates, which provides consulting services in the property and casualty insurance area. She can be reached at krobi@tds.net.
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