Improving the Strength of Your Claims System Auditing Process

Higher caseloads for claim managers, and an increase in outsourcing has spiraled claim departments into an escalation of human error, and an inflation of fraudulent & improper claims being paid. Claims departments rely heavily on the claims system audit process to red flag any failing operating procedures and to do to a systematic and review of claims files and related records to evaluate performance. However, one must ask how often are claim managers improving their claim audit process?

Seven key indicators come to mind that spotlights a claim function that is not performing at its highest level and should be audited:

1) Complaint calls regarding claims have increased

2) Compliance issues are present or need to be addressed

3) Reserves are fluctuating or trending up

4) You have experienced changes in the type or frequency of claims

5) An increased loss projection has occurred

6) Your claim costs or average time to close is higher than the industry average

7) There have been missed subrogation opportunities have been identified

What’s your auditing method?

The traditional manual method of auditing permits an auditor to extrapolate conclusions built on a small sampling of a population, rather than examining all available data. Claims Managers perform thousands of cases, and at some insurers possibly even millions of claims matters a year and manual audits only sample a very small percentage. This use of a limited sampling may weaken the legitimacy of audit conclusions.

Other issues that crop up include:

Limited geographic locations are reviewed.

Onsite audits have become time-consuming and expensive.

The random audit selection process is inequitable.

Claims Administrators are subjected to audit disruption.

Improve the effectiveness of your claims auditing process through automated claim systems audits. The use of automation to expand the audit scope – Computer Assisted Audit Tools and Techniques (CAATT’s) is a method of automating the claims audit process. Using CAATTs the auditor will examine every operation the business unit executed during the period studied. By eliminating the more selective, more limited manual on-site audit, audit costs per claim are much lower and can draw more accurate conclusions.

Automated system audits also allow tests for specific risks. For instance, a claim manager may wish to confirm that they didn’t pay a single claim after policy termination. Employing traditional manual audit techniques this risk would be very difficult if not impossible to test and render an extrapolated conclusion. Using this approach, the auditor would subjectively select a statistical sampling of claims (typically 30–50.) Using an automated claims system audit tool the auditor can select all claims that carry a date of service after policy termination. The auditor then can then easily identify any claims that were paid inappropriately. If claims were paid after the policy termination, the auditor can then establish why the controls to prevent this didn’t work to prevent it. A comprehensive claims system audit will provide an objective analysis of operating procedures, service standards, policies and guidelines.