The Claims Audit

All claims adjusters, whether for insured or self-insured programs, should be audited at intervals. The audit is a study in sufficient depth to determine the effectiveness and the cost of the program, and should be directed to the following areas:

• Compliance with procedures and controls established by an insured or self- insured entity and any regulatory authority.
• the degree of promptness and expertise with which claims have been handled.
• Adequacy of file documentation and proper claims verification.
• Accuracy of reported payments and reserves
• Adequacy or excessiveness of payments.

Reasons for the Claims Audit

No two claims are exactly alike. Many steps are involved in each claim. The adjuster must report, investigate and evaluate damages or benefits, sell the settlement to the claimant, report accurately the cost of claims paid and finally, estimate future liability. Unfortunately, to err is human. The claims audit is to determine whether the ratio of errors is acceptable. Some of the errors brought to light by an experienced claims auditor are:


• Duplicate payments.
• Failure to obtain a proper release, exposing the entity to further unanticipated payments.
• Payment of one entity's claims with another unrelated entity's money.
• The payment of frivolous claims.
• Failure to recognize legal defenses.
• Permitting adjusters or lawyers to "keep the meter running" after a demand has been recognized as justified and acceptable.
• Failure to verify alleged damages.
• Poor reserve evaluations resulting in reserve redundancies or deficiencies.
• High error ratios on computer input-- reserves and claims listed more than once or not at all ( a frequent occurrence).
• Failure to recognize and pursue subrogation.

These are the most common and obvious shortcomings. The experienced claims auditor will recognize many more subtle points of investigation, evaluation and settlement.

When to Have and Audit

Audits should be planned on a regular basis. If not, watch for the following signs that might point to the need for an audit:


• Failure of claims personnel to return telephone calls or answer letters promptly.
• Ambiguous answers from the examiner.
• Unusual and unexplained fluctuations in reported payments and reserves.
• Steady increase in open or pending cases.
• Unusual number of reopened cases.
• High ratio of litigated cases.
• Seemingly justified complaints from any source.
• Diminished confidence in the administrator.