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
Quality Loss Assessment
Finally, has the adjuster correctly evaluated the damages? If the claim involves
injuries to a third party for which the
insured is partially or totally liable, has
the adjuster made the necessary contacts
with the injured claimant or the claimant’s attorney, and ostensibly maintained
control of the claim? Has the medical
information been received and carefully
reviewed? Or, is the claims adjuster “
sitting” on the file, merely awaiting the attorney’s “package of specials”? The latter
can be an indicator of no quality at all.
The adjuster should be out there attempting to determine what the special damages are going to be so that a fair evaluation of the potential general damages can
be reflected in the reserves when the file
is ready for settlement.
If the loss involves damage to property,
then has the adjuster correctly appraised
the damage or obtained correct estimates
of value of damage so the actual cash value (ACV) of the loss can be negotiated?
Did the adjuster take all possible factors
that may impact on the settlement—such
as comparative negligence, depreciation,
fair market value, deductibles, subrogation, and any legal factors such as diminished value—into consideration in the reserves and reports? Is each aspect of the
damages involved documented?
If the file has ended up in some degree
of dispute—such as a lawsuit, arbitration,
or appraisal of disputed damages with
Auditing: Rhyme and Reason
An effective audit can enhance the claims department and the individual adjusters involved,
whereas a bad audit can ruin them. Here are some tips to facilitate a healthy audit process.
E The audit team should be identified, as well as the subject area of the audit, the sample
size, and the time requirement.
E Gather information from the claims department for things such as average loss cost and the
average age of claims.
E Gather information about the payment and reserve authority of each adjuster. Familiarize
yourself with claims involving extra-contractual damages, claims closed without payment,
and claims denied for coverage or liability issues.
E Gather the number of new claims, number of new policies, expenses per claim, and average
reserves. Prior audit reports should be reviewed.
E Consider industry standards, consumer complaints, and financial analyses.
E Encourage the department’s management to discuss concerns or areas for review.
E review claims files, procedure manuals, and speak with staff members.
E Provide a written report that offers an overview of the audited unit.
E in response to the report, the department’s management should prepare a written
agreement or disagreement with the findings, an action plan to correct any issues, and an
expected completion date for that plan.
E hold a closing meeting with department management to discuss reports and any remaining
each side obtaining an expert and those
two selecting an umpire—then does the
file reflect why the dispute arose? Does
the file reflect why the adjuster was unable to resolve it? Unless the insurer is
solidly in the right, litigation may represent a failure on the part of the adjuster to
adequately negotiate and resolve issues.
This failure usually stems from an inadequate investigation, thereby resulting in
a lack of necessary information, or in an
inappropriate examination of the information obtained. When facts are clearly
documented, however, disputes can usually be avoided to potentially facilitate a
smoother settlement process.
Multiple file Reviews
Assuming the auditor is looking at
more than one of the adjuster’s files, a
pattern of quality (or an overall lack of
quality) should become evident. If an ab-
normal number of the adjuster’s claims
result in litigation, for instance, the au-
ditor must decide if there is a reason for
that. Perhaps the claims manager assigns
only disputed claims to that particular
adjuster. The job therefore entails fully
investigating, evaluating and managing
the dispute or litigation. If so, then is all
of that being done appropriately? On the
other hand, the files could reflect disputes
resulting from lowball offers or undue
delays in trying to resolve the claim, or
from frustrating the insured or the claim-
ant to the point that a lawsuit is filed. In
that case, the auditor must accurately de-
termine whether the cause is quantitative
(such as failure to act in a timely man-
ner) or qualitative (such as an abusive
approach to the claimant or the insured).
Keep in mind that the claims adjuster’s at-
titude toward his or her vocation should
be reflected in the files.
Ken Brownlee, CPCU, is a former adjuster and
risk manager based in Atlanta, Ga. He now
authors and edits claim-adjusting textbooks.