The economic conditions these past few years have com- pounded the pressure for companies and public entities
to reduce costs in every possible way.
While some signs suggest the economy
may be improving, insurers recognize
that cost control is here to stay and is
vital to successful ongoing operations.
Many property and casualty (p&c) carri-
The Current Climate
ers have not yet examined how to enhance
claims operations to reduce costs—this is
likely because they’re facing more press-
ing financial issues. Still many companies
erroneously believe certain claims costs
simply fall into the “cost of doing business,”
thereby assuming little can be done to curb
expenses. However, insurers can take a
variety of measures to improve the cost-
efficiency of their claims programs.
Claims audits are an efficient and cost-
effective method for evaluating how well a
program has been structured, developed,
and maintained in this difficult environ-
ment. For instance, claims audits, which
can be performed for any insurance line,
may sometimes be necessary to docu-
ment whether an insurer’s or a third party
administrator’s (TPA) performance has
fallen short of its duties—and possibly
resulted in significant financial loss to the
client. In the majority of cases, however,
claims audits should not be viewed as a
“gotcha.” Rather, they should be seen as
a method for improving the full suite of
claims management activities in order to
achieve better outcomes.
Insurance companies and other entities
may take one of several routes for managing
their claims. They can:
1. Rely on an insurance company for their
coverage and claims administration.
2. Select a TPA to manage their claims if
they are a qualified self-insurer or have a
3. Administer their own claims, especially
if the company is self-insured and regional as opposed to national in scope.
4. Become a risk pool member, in which
case the risk pool may elect to administer the claims or may select a qualified
TPA to administer the claims.
Many claims administration programs,
regardless of how they are structured, have
adopted best practices to manage claims.
This is a good start toward more favorable outcomes; however, the program’s
emphasis may eventually shift to processing
claims by following a checklist rather than
managing claims through a combination
of technical claims knowledge, appropriate
procedural steps, effective time management, and action plans. The processes at
work in managing claims lead to faster
and more favorable results. This shift in
perspective, when combined with more
liberal awards and rulings and escalating
medical costs, means claims costs and loss
adjusting expenses (LAE) may increase in
spite of the company’s attempts to reduce
exposures and mitigate costs.
Why Auditing Is
To Cost Reduction
Taking A Cue From Workers’
By Gary Jennings, CPCU, ARM, ALCM, AIC, ARe, SCLA