1The findings and recommendations
gleaned from a well-executed claims audit
will ultimately lead to the greatest benefit
to a company: a stronger and more complete program that will help reduce claims
costs and loss adjustment expenses.
The Mechanics of An Audit
Claims audits should be viewed as a
diagnostic evaluation of a company’s
entire claims program, not just an audit of
a sample of claim files. The audit should
not be limited to reviewing a sample of
claims. Rather, it should aim to determine
how well the overall claims program
is managed. The claims auditor should
perform these phases or components
to arrive at his or her final findings and
1. Interview the corporate representatives
with primary responsibility for the
insurance/claims program to gain an
understanding of the program as it has
been set up and how it should operate.
2. Review reference documents pertain-
ing to the program, including (but not
limited to) the following:
a. Special account instructions between
corporate risk management and the
TPA or insurer on the company’s key
needs and service expectations.
b. Claims procedures manuals or other
documents that cover items such as
the supervisors’ responsibilities, return
to work (RTW) programs, subrogation
requirements, litigation management
procedures, authority levels, author-
ized vendors, and other topics.
c. Actuarial reports that reveal trends in
the claims history.
d. Cost allocation models that reveal
how the company allocates the claims
costs back to the operating units.
e. Claims budgets that project the
company’s expectations for claims
costs, and some of the assumptions
on which these estimates are based.
f. Training documents for employees,
supervisors, adjusters, and other
personnel to understand their roles in
the claims management process.
g. Process maps, if available, that
describe and illustrate the path that a
reported claim takes.
h. Management reports (such as loss
reports, exception reports) that illus-
trate the data that the company uses
to measure its results and the finan-
cial outcome, as well as determining
if reports provide meaningful data
that can be used to better manage the
3. Selection of an audit sample to provide
a reasonable evaluation of the TPA’s
claims handling to include a broad
cross-section of claims as well as work
performed by different adjusters or
Did the adjuster and supervisor document their actions as well as
those of the vendors so anyone reading the file can understand the
status and plans?
Intake Did the employee and supervisor promptly report the alleged work- related injury?
Set-up, Assignment Was the file promptly set up and assigned to the adjuster with the appropriate level of expertise?
Coverage Analysis /
Confirmation Was the coverage properly applied to the loss?
Was prompt and meaningful contact made with the employer, employee, and medical provider within one workday of claim receipt?
Was contact maintained throughout the life of the claim?
Was the investigation initiated at the time of first contact? Did it include a thorough consideration of other avenues to explore further
(for instance, potential recoveries)?
Was the reported claim compensable? Did the injury or illness arise
out of and in the course of employment?
Was there ongoing contact with medical providers to obtain information required to actively manage the claim, including the use of
specialists, independent medical examiners, and so on?
Were medical bills reviewed for causal connection to the claimed
injury/illness? Were they compared to state fee schedule or PPO/ne-gotiated rates and paid promptly with the necessary documentation?
Return to Work /
Were the steps promptly taken to get the employee back to work,
either on a full duty or modified duty basis, as soon as possible?
Reserving Was the reserving process and estimate reasonable, and did the case reserves reflect the estimated ultimate value?
Potential Recoveries /
Were potential recovery opportunities identified and pursued—for
example, subrogation, apportionment, secondary injury funds and
Fraud / SIU
Were red flags identified during the investigation that led to the need
for further examination and/or for referral to the special investigation unit (SIU)?
Benefits / Payment
Were the average weekly wages and rate of compensation properly
calculated based on state requirements? Were indemnity benefits
paid in a timely manner?
Was a proposed settlement range calculated based on the facts of
the case and case law, and did the results compare favorably to the
Was litigation avoided when possible through assertive claims management? If it could not be avoided, then did the adjuster and approved defense attorney work as a team to reduce legal expenses
while reaching the outcome?
Planning / Resolution Was the claim actively moved toward resolution at all times, based on documentation in the claims file?