Improving the Strength of Your Claims System Auditing Process

Scroll to:


Higher caseloads for claim managers and an increase in outsourcing have spiraled claim departments into an escalation of human error, and inflation of fraudulent & improper claims being paid. 

What Do Claims Departments Rely On? 

Claims departments rely heavily on the claims system audit process to red flag any failing operating procedures and to do 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?

Manual Insurance Claims Audits

The traditional manual method of auditing permits auditors to build conclusions based upon a narrow selection of a population, rather than an examination of all available or a large sample of data. Claims Managers perform thousands or in some cases, millions of transactions a year and manual audits only sample a very small percentage. This use of limited samples may diminish 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.

Benefits Of Automated System

Automated system audits also allow tests for specific risks. For instance, a claim manager may wish to confirm that they didn’t pay any claims after a policy is terminated. Using traditional manual audit techniques this risk would be very difficult if not impossible to test and render an extrapolated conclusion. The auditor would “arbitrarily select” a “statistically valid” sample of claims (typically 30–50.) 

Using an automated claims system audit tool the auditor can select every claim that had a date of service after the policy termination date. The auditor then can determine if any claims were paid inappropriately. If they were, the auditor can then figure out why the controls to prevent this didn’t prevent it. A comprehensive claims system audit will provide an objective analysis of operating procedures, service standards, policies, and guidelines.