Automated Auditing Systems Cut Costs

Conventional thinking says that there is a strong inversecorrelation between the level of monitoring performed by insurersand the relationship the insurer has with the party preparing anauto damage estimate. In contrast, later research might lead theindustry away from the old thinking and toward a more thoroughaudit of estimates.

Such research indicates that insurers who employ higherinspection rates of all of their estimating partners–direct repairproviders (DRPs), independent repair shops and employees–have fewerproblems with errors or inaccurate estimates. And further, researchshows that the existing audit processes allow many easily correctedtraining issues to slip through the cracks.

To be sure, insurance companies have set upseveral processes to help reduce questionable claims. These includethe DRP concept, which favors shifting additional responsibilitiesto the repair partnerincluding estimating errorsand depending oneither a field office or home office review of selected repairestimates to monitor estimate quality.

However, for the most part, these are manual or semi-automatedprocesses that cant adequately improve this significant losscontrol issue.

Until just recently, virtually all insurance companies haveemployed a manual “management by exception” method for reviewingboth employee and outside estimates. For the most part, employeemonitoring is done after the fact, as part of a formal reviewprocess. On the other hand, outside estimates are reviewed as partof the repair process.

While some insurers target between 10 and 25 percent ofestimates to be audited, the lack of automation in the processmeans that the goal is highly subjective and in some cases wildlyoptimistic. In cases where insurers use employees exclusively forthis process, estimate auditing may not be done at all.

Theres no question that insurance companies want to link theirexisting claim processing, electronic assignment and electronicestimating systems together. The ultimate goal is to have thesesystems seamlessly linked to estimating audit tools in such a waythat all estimates can be reviewed in an identical manner,regardless of vendor or communication arrangements.

The good news is that there are numerous efforts to provide anall-in-one solution for the claims handling process–and anintegrated auditing solution is not far behind. These real-timeauditing programs can spot errors and inconsistencies in estimatesat a critical point in timeduring the estimate preparation andapproval processes.

And unlike the manual processes insurers have employed to date,these rules-based systems are designed to review every estimatethat is submitted. The technology allows the insurer to create aset of rules for various coverages, departments or specialpurposes.

These automated auditing systems can significantly increaseefficiencies throughout the automotive insurance claims process byautomating a labor-intensive task and ensuring total consistency inestimate auditing. On a good day an auditor might be able tomanually review 100 estimates with the same level of detailprovided by the automated audit tools.

For operations with thousands of claims per dayor even just afew hundredit is apparent that the overhead and variability aregreatly reduced by automating the process. The new applications usea systematic, rules-based claim review formula that is based onpre-established criteria customized by each user.

Rules-based systems are designed as stand-alone tools for thedesks of adjusters, investigators, or other claims professionals.As e-business increases the velocity of business transactions,opportunities for negative cost impacts from inefficient anderror-prone processes are increasing exponentially. In the future,claims technologies such as those used for fraud detection mustmove from being stand-alone business applications to part of theoverall enterprise system architecture and infrastructure.

These stand-alone auditing systems also work well with theevolving insurance workplace. With increased competition andcommoditization of many insurance products, insurers areinvestigating all avenues to streamline key processes and reducecosts.

In the process, e-business means insurers will becomeincreasingly externalized, with business processes and systemsinterconnected with those of an increasing number of businesspartners and suppliers. The need to accurately measure performancewithin these interrelationships will continue to grow within thefinancial services community.

When considering the move to automated auditing, insurers shouldalso note the re-training and re-teaching benefits inherent inimplementation. For instance, instead of using these audit toolssimply to document and enforce a procedure change, the tools can beused to detect training needs (such as inappropriate labor times)and get the matter resolved prior to it occurring again.

In addition, instead of having to set aside countlessinvestigative hours to find out where the auditing problems lie,these tools can be used to locate unorthodox practices byestimators and to ensure that they are discontinued. If wellimplemented, this “training” approach can significantly reduce thenumber of flagged or failed audits

Ten years ago the promise of so called “expert systems” leftmost users with high expectations and low results. These systemshave now resurfaced as rules-based systems and have dramaticallyimproved in terms of customization, flexibility, ease of use andreporting.

Rules-based systems for auditing estimates are no exception.They essentially allow the insurance company to establishacceptable boundaries within which estimates meet company policy.They also allow for multiple levels of criteria, easy editing andflexible reporting.

The result is that insurers can now electronically audit 100percent of their estimates against their own pre-establishedcriteria. Adjusters will no longer have to rely solely on personaljudgment for identifying suspect estimates or patterns.

Insurers universally accept the value of auditing estimates as aproven method of controlling severity and loss adjustment expenses.With rules-based systems, claim estimate auditing tools allowinsurers to audit 10 times as many files and do it moreconsistently, with greater accuracy and with fewer staff.

To this end, insurance consultants and information providersshould be able to provide a return-on-investment projection thatincorporates the key data elements for an organizations particularneeds or situation.

Tate Linden is product manager for the ADP Claims ServicesGroup, based in Roseland, N.J.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, April 8, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.