Tag Archives: Anti-Fraud

The Need For Claim Auditing In Catastrophe Loss Situations Such As The Gulf Tragedy

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Claim auditing is an essential tool to ensure best practices and timely claim payouts

Obviously the tragedy caused by the Deepwater Horizon accident will be felt for years, if not decades to come. I have previously commented on claims issues surrounding this loss that have yet to hit the industry in my Commentary: Expect Gulf Oil Slick Claims To be Extensive And Impact Multiple Lines of Business. Recently there have been numerous reports about the speed and adequacy of claim payments being made by BP, including a statement by President Obama, that White House will be watching the claims process closely (see White House Statement of June 7, 2010).  On June 9, 2010 it was reported that Admiral Thad Allen met with BP to ensure “every legitimate claim is honored and paid in an efficient manner” (see UPI – Allen, BP Meet on Claims Process). And even more recently, the administration is seeking BP to establish a compensation fund so the Federal Government can manage the claims process (see White House: Obama poised to take claims processing away from BP unless it changes system).

Managing this enormous claims undertaking won’t be easy and will be criticized for years to come. Regardless, claims auditing is a way to ensure ongoing claims practices are fair and expeditious.

The enormity of the claims process

While changing daily, there are some reports, BP has processed over 51,000 claims and paid over $62 million (see BP Oil Spill Claims Reach $1.6 Billion). With over 25 claims offices and some 600 claims professionals working to resolve matters, this is one of the largest claims organizaitons operating in this country focused on one event.

From a claims management perspective, handling this many claims is an enormous task that is fraught with potential problems and criticisms.  It is a massive undertaking rivaling claims organizations for some of the largest insurance companies for all lines of business. Keep in mind that it all had to be established in a matter of a few short weeks.

While there is no easy way to manage such an onslaught, there are a few things that can be done to make sure best practices and timely compliance is occurring: Internal reviews and audits.

Audit to ensure compliance and look for waste

There are a variety of Audits that should be explored when faced with a large catastrophe situation. A proper audit can look for weaknesses in the operation, provide valuable feedback to improve those weaknesses and further protect against waste and mismanagement. In a large CAT loss situations, such as in the Gulf tragedy, audits should be an essential element of the process.

3 Claim audits that should be done, preferably by a third party not associated with those managing the claims, can include:

  1. Best practices and procedural reviews to ensure there are no delays in payments, the claims staff is appropriately trained, and to identify inefficient processes.  When done correctly, and regularly, these reviews can save money and ensure appropriate payments are being processed timely and appropriately.
  2. Anti-fraud assessments are needed to ensure fraud is identified and prevented. The reality is in any catastrophe situation the unscrupulous will come out of the wood works to claim all sorts of false damages. Fraud diverts resources away from legitimate claims and will only create further delays in the claims process. Ensuring fraud is properly detected, and ensuring law enforcement aggressively prosecutes those involved, is essential.
  3. Vendor selection and compliance must be reviewed to ensure appropriate vendors are being hired and “kept honest” to help those who have been damaged. Many vendors will say they can handle certain types of losses or repairs when the reality is they are not staffed nor experienced in the areas they claim to be.  A proper vetting process and regular audits of those vendors, is the best way to ensure compliance and prevent waste (see How Do You Effectively Manage A TPA? Speak Up And Be Active!).

Audits performed periodically can ensure ongoing quality claims services, and help to see if claims are being handled consistently from office to office. Successes from one office can then be passed to others, and failures can be used as learning experiences to prevent future problems.

What other audits should be done in the Catastrophe loss situation?

2 Cost-Cutting Solutions To Get Work Done Without Overloading Claims Handlers

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Too Many Tasks, And Hiring New Staff Is Not An Option? (Part One of Two)

Not every company can afford to hire dedicated teams to focus on cost-saving initiatives such as subrogation or Anti-Fraud. Sometimes there is simply not enough work to justify a full-time position internally. Regardless, failing to focus on cost-saving programs can increase loss and expense payments.

So how do most companies handle the situation? By adding those tasks to a claims handler’s already overloaded job function. The problem is, the more tasks they are asked to do, the less they can focus on being a good claims handler.  The usual result of overloading the claims handler is that they not only can’t focus on the core aspects of their job – to evaluate and settle claims – but they also can’t properly attend to the additional work. Both jobs end up suffering.

Tasks such as subrogation and legal bill review are the last things claims handlers want to do. Furthermore, these tasks are better performed by dedicated staff. Take a look at any department with dedicated subrogation specialists and you will see higher rates of recovery than those without. This is also true in the areas of Anti-Fraud and litigation review. So how can a claim department maximize results and lower costs, while also ensuring claim handlers can continue to focus on their core job functions? From my own experience, two recommended practical solutions to consider are outsourcing with on-site vendors, and hiring part-time employees.

Taking a page from my past, this post presents the first of two solutions that I implemented to secure successful results.

Outsourcing As A Solution – An Anti-Fraud SIU Example

Outsourcing certain aspects of the claims department can make good economic sense.  However, not every company needs a 30-person call center, nor do they need to invest the resources to build one. In those instances, partnering with a vendor can be an ideal way to provide the best of the best. One of the potential problems, however, is if your company has only a limited need, the vendor may not always give you the most attention. Additionally, completely outsourcing the task means that claims handlers lose the benefits of the expertise that the vendor provides, and often may not even be aware of the available services offered. I was faced with this very issue when dealing with managing an Anti-Fraud unit. My solution was to require the vendor to have their employee “on-site” in our office.

What Did Not Work

Looking for fraud is a key part of a claims handler’s job, and many states require fraud reporting to state investigators. The company I was working for had a substantial commercial casualty book, as well as other specialty lines of coverage. There was not quite enough work to justify a dedicated Special Investigation Unit, but still the work needed to be done. I decided to outsource the process to a Third Party Administrator who had an active SIU unit. The vendor was contracted to handle all the company’s SIU state reporting requirements as well provide any investigation services that our internal claim handlers needed. In addition they were to provide required Anti-Fraud training to our team, and perform audits of our claim handling TPA’s for compliance with Anti-Fraud reporting requirements.

The vendor provided Anti-Fraud training to the team at the onset of the relationship, and then visited the office from time to time to provide updated training and answer questions. After a year of working with this vendor, we discovered that fraud referrals to the state were no different than before the vendor was hired. In discussing the issue with the claims handlers I learned that, despite initial training, the interaction with the vendor was typically reactive, and there was minimal regular contact with investigators. As a result handlers were not aware of the vendor’s range of services, nor did they even know how to properly identify Anti-Fraud red flags. The process and the program weren’t working and I had to make a change.

How To Make It Work

I began to look for a new vendor who would provide a solution that would produce better results.  I determined that the only way I was going to get more fraud referrals was to have someone sitting in the office on the front lines with the claims handler. For the new contract, I found a vendor that would assign a dedicated SIU investigator to sit in our office several days a week. With the investigator on-site, I was able to produce a more proactive approach to looking for potential fraud. Because they were on-site, the vendor was able to use our claims system to review files and actively monitor claims for potential fraud. This was not possible with our previous vendor in an an off-site reactive model.

Once the new program started the difference was almost instantaneous. Claim handlers sought out advice about claims with possible fraud. Investigations increased and claim handlers became more proficient at identifying industry red flags. SIU state referrals increased over 200%, and due to new investigations, several files were able to have indemnity reductions. Handlers learned that sometimes something may not be an outright fraud but instead were exaggerated claims. With the assistance of the “on-site” investigator, handlers learned new ways to analyze damages and reduce loss costs. The program was a success.

Lessons Learned

Changing the way a vendor works with your company can have dramatic results. In this particular initiative I was able to learn:

  • If it’s broken, then fix it. Don’t worry about changing your approach; it’s sometimes the best thing. Too often, leaving a merely adequate solution in place is worse than starting over to make improvements.
  • Be persistent in thinking outside the box in an effort to find new ways to approach basic solutions.
  • Having your vendors work on-site with your team can have many advantages, including the “absorption” effect. Your vendors’ expertise, knowledge, and skills are transferred to your internal staff.

In Part 2, I will give an example of using a part-time attorney to review legal bills as a way to lower your legal expense dollars.