Does anybody like the word "audit"? For some people, that word conjures the image of an impersonal agent rifling through files, folders, and spreadsheets, looking to find mistakes. For others, an audit is a hassle: more paperwork and more time lost on administrative tasks.
But there's another way to look at it: an independent, objective audit is just good business hygiene. "Independent and objective" means that the audit is neither from a regulatory agency nor from a party with its own agenda. In some cases, a third-party audit provider comes with something to sell. If so, the chances are good the provider will be looking for something specific that its product happens to solve. It's as if you called in a hammer salesperson who finds that every problem looks like a nail.
Independent, objective auditors aren't focused on finding a particular problem but on helping you see what you've been missing. Newspapers use copy editors to find errors before they print; they don't wait for readers to call in with corrections. Likewise, in business, a third-party review provides a fresh set of eyes before something goes wrong.
You get the benefit of expertise from a knowledgeable source who knows how an official audit can go right or go wrong, due to experience working with other insurance carriers. Independent auditors are better able to apply the breadth of their experience to evaluate your processes holistically.
An objective audit is like studying before the exam
A market conduct exam is one test you do not want to fail. For businesses behaving ethically, audits and compliance reviews may seem like a mere inconvenience. But if you've overlooked something, however unintentionally, the consequences of a bad audit can be catastrophic. Depending on the size of your organization and its location, market conduct fines can run into the millions. If an error leads to a class-action lawsuit, financial losses will be compounded by reputation damage.
A third-party audit review gives insurance carriers an early warning system, finding potential problem areas while there is still time to fix them. An independent observer is more likely to spot the differences between your organization's claims philosophy and its practice. When it comes to underwriting new policies or approving claims, your firm ideally has clear guidelines in place. When evaluating individual applications or claims, however, your employees are looking at a wide spectrum. Some policy applicants or claims fall clearly in the approved category; others clearly must be declined. Your staff must find the middle line between the two.
Having provided pre-exam evaluations to many insurance carriers, we've found that organizations often don't know where their lines are. Whether they are too stringent or too lax, the lack of clarity impacts their risk management strategies and reputations—in addition to producing claims decisions that trip them up during a market conduct exam. A third-party audit review can shine a light on the places where claims decisions don't match your stated intentions and give you the opportunity to get them in alignment.
The ROI for an independent auditor goes beyond compliance
When SALT Associates provides an audit review, we can't help but look at things through the eyes of a consultant. For insurance carriers, this means an audit comes with the added value of observations on process and workflow improvements, inefficiencies, and potential automation opportunities. Clients usually find this to be the best part of the audit process.
For example, in many organizations, almost every step of the claims process requires a handoff between departments or even companies. You might outsource data entry to an offshore service, which then comes back to someone onshore before going to the next person. One person in your office might take information from a customer over the phone and put it into your system, but when and how will it get to the person who needs it? There may be steps to take out or automate those processes to increase efficiency, but, even more importantly, numerous transfers may lead to knowledge getting lost. Without looking at the entire process, end to end, those gaps are easy to miss.
Unlocking full potential
An objective view can also uncover where resources—human or technological—aren't being used to their fullest potential. SALT Associates and RGA recently released a survey of insurance carriers, reviewing the amount of time claims staff was spending on non-claim-related tasks. We found that in many organizations, staff were spending an average of 37% of their time in meetings and another 24% of their time performing administrative tasks. An outside perspective can help identify where and when claims staff are spending too much time on lower-level tasks that could be delegated or even automated. Excessive manual labor can also reveal inefficiencies in data collection. Insurance companies are generally swimming in data, but are they capturing it in a way that they can reuse it? Having seen these challenges time and time again during audit reviews, we can spot them quickly and provide information on industry standards and effective practices we've seen elsewhere.
The difference to your bottom line can be significant. For one of our clients, reviewing inefficiencies in their processing during a third-party audit review uncovered a $1 million reserve release due to the timing of closing claims. In another case, a client had not been following up with people on Life Waiver of Premium (LWOP). Their audit review discovered 700 LWOP claims that could be closed because the person had either died or recovered. Finding that gap resulted in $6.5 million in estimated reserve impact for the client.
What to expect from an independent, objective review
There's no need to cringe when someone in your office says "audit." An independent, objective review from an experienced auditor provides:
- A fresh pair of eyes
- An early warning system
- A value-added review of your processes
Make sure your independent auditor has plenty of insurance industry experience, a proven methodology, and demonstrated results. Learn how our team draws from diverse industry experience to deliver unbiased expertise and seasoned resources to solve your risk management challenges and get in touch if SALT can help you.