Some insurance companies take an extremely long time to respond to claims, and may reject them if they are not reported in a specific format. To avoid these problems, thereby receiving the full amount of claims as quickly as possible, the risk manager must implement a strict claims administration process, as described in this section.
The risk manager should assemble a summary of information to review whenever a claim is filed. By having this information in one place, the risk manager avoids missing any steps that might interfere with the prompt settlement of a claim. The summary should include:
- Instructions for itemizing damaged items. Be sure to compile a complete list of all damaged items, including their inventory values, estimates, appraisals, and replacement costs. This assists the claims adjusters in determining the price they will pay to compensate for any claims.
- Claims representatives. There should be a list of the names, addresses, and phone numbers of the claims adjusters who handle each line of insurance. This usually requires a fair amount of updating, since there may be a number of changes to this information every year, especially if a company uses a large number of insurance companies for its various types of risk coverage.
- Key internal personnel. Company policy may require that the risk manager notify internal personnel if claims have been filed or payments received on those claims. For example, the accountant may want to know if payment for a large claim has been received, so that an entry can be made in the accounting records.
- Underlying problems. The risk manager should have a standard group of follow-up steps to review whenever a claim occurs, so that there is a clear understanding of why a claim occurred, as well as how the underlying problem that caused the claim can be avoided in the future. Without these instructions, it is possible that a company will repeat the problem over and over again, resulting in many claims and a vastly increased insurance premium.
- Instructions for safeguarding damaged items. If material has been damaged, it is the responsibility of the company to ensure that it is not damaged further, which would result in a larger claim. For example, a company must protect the materials in a warehouse from further damage as soon as it discovers that the roof has leaked and destroyed some items. If it does not take this action, the insurer can rightly claim that it will only pay for the damage that occurred up to the point when the company could have taken corrective action.
The above information is necessary for the filing of every insurance claim. In addition, there are two steps related to claims administration that the risk manager should attend to on an ongoing basis:
- Accounting techniques. The risk manager should work with the accountant to develop a standard set of accounting entries that are used for insurance claims as well as summarizing the cost of risk management. These relate to accumulating cost information for each claim, so that the risk manager can easily summarize the appropriate information related to each claim and use it to file for reimbursement. This information should include the costs of claims preparation, security and property protection, cleanup, repair costs, property identification, and storage costs.
- Audit program. No matter how good the procedures may be for the claims administration process, it is common for the claims administration staff to forget or sidestep some procedures. This is especially common when there is frequent employee turnover in this area, with poor training of the replacement staff. To identify procedural problems, it is useful to conduct a periodic review of the claims administration process. To ensure consistency in this audit, there should be a standard audit program that forms the minimum set of audit instructions (to be expanded upon as needed) for use in conducting each audit.
It can be cost effective to have some claims administered by outside service companies, quite often by the insurance carrier itself. Usually high-volume, low-cost-per-unit items such as medical claims are in this category. When outside services are used, the accountant must establish with the provider the controls to be followed and the reports to be prepared. Periodic audits of the outside claims processing operation should be made by the company to ensure that claims are being handled in a controlled and effective manner.