Definition:Claims audit
🔍 Claims audit is a systematic review of an insurer's or third-party administrator's claims-handling files, processes, and outcomes to assess compliance with internal guidelines, regulatory requirements, contractual obligations, and industry best practices. Audits may be conducted by an insurer's own internal team, by external auditing firms, or — in the context of delegated authority arrangements — by a managing general agent or carrier reviewing the claims performance of a coverholder or TPA.
📂 A typical audit involves sampling a representative cross-section of claim files and evaluating them against defined criteria: timeliness of acknowledgment and investigation, accuracy of reserve setting, appropriateness of settlement amounts, adherence to cooperation clause requirements, proper documentation, and regulatory compliance such as timely issuance of denial letters. Auditors may also review aggregate metrics — cycle times, litigation rates, subrogation recovery ratios — to identify patterns that individual file reviews might miss. In reinsurance relationships, the reinsurer often retains contractual audit rights to verify that the ceding company is handling claims within the terms of the treaty.
💡 Regular claims audits are among the most effective levers an organization has for controlling claims costs and managing operational risk. They surface problems early — an adjuster consistently under-reserving bodily injury claims, a TPA missing statutory deadlines, or a pattern of settlements that suggests inadequate investigation. Findings from audits drive corrective actions, training programs, and sometimes renegotiation of delegated authority agreements. For Lloyd's market participants, audit results feed into the oversight framework maintained by the Lloyd's Market Association and can influence a syndicate's standing with the Corporation of Lloyd's.
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