by Curt Pearsall, CPCU, AIAF, CPIA, President, Pearsall Associates, Inc. and Special Consultant to the Utica National E&O Program
Today, probably more than ever, insurance agencies are conducting some degree of auditing. Agency management is keenly aware of the need to verify that the firm’s procedures are being followed consistently. In the errors and omissions (E&O) world, “consistency” is a fundamental word.
However, there are still many agencies that don’t believe they have the resources to dedicate to this important process. The best suggestion to those agencies is to at least start the process. You do not want to find out at the time of an E&O claim that your staff was “doing their own thing.”
Key steps to begin auditing
• Have established procedures for processing new and renewal business. If this is not something that your agency currently has in place, work with your staff to identify at least five key processes. This will provide the foundation to build on.
• Determine who will conduct the auditing. The options are many, ranging from outsourcing, to a dedicated staff member, to a “peer-to-peer” approach. The latter might be the best approach to start with, where employees audit the work of their fellow employees.
• Identify a realistic number of files to audit. For many agencies, the goal is 10% of the policy count. If this is not doable, pick a number, such as 10 files per quarter, per employee. Auditing at least quarterly is suggested.
Determine the exact audit questions with the potential responses being “yes,” “no,” or “n/a.” Consider the following:
• A new business exposure analysis checklist was completed.
• The accepted proposal template was used.
• There was confirmation to the client of coverages they rejected.
• A binder was issued within 24 hours of the binding of coverage.
• Upon receipt of the policy, it was reviewed and errors were identified.
• The policy was delivered in accordance with the agency’s expectations.
As the auditing process is ready to be introduced and implemented, meet with the staff to advise them of the purpose. The goal is to get their buy-in. Through a “softer” approach, the staff will realize that auditing is not only good, but also necessary. By identifying the issues in the files that did not get a passing grade, the agency will be able to develop the appropriate solutions. This could involve the need for further training on the expected way to handle a task. It could also involve tasks being performed. For example, the documentation for a task, such as an exposure analysis checklist, is not being placed in the proper spot in the agency system or in the document management system. It may also identify an employee who does not agree with the specific agency procedure.
• As the audit results are tabulated, hold a meeting involving the employee, the staff member who did the audits, and management. If appropriate, an action plan should be developed to address areas in need of correction. Through this approach, the agency will be able to determine progress as future quarterly audits are completed.
• Celebrate successes. The goal of auditing is not to be punitive although, unfortunately that may occur at some point. The goal is to improve toward a greater degree of consistency.
Strive to create good auditing habits. These habits will eventually become the norm in your agency. Don’t fear auditing. Some agencies become overwhelmed in the development of auditing and try to do it perfectly from the beginning. Even if your agency starts slowly, at least it has started. The benefits will be tremendous and the process can be refined over time.