Collectively, auditors spend much more time in a coverholder’s and claims third party administrator’s (TPA’s) office than carriers, gleaning valuable information which is then typically left to be actioned by all the relevant underwriting stakeholders post audit.
But, first and foremost, is all the information gathered through this unique lens communicated sufficiently? Could more value be added in order to fully convey a total performance picture? Would verbal interaction with the auditor improve understanding? We think so!
Having reviewed hundreds – if not thousands of audits – over the last few years for clients, it is clear there is more information that could be garnered and shared with carriers from audit visits, which in turn could better inform future business decisions across claims, conduct, compliance and of course underwriting.
Scoping out best practice
The London Market started conducting coverholder audits in earnest in 2003. Since then, the volume and detail of the audit process has increased with each carrier developing their own scopes initially, before Lloyd’s and the Lloyd’s Market Association (LMA) supported the development of a more consistent approach, in 2010, 2014 and more recently in 2018.
While these coverholder audit scope documents have brought much needed consistency to the approach, the frequency of new Lloyd’s / LMA scopes over the years have led many carriers to blanket cover everything. Subsequently, this has prevented a more targeted approach to auditing becoming embedded in the process. Thus, the same audit scope is used across nearly all coverholders and MGAs, no matter how good their previous audit, the volume of risks written, or the issues raised in other, recent reviews.
Audit fatigue amongst many participants has also become an issue, particularly among underwriters, brokers and coverholders. We believe this needs to be challenged in order to make the most out of these important annual reviews and to find additional pockets of opportunity.
So, what is potentially being missed?
As with any audit, any number of things could be missed depending on the level of engagement with the auditor. At DA Strategy, we’ve picked up on the following areas where things are potentially being missed:
- Culture: The culture of a coverholder, whether it is underwriting or distribution led, needs more focus. Operational morale and management approach are difficult to record in an audit report – not least because the reports are often shared with the coverholder, MGA and claims TPA post audit.
- Connectivity: Doing more to link knowledge across the business is an especially important consideration, particularly in larger entities. Delays in reporting risks on bordereaux (audit), poor reconciliation of claims loss funds (claims) and delays in payment (underwriting) are all really good examples of the sort of knowledge that should actively be shared. The more joined-up the approach, the better and more efficient the solutions.
- Underwriting: Underwriters should be more aware, for example, that while a coverholder’s operation is currently running fine, if it was to grow by 30% it would struggle. Knowing this, in turn, gives additional perspective on a proposed underwriting growth plan and likely better underwriting objectives.
- Claims: Morale, expertise and workloads are key factors which may be limited in the way that they are documented in a report.
- Conduct: Some stakeholders may not be aware of an IT project that the coverholder is undertaking. If shared this is an opportunity data sharing and hence better claims service, for example.
How do all stakeholders ensure they’re making the most out of their coverholder and claims TPA audit spend?
Engagement with the auditor shouldn’t go cold simply once the audit report has been submitted. By making some simple changes to the overall process, more information can be gathered and shared by a call with the auditor and key stakeholders. This will improve business decisions by delivering a more holistic view for underwriters, claims and others.
Post audit triage calls are one method which has been particularly effective in our experience. Communication is at the centre of this and it’s simply about getting everyone talking to each other, including the auditor. This is how we see this working in practice.
By holding triage calls or face to face meetings within two weeks of having received the report, all parties – including underwriting, claims, conduct, compliance, bordereaux management and other relevant colleagues – are in a position to gain more information outside the written audit report and priorities for any follow up actions can be set collectively and transparently.
The key benefits are:
- Access and distribution of facts and understanding. Reports can languish in emails. Actively bringing them to the table, with discussion and debate will lead to greater all-round knowledge of both the facility and the coverholder.
- All perspectives are heard, debated and connected. This format allows for a clearer, more holistic picture for everyone involved and gives better context.
- Questions can be addressed quickly and efficiently. Extensive email trails, which can often be inconclusive, are subsequently avoided.
- Priorities can be set collectively. Everyone buys into the agreed objectives. Underwriters, claims and the DA team can pursue the resolution of recommendations in a joined up, consistent and faster way.
- Auditors get real feedback and are thus more engaged and even more valued in the business. As they should be given their unique positioning!
The key point here is people. Arguably, this could be considered rather old school in the days of PPL, DASATS and the like! However, to get to grips with the complexity and variety of coverholder partnerships, clear channels of communication are essential. We strongly recommend the implementation of post audit triage calls.
D A Strategy have helped a number of clients with their Audit programmes in recent times. Please contact us if you have any questions or would like us to help you.
As always, we welcome your comments and debate.
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