The impacts of the COVID-19 pandemic on financial industries across the world will be seen and felt for a long time. DA Strategy Consultant Isabel Clarke looks at how the industry is adapting to remote audits.
Lloyd’s has stated that it expects coronavirus-related claims to cost the market $3bn to $4.3bn (£2.5bn to £3.5bn) and, alongside the financial effect due to the surge in claims, the pandemic is impacting everyone’s ability to continue with business as usual.
The limits to social contact, with the vast majority of the population still working from home, makes it clear that MGA, Coverholder and TPA auditing practices will need to adapt.
Audits are arguably the most effective means of carrier oversight of their Coverholders and, particularly when many insurance companies are testing their contingency plans, all options to maintain this whilst keeping costs reasonable, if not reduced, must be considered.
But how can carriers ensure remote audits are effective? Will they result in the same level of insight across underwriting, claims handling, operations, resources and above all trust? As for the future, will remote audits become standard practice going forward?
It is well-known that the most effective audits take a focused, risk-based approach. This is even more important with remote audits, because whilst the focus or areas audited may need to be adjusted, the underlying objective of gaining assurance through evidence-based analysis remains constant.
Whilst remote audits can give greater insight into IT systems, security, documentation data quality and organisation, they may reduce the ability to assess company culture, on-site communication, physical security, and other ‘softer’ elements of the scope. It follows therefore that whilst remote audits should attempt to cover all bases outlined in the carrier’s audit scope, this may not always be possible. It is clear then that both planning and scoping need to be redesigned to ensure that remote audits remain as effective as their on-site counterparts.
This raises the question of whether a much greater proportion of DA audits could be conducted remotely? The shift in focus towards remote audit certainly seems to have increased, driven forward mainly by technological advances within MGAs, Coverholders and Claims TPAs, both in recent years and as a result of the current pandemic.
If remote audits are increasing in frequency how can carriers best prepare for them, whilst upholding quality and insight?
DA Strategy cover the key factors in making a remote audit effective and successful.
Communication is the key to a successful remote audit. The preparation and pre-audit process is naturally more time consuming than for traditional on-site audits:
- Organisation and open communication between the Coverholder, Carrier and Auditor are paramount. The better the communication ability across the stakeholders, the lower the risk of audit failure.
- Many auditors view an open line of communication with one key member of staff at the Coverholder/ TPA to be essential to a high quality remote audit.
Access to information and people
- Ensuring an auditor can see and check all relevant documents, files, reports etc. Whether that be through remote access to an online system, or an upload of policy files to a cloud-based folder, is pivotal.
- The ‘gold-standard’ is arguably full access on a read only basis to the auditee’s underwriting and/or claims system. This allows unfiltered access to policy files for the auditor, which lessens the risk, as no pre-notification of files is necessary. If a Coverholder is able to provide this level of access the result of the remote audit will be a more accurate, fair and representative report, with as comprehensive a view of the auditee and files as possible.
- Scheduling and access to all key people at the Coverholder, MGA or Claims TPA is arguably easier when handled remotely. However, coordination via a designated central contract is important.
Security and Coordination between everyone
- Clarifying data handling and security up front within the audit instructions and contracts.
- Developing trust via early pre-audit video calls to facilitate interaction.
- Increased focus on the allocation of time and scheduling of video calls well in advance, including full pre-audit and post audit wrap up calls.
Looking forward to the rest of 2020 and 2021, the insurance market will continue to be a very different landscape to what we have been used to. The market-wide movement to electronic trading, remote working and additional technology give us all opportunities to improve. Audits are one of many areas impacted by COVID-19, however, it is compelling the market to address questions over efficiency, digital streamlining and data security that have in the past sat on the back burner. At D A Strategy we believe that even in a post Covid-19 world over 50% of audits will be conducted remotely.
Change is in the air. As we re-evaluate how we conduct both our business and our lives. We want to send a strong call to action to all, Coverholders, MGAs, Claims TPAs, Carriers and Brokers that we can succeed with remote audits. And that with the right communication, access, protocols and structures place, remote audits can deliver much much more!