Do all payments need to be approved?

Paula Tunison, Business Consultant, FINEOS

“Never take more than it will cost them to find you”.  I don’t think I’ll ever forget that day in college when my accounting professor made this statement.  Now, I don’t think he was really encouraging us to embezzle money but instead was trying to make the point that all things have a cost and we need to weigh the cost against the benefit.  In other words, it does not make sense to spend $5000 to save $1000.

Approving every payment before it is created seems to be a logical thing to do, but is it worth the expense? Unless you are ‘rubber-stamping’ your approvals, you need to thoroughly review the claim before approving the payment and that takes time.  The benefit of approving every payment is that there should be no processing errors, which is important because we don’t want to pay out too much or too little.  This also gives you another opportunity to try to catch possible fraud. Paying too much costs your company money and, if you try to recover it, could cause bad feelings toward the company from customers and potential customers. Paying too little can also cause bad feelings with customers and potential customers plus it can hurt your company’s reputation because it may seem you don’t know what you’re doing.  So, how do you find the best balance between approving payments and the cost of approving these payments?

A few things to consider:

  • What does reviewing and approving a claim payment cost in terms of time and money?
  • What percentage of payments do you find an error or possible fraud?
  • Are some types of claims more prone to errors or fraud?
  • Are some departments or processors more prone to errors?
  • What is the cost of the errors and fraud, i.e. what would it cost the company if the error or fraud was not caught and corrected?

There are several ways you can reduce the number of approvals.  Consider providing additional training.  A portion of your errors could be happening because your processors do not completely understand the process.  Also, review your procedures, perhaps by making a change in how things are done you can reduce the number of errors.  Instead of reviewing and approving every claim payment, consider reviewing more for the less experienced processors and fewer for your experienced processors.  Chances are most of the errors are happening with the inexperienced processors.

Another way to reduce the number of reviews is to determine if there are claims types that are low risk. For example, one company decided their low face-value Life claims ($5000 or less) and another determined that windshield replacements were a low enough risk that it was not necessary to review and approve them unless the processor sees something suspicious.

Review your claim payment approval process and decide for yourself whether you are getting a good return on your investment, or are you spending $5000 to get a $1000 savings?


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