Self-Insured ALAE Audit – Avoid Leaving Money On The Table
Let’s first cover a few definitions before covering why any insured, and especially self-insureds, need to perform a Self-Insured ALAE audit. See the article from last week on ALAE.
ALAE Definition – Self-Insured Version
ALAE – Allocated Loss Adjustment Expenses are the expenses required to adjust the claim that are spent by the insurance carrier or TPA. The expenses differ from Medical and Indemnity costs. ALAE can be found in the third column in most claims loss runs. Self-Insured ALAE differs in one major aspect that we should now cover.
Huge Difference for Self-insureds
The difference comes from the business’s bank account. A company self-insured for Workers Comp PAYS ALL THE ALLOCATED ADJUSTMENT EXPENSES OUT OF POCKET.
A company that has a regular voluntary market policy eventually DOES NOT PAY FOR THESE EXPENSES. Why? The ALAE does not figure into the Experience Modification Factor.
To save any confusion, let us look at an example. The example below only converts the totals. Each claim on the claims loss run will have the same structure. Yes, there may be an additional column for totals that were not included.
ABC (Self-Insured) Company Loss Run Totals
Policy Valuation Period 1/1//2026 – 12/31/2026
………………….Indemnity Medical Expense <ALAE
Paid $385,000 $744,000 $334,000
Reserves $285,000 $877,000 $415,000
Totals $670,000 $1,621,000 $749,000
No one is saying that the claim staff has done anything nefarious or in error. However, performing a self-insured ALAE audit can easily show the mechanics of what happened in the claim. Self-insureds pay for the Expenses noted above – $334,000 so far in 2026.
As mentioned many times on this website, having online access to your claims, especially if self-insured, will allow you to do a self-insured ALAE audit seamlessly. You do have online access, right?
If not, contact your TPA and ask for full access to your claims info.
Starting the Self-Insured ALAE Audit
The TPA’s claims adjusters usually document when they assign a third party to your file to help assist in adjusting it.
Comparing the adjuster documentation with a payment ledger will usually show where the third parties were assigned and how much each charges for their services.
If you feel that you do not have the time, assign it to an intern if you have hired one recently. The interns can also review your insurance policies to save you time.
Third Parties in ALAE Charges
Some examples are:
- Defense Attorneys
- Medical Bill Review – sometimes internal
- Field Case Managers
- Private Investigators
- Independent Medical Exams (IME)
The list could be longer. The above list consists of what I could think of while writing this article.
Bottom Line on Self-Insured ALAE Audits
As mentioned earlier, no one is implying that there will be errors or overcharges found in the audit. I see many instances where self-insureds focus on the Indemnity and Medical columns and ignore the Expense column.
