They Say, Hearsay
My insurance company paid my claim and then told me it was going to subrogate with the company that insured the at-fault driver of the car crash. Subrogation? Why would they bother? Does it mean I'll have to return some of my claim payout if the company is unsuccessful in getting its money back?
We Say
Even though subrogation is an unfamiliar word to policyholders, that doesn't mean we should shy away from using it. In fact, we should use the word often, along with an explanation of how and why it works and its benefits to policyholders. Concern from customers about rising insurance rates is all the motivation we need to begin to tell the public more about what we do internally to control costs, from managing underwriting costs to investigating possible fraud, to the process of subrogation.
Subrogation is ancient; a concept traced to common law established in the Magna Carta in the 13th century. It simply means that an insurer stands in the shoes of the insured by exercising the right to recover payment from the party responsible for the loss. Maybe all the insured wants to know is that we are working to get his deductible back. However, there is much more to it, and people will never understand what they get if they do not see it or we do not tell them about it.
Simply put, subrogating a claim means finding out who should be held accountable for an accident. It is based on supporting the principle that people are responsible for their own actions. With subrogation rights, insurers are able to investigate accidents and recover the losses they paid out. Customers benefit from this since every dollar recovered erases a dollar paid out. Because insurance rates are a reflection of historical loss costs, getting reimbursed is important for reducing premiums and no less important to an insurer's financial stability. Subrogation used to be a time-consuming, manual process. Now it is streamlined, more available, and of increasing importance to companies desiring to effectively manage reserves.
A Web-based paperless system called E-Subro Hub is a game-changer because it transforms the sometimes arduous subrogation process into an efficient one, making it easier for insurance carriers to interact with one another. Developed by Arbitration Forums, Inc. (AF), it is on track this year to handle more than 500,000 demands valued in the billions of dollars now that it is available in all 50 states and the District of Columbia. AF is a non-profit organization founded by the insurance industry in 1943 and the nation's largest arbitration and subrogation services provider.
Being able to conduct subrogation activities online has proven to be a money saver. In 2010, when the E-Subro Hub system operated in only 23 states, it handled about 115,000 subrogation demands valued at nearly $206 million. With the system operating nationally, companies will be able to electronically send and receive subrogation demands, attach supporting documents, manage subrogation claims, and electronically file inter-company arbitration.
According to W. Russ Smith, president and CEO of AF, E-Subro Hub makes it possible to close cases within days rather than the weeks or months it took to manually manage the workflow. It also means printing and mailing costs have been eliminated, which adds to the savings. Most importantly, it means deductibles are returned to policyholders faster. That is pretty appealing to participating E-Subro Hub carriers, self-insureds and policyholders.
The insurance process is based on the foundation of correctly assessing losses, both the potential for loss and an analysis after a loss occurs. If subrogation were not available, the actual cost of insurance would rise in part because there would be no mechanism to prevent the insured from collecting from both the insurer and the party responsible for the same loss. That brings up another advantage: Subrogation has the effect of reducing lawsuits. Because insurers have the right to recover benefits from the responsible party, the insured has no concern over repaying the subrogated carrier.
A fuzzy-sounding word like “subrogation” may compel skeptics to believe they have something to lose. It is up to us to explain what they gain and to use the process to add transparency to our business.
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