If you have cracked the subrogation nut, your results show improved recoveries and decreased expenses.

To achieve this level of success, you are likely using a combination of advanced analytics and machine learning. You understand third-party carrier behaviors and have real-time decision support tools for settlement, arbitration and litigation.

In real time, your global delivery system and triage lands every file with the appropriate person immediately upon subrogation referral. Your sophisticated predictive models provide customized strategies for all recovery scenarios, by line of business and with a high degree of integration.

Related: Subrogation claims put insurers in the policyholder's shoes …

These companies have a clear and direct understanding of what is driving recovery. The key to success has been viewing subrogation as a strategic asset and a lever for managing indemnity while controlling expenses. The subrogation organization has become the launching pad for key talent throughout the organization.

Potential upside

If that is not your company, then you are like most in the industry where subrogation is neither a top priority, nor viewed as a strategic asset. As organizations look for opportunities to cut expenses, they often miss the potential upside subrogation can bring. Even those who have already achieved subrogation nirvana can take steps to further optimize this strategic asset.

Carriers across the industry are using a variety of levers to achieve success. That said, continued investment in subrogation is difficult, even for the largest carriers. Expensive modifications to legacy platforms, maintenance of external vendor networks, and constantly changing reporting requirements all drive needs that most carriers struggle to satisfy.

For carriers directing their investment dollars to other areas, outsourcing is an attractive alternative. Vendors who create scale across multiple organizations can also invest differently in the process through technology, analytics and various sourcing models.

Successfully subrogating a claim begins with a thorough inspection of the damage and retaining key evidence. (Photo: Shutterstock)

Keys to unlocking the subrogation process

Maximizing the subrogation process results in a material impact on loss ratios, which generally outweigh expense savings 3-to-1. Examining this further, we find the top-performing subrogation organizations have not only streamlined back-office processes, but have also focused on five key areas:

1. Liability assessment

Subrogation identification should begin at first notice of loss (FNOL). Understanding the dynamics of the claim allows for proactive identification of potential recovery opportunities. Even beyond the initial stages of the claim, liability decisions are often inaccurate. Only 3% of all claims with comparative negligence are actively evaluated for subrogation potential according to PropertyCasualty360.com. Considering findings from jury verdict research that shows shared liability occurs in 45% of all cases adjudicated, a lot of recovery dollars are left uncollected.

Providing the adjuster with sophisticated analytics increases the likelihood of success in subrogation significantly by helping the adjuster monitor changes in liability as the claim matures, collect evidence earlier in the process, and develop winning settlement strategies.

Related: 5 subrogation recovery tips 

Working through a predetermined workflow can help insure that nothing is overlooked during the negotiation stage. (Photo: iStock)

2. Third-party negotiations

This is one of the most critical aspects of the subrogation process. Far too often we see ineffective negotiations where liability is conceded when it clearly should not have been. This happens for several reasons, but frequently, time constraints and the push for claim disposition have the unintended consequence of adversely impacting quality.

We have found that structured workflow, data collection and sharing in the early triage stages combined with effective decision support tools that expose third-party behaviors greatly improves yield per file in the subrogation process.

Determining which parties may be responsible for covering the costs associated with a claim requires a thorough investigation. (Photo: Shutterstock)

3. Damages evaluation

Having a clear process to properly evaluate claims is critical, particularly on inbound demands where the other carrier may have paid for aspects of the claim that weren't owed. To complete this efficiently, many carriers have tools to manage the damage process. Often lacking is the ability to incorporate damage evaluation directly into the subrogation process.

Integrating these tools combined with knowledge management processes for negotiation can improve the efficiency of this process.

Related: Damages proof in subrogation cases 

Working with a vendor as a partner improves the chances of a successful subrogation process. (Photo: Shutterstock)

4. Uninsured management

While there are many capable vendors in the marketplace, their effectiveness is often governed by the management process. Simply hiring a vendor is not enough. During many years of managing vendors for a large carrier, we found that those who did the best job were the ones who were truly business partners with a vested interest in positive, metric-based outcomes.

We have found that an ongoing process for case allocation to match the right vendor with the right files will improve outcomes. Smooth integration between the subrogation platform and vendor platforms creates efficiency, predictability and greater transparency.

Social media gives unhappy policyholders an immediate outlet to discuss their displeasure with how their claim is being handled. (Photo: Shutterstock)

5. Service orientation

In the age of social media, where bad reviews can be posted on any number of sites in a matter of seconds, service is paramount. As fiduciaries of the insured, adjusters are responsible for protecting their best interests. When there is a collection opportunity, recovery often includes the insured's deductible, and they don't want 80% of a deductible back if they are entitled to 100%.

While there are legitimate reasons to settle claims below the full demanded amount, the insured needs to be informed of the status and rationale for decisions. Service representatives need to be able to quickly check claims status and provide clear updates to policyholders.

Related: How do you prove a subrogation claim? 

Benchmarking is a valuable tool for tracking progress and opportunities for improvement. (Photo: Shutterstock)

The importance of analytics and benchmarking

From the time a claim is first reported, activities related to the investigation yield important information that drive improved subrogation recognition and increase the probability of recovery. Scoring data based on the likelihood of recovery, the skillset required to settle combined with a comprehensive data set based on historical outcomes dramatically improves staff efficiencies and the net recovery dollars.

Analytics are only as effective as the technology that drives them. Workflow remains important. When adjusters are provided with dynamic data sets mapped through the right workflow, the tendency is to see better outcomes and compressed cycle times. Analytics can provide key indicators of claims ripe for straight-through processing. There is a direct correlation between cycle time and outcome.

Benchmarking is an effective tool for evaluating improvement opportunities, but the devil is in the details. The subrogation process has many levers including information about files referred, files pursued, files recovered, time to recover, escalations and those with no carrier identified, to name a few.

Comparing internal operations with industry benchmarks allows management to challenge the current approach. Are we pursuing enough opportunities? Is our success ratio consistent with others? Are we using arbitration and litigation resources appropriately? The key is to continually seek to optimize outcomes and drive higher return on investment.

Cycle time is of utmost importance as recovery declines in direct proportion to time in flight. The industry average for cycle time is around 200 days, yet the average paid claim is less than 10. By focusing on straight through processing, improved triage and fast-track arbitration, this cycle time can be compressed dramatically.

A successful strategy involves knowledgeable people, good technology and efficient processes. (Photo: iStock)

Raising the Bar

If you already have a world-class subrogation operation, then consider expanding its reach. Subrogation is truly a business, and when done correctly, is run like a profit center with its own profit and loss. The key to success is where to best align the skills to the processes. We have found that logical candidates include salvage (yes, salvage is a huge component of the most successful recovery operations), deductible recovery, premium recovery and inbound demand processing.

Expertise on every level

While many subrogation scenarios are simple and can benefit from straight-through processing, others cannot. Having the triage methodology to get the right case to the right person at the right time drives outcomes. Consider the case of the defective drywall manufactured in China that impacted thousands of Florida homeowners. Having expertise on every level translates into capable adjusters who understand the nuances of difficult recoveries, such as those where American judgments are not recognized by Chinese courts, necessitating an entirely different strategy for recovery.

Across the subrogation lifecycle, there are many considerations. While some have cracked the nut, others struggle. Results vary from company to company. The most successful have embraced subrogation as a strategic asset and leverage their best adjusters to bring back the dollars they are owed.

Industry leaders recognize that a highly successful subrogation strategy requires a combination of the best people, the most efficient processes, and state-of-the-art technology. By leveraging these three key components, it is possible to take an organization from ordinary to extraordinary, resulting in a significant competitive edge in the marketplace.

Christopher Tidball ([email protected]) is the vice president of sales and claims transformation strategy at EXL. He is a former claims executive and the author of multiple books, including Re-Adjusted: Taking Your Claims Organization from Ordinary to Extraordinary.

Don Pierce ([email protected]) is the vice president of recovery operations at EXL and has been creating innovative solutions for insurance customers for more than 30 years. He has achieved certification as a project manager (PMP), CPCU, APA and is a co-inventor for six issued patents focusing on recovery.

Brad Burdick ([email protected]) is the senior vice president of insurance platform services. For more than 30 years he married technology, analytics and operations to deliver best in class solutions for his clients, and leads a portfolio of businesses for EXL.

To learn more about subrogation training, plan to attend America's Claims Event in Austin, Texas, June 25-27, 2018.