Subrogation industry trends and challenges

Subrogation is a provision found in most property and casualty insurance policies. However, while this has long been an agreement in most policies, the industry’s ability to continue effectively servicing these claims on behalf of policyholders has changed. Like many business sectors, skilled teammates and the evolution of technology are vital.

Related:  With subrogation, is an injured worker left paying the price?

Looking back: Two models to team structure

Over the past 20 years, insurance companies have vacillated between the industry trend of centralizing and decentralizing their subrogation efforts. Some of the factors that have caused companies to seesaw on their decision involve staffing levels, staffing experience, training, technology, leadership and the effectiveness of their workflows.

Companies that initially ventured into decentralizing their subrogation did so because of a “reduction in force” that usually targeted the specialized adjusting groups and the company’s training staff. This model transferred the subrogation responsibility to multi-line general adjusters and leaders who sometimes possessed little or no subrogation experience.

Some of these companies had not budgeted for technology enhancements to support their decentralized model and did not update their workflows that supported the identification of subrogation potential. Therefore, the ability to recognize subrogation potential decreased, which had a direct negative impact on their loss ratios.

Carriers that eventually landed on centralizing their subrogation efforts did so because they focused on hiring adequate staff with proper subrogation experience. Additionally, they invested in technology, identified the proper leadership, enhanced their training programs, and automated their subrogation claim workflows. These companies quickly began to enjoy increased recovery dollars and improved loss ratios. However, the challenges with this model involved accurately measuring the return on their investments.

Related:  Insurer lost subrogation right after letting insured sign general release

Subrogation today

Currently, the trend is for more insurance companies to utilize a centralized subrogation model because of the financial dividend it delivers to their loss ratios. Companies recognize how emerging changes in subrogation laws affect the subrogation process for every line of business. Their specialized subrogation adjusters are knowledgeable about the line of business and receive targeted training to keep current with ever-changing laws, product defects or recalls, and statutes of limitations affecting subrogation.

Past challenges continue to exist in the industry today, including on-going training for front-line adjusters on how to properly investigate potential negligence of a third party, how to preserve evidence, and how to recognize there is a potential for subrogation. A large number of carriers have eliminated training altogether or severely reduced the dollars they previously budgeted to keep their adjusters current on state regulations, case law, statutes and changes to their policy contracts.

Many are, instead, relying on hiring what they believe are experienced adjusters, but often fail to include questions during the interview process that will confirm the adjuster’s true technical competencies. There is no substitute for conducting a timely and thorough investigation by a highly-trained and knowledgeable adjuster. Another challenge for the industry is knowing when to retain effective collection agencies, law firms and expert witnesses.

Related:  Building a successful property subrogation program

Equipping adjusters

One of the biggest challenges facing the industry involves placing the right adjuster in the right position with the right tools, workload and training to achieve the right outcome. There are four “rights” here and each of them is equally important. Realistic goals are not always created for the group and the individual adjusters assigned to the group.

The most successful companies resist the temptation to take subrogation for granted and assign the least experienced adjusters this responsibility. They are also careful to ensure that their subrogation adjusters have the right tools available to them, such as current, state-specific subrogation laws, along with the latest publications involving product defects and recalls.

Excessive workloads are prevented through attentive leadership. Semi-annual training is held with counsel that specializes in subrogation law and includes experts that can effectively discuss product defect issues, especially those that have been nationally publicized. Realistic recovery goals are developed and assigned. Timely performance read outs are published to the group about their successes.

Related:  Subrogation and the Act of God defense

Preparing for a successful future

It is a known fact the insurance claim industry is experiencing a reduction in experienced leaders, claims adjusters and subrogation specialists. This reduction relates directly to the number of claims professionals retiring after providing many years of expertise to this industry. The loss of their experience, skills and knowledge will create significant gaps that must be filled to ensure carriers continue to have the right professionals at their disposal.

This same challenge exists with the number of subrogation counsel and expert witnesses who are retiring. Carriers should partner with subrogation firms and experts that are also tooling up for the future staffing challenges within their respective disciplines.

Technology will continue to be a necessary expense for carriers. The most successful ones will have an individual dedicated to bridging any gaps between their current technology and new, advanced tools. The technology of choice will fully automate performance measures that some carriers and third-party claim administrators continue to record manually.

Claims with a potential for subrogation recovery will be easily identifiable. Automated performance management reports will measure the number of claims referred to subrogation, the amount of dollars denoted, and the total dollars recovered. These reports will provide specific measures by line of business, coverage type and loss venue. The most sophisticated technology will also have an internal scorecard to measure individual performance for the subrogation specialist.

Successful subrogation depends upon many factors, but how well a company prepares for future staffing challenges, and the value leadership places on subrogation are always important aspects to consider for any program.

Ken Oswald (koswald@acmclaims.com) has been an insurance claims professional for more than 40 years and has held senior leadership positions with responsibility for building high-performing and winning claims organizations. Oswald also owned his own third-party claim administrator for several years specializing in commercial and personal automobile claims, trucking cargo claims and workers’ compensation claims.