Insurers are overlooking subrogation options when paying claims
A study identifies some of the top reasons for missed subrogation and what insurers can do to recoup those dollars.
It is estimated that 15% of all claims are closed with a missed subrogation opportunity, costing the industry $15 billion annually. In a recent study, we sought to determine what was driving this, utilizing both internal findings and feedback from industry professionals.
Why is subrogation missed?
The leading reason was the lack of a timely investigation, followed by missed third-party liability and missing evidence.
In the “other” category, the comments generally focused on adjusters simply missing the opportunity altogether.
These findings are similar to my findings while running a quality assurance team at a leading global insurer some years ago. In that instance, we partnered with SecondLook to identify the main drivers of missed subrogation and to remediate our shortcomings.
The reasons for missed subrogation are often not mutually exclusive. Identification of subrogation can be super easy, or it can be extremely difficult. There are many basic situations where subrogation is not considered, such as an intersection or parking lot accident in a pure comparative jurisdiction. In more complex bailment, risk transfer, cargo and contractor situations, the investigations can take an inordinate amount of time. Whether simple or complex, liability often gets overlooked, with duties owed and breached not being thoroughly examined and spelled out in the adjuster notes.
Consider the number of files you have reviewed over the years where the liability decision was either 0% or 100%. In many carriers, the percentage of claims where there is a comparative liability assessment in the file can be in the low single digits. Now consider that juries apportion liability in more than half of all cases adjudicated. This is a delta with a tremendous amount of opportunity to yield substantial subrogation dollars.
In many instances, missed subrogation can be the unintended consequence of other metrics, such as a push for claims disposition. As adjusters retire in record numbers, sometimes the knowledge transfer from experienced experts to newbies simply isn’t there any longer, hampering the training and development curve.
This is a much different phenomenon than when many of us began our careers years ago. Back then, adjusting was a skill that was honed over time. Those adjusters who had an insatiable curiosity to get to the right outcome were the most successful. Subrogation ID was part of what we did on every single claim. Given the direct correlation between time compression and recovery dollars, timely investigations were critical to the ID process.
In the years since, there have been many changes in the industry, particularly specialization and consolidation into large service centers. While this structure can create economies of scale and provide certain advantages, other aspects of the claim’s process can suffer.
In my own experience of moving from generalist to specialist, I had many situations arise where a front-line liability adjuster was paying 100% on claimants who had some liability, making the resolution of injury claims significantly more challenging, often resulting in litigation that could have been avoided had the proper decision been made upfront.
5 things you can do to hit the subrogation ball out of the park
- Getting the right person in the right position. Not everyone is cut out to be an adjuster. Beginning with the hiring process, identify those people who have an insatiable curiosity. Some of my best adjusters had no experience in adjusting whatsoever. It is easy to teach good claims habits; it is hard to break bad ones. Focus on hiring the right people every time.
- Show me the money! It is often there, sometimes in very strange places. Finding 80% of subrogation is not overly difficult. But what about the other 20%, which is often a disproportionately higher dollar amount. Successful subrogation adjusters have an insatiable curiosity and will leave no stone unturned. Giving them the tools and the time necessary to dig deeper on claims is critical to both quality and outcomes.
- Early identification of subrogation should be paramount to internal processes. Time is money, and the longer a subro opportunity sits, the lower the recovery dollars will be. Analytics can help on the early ID front but shouldn’t be solely relied upon as ID is only as good as modeling and modeling properly for highly complex scenarios is very difficult.
- Use a second set of eyes. When 15% of all claims are closed with a missed subrogation process, utilizing this type of audit pays big dividends.
- Measure for success. By moving from disposition to quality, focused metrics can have a profound impact on results. Focus on creating total file quality scores, including components for proper liability assessment, timely investigation and recovery recognition. During my QA days, we moved from disposition to a quality-focused process and saw improvements in indemnity results, timely and accurate disposition of claims, subrogation recognition, and referral and recovery dollars.
Missed subrogation is a challenge, but one that can be overcome with the right people, processes, and technology. I have seen tremendous improvements in several situations where carriers have made subrogation a key priority from the top down. In the world of claims, subrogation provides a meaningful way to bring money back into claims organizations while getting deductibles back to customers, driving up retention and customer satisfaction results.
Chris Tidball is an executive claims consultant with SecondLook, a national leader in subrogation solutions. He has held adjusting, management and executive positions with multiple Top 10 insurers. He is the author of multiple books, including ”Re-Adjusted: 20 Rules to Take Your Claims Organization from Ordinary to Extraordinary!” and the fictional thriller “Deep State: A Jake McFarland Thriller,” which is being adapted into a television series called The Adjuster. You can reach him at ctidball@2ndlook.net.
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