Why subrogation is more than a final box to check
In a challenging environment, insurers must think more broadly about their opportunities to drive performance.
Inflationary pressures, rising loss costs, and an incredibly tight labor market are creating significant pressure on insurance carriers, driving a laser focus on performance. Premiums are increasing though investment returns are declining. Insurers seeking opportunities to drive results have another option: subrogation, the second largest source of direct revenue.
Giving claims a ‘last look’
Historically, there have been many challenges to successful subrogation, including policyholder cooperation, lack of an initial focus for potential subrogation by either desk or field adjusters, evidence spoliation, delayed referrals by the claims department and the list goes on. For these reasons, many in claims simply use the term “last look,” meaning a file will be reviewed right before it’s closed to see if there is subrogation potential.
Recently, higher-than-average turnover of new entrants into claims departments and related training of new adjusters to recognize third-party tort liability has been a challenge. Even for insurance veterans, that phrase is a mouthful. When nine out of 10 claims an adjuster manages are simply to pay what is owed and get the policyholder back to their pre-loss condition, it can be easy to forget to ask standard questions:
- Have you recently had any repairs or updates made to your property (home, vehicle, etc.)?
- Is there anyone else who might be responsible for this particular claim?
In health insurance for example, the subrogation process remains highly manual with hard copy letters still being mailed to policyholders, asking them to identify potential third-party liability, such as “was your injury the result of a car accident,” and then asking them to mail the completed forms back to their insurance carrier.
Another challenge is knowing the various regulations and how they impact the subrogation process. We saw with Pacific Gas & Electric (PG&E) in California that many subrogation claims against them were successful. Some quasi-governmental agencies allow you to pursue subrogation actions against them, but they require notice within 30 or 60 days of the date of loss.
However, recent trends in consumer self-service, technology and a heightened focus by claims executives have countered these long-standing challenges. Policyholders have been submitting photographic and video footage of losses, video-recorded statements and other documentation, which in some cases, is sufficient to show the facts of a loss. Many homes, for example, now have IoT-connected appliances and systems that provide alerts and can adequately establish a failure of a particular component at a specific date and time.
Changing the process
Claims executives have implemented several process changes in an attempt to identify subrogation potential earlier in the claims process and digitize the steps that follow. For example, several carriers have a standard rule for residential property fire losses: where damage exceeds $10,000, have an investigator assigned immediately.
Many insurance executives run claims-pending reports to view all recent water loss claims. They will crawl through those files manually to see which ones might have the subrogation potential. Other claims departments have multiple people review each file, and some carriers have built more sophisticated predictive models based on claims data to help identify these claims. In short, there are a myriad of ways that claims executives have attempted to battle the “failure to identify subrogation” problem. And from there, enable more efficient workflows to accelerate resolution.
In the current economic environment, however, insurers are looking for every dollar they can add to the bottom line. Carriers also know that customer experience has become paramount in policyholder retention. The carrier’s ability to successfully subrogate and provide a deductible reimbursement to their policyholders in a timely fashion is a key driver for a positive claims experience.
Note that there are two significant components to this. One is that the subrogation action has to be successful, which means the carrier has to identify it, act on it and get it resolved. The second key component to this is the word “timely”. If you get a refund check from your carrier two years after a claim occurred, it could sow dissatisfaction over that long waiting period. There is a better than average chance that the policyholder is no longer with that carrier. However, when you are involved in a claim and you get a deductible reimbursement check within months of the loss, that can be a very positive experience. Given the short timeframe, it’s highly likely your policy is still in force with that particular carrier, and when renewal comes around, that experience is most likely what will be remembered when it’s time to renew.
Market dynamics have created a challenging environment, making it more important than ever for insurers to think more broadly about their opportunities to drive performance. Subrogation is low-hanging fruit that can improve operational efficiency internally and lower LAE per file. When subrogation departments incorporate subrogation mechanisms into their workflows, they can move closer to achieving straight-through processing across mainstream claims.
Timothy D. Christ, MBA is, a well-known thought leader and speaker on insurance and claims, including two published books. He is the senior solutions engineer for CCC® Safekeep, CCC Intelligent Solutions’ AI-powered subrogation platform for auto, property, and workers’ comp. He is a frequent contributor to PC360 and can be reached at tchrist@cccis.com.
Related:
How choosing rating accuracy wins the day in insurance