They Say, Hearsay
My insurance company paid my claim and then told me it wasgoing to subrogate with the company that insured the at-faultdriver of the car crash. Subrogation? Why would they bother? Doesit mean I'll have to return some of my claim payout if the companyis 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, weshould use the word often, along with an explanation of how and whyit works and its benefits to policyholders. Concern from customersabout rising insurance rates is all the motivation we need to beginto tell the public more about what we do internally to controlcosts, from managing underwriting costs to investigating possiblefraud, to the process of subrogation.

Subrogation is ancient; a concept traced to common lawestablished in the Magna Carta in the 13th century. It simply meansthat an insurer stands in the shoes of the insured by exercisingthe right to recover payment from the party responsible for theloss. Maybe all the insured wants to know is that we are working toget his deductible back. However, there is much more to it, andpeople will never understand what they get if they do not see it orwe do not tell them about it.

Simply put, subrogating a claim means finding out who should beheld accountable for an accident. It is based on supporting theprinciple that people are responsible for their own actions. Withsubrogation rights, insurers are able to investigate accidents andrecover the losses they paid out. Customers benefit from this sinceevery dollar recovered erases a dollar paid out. Because insurancerates are a reflection of historical loss costs, getting reimbursedis important for reducing premiums and no less important to aninsurer's financial stability. Subrogation used to be atime-consuming, manual process. Now it is streamlined, moreavailable, and of increasing importance to companies desiring toeffectively manage reserves.

A Web-based paperless system called E-SubroHub is a game-changer because it transforms the sometimesarduous subrogation process into an efficient one, making it easierfor insurance carriers to interact with one another. Developed byArbitration Forums, Inc. (AF), it is on track this year to handlemore than 500,000 demands valued in the billions of dollars nowthat it is available in all 50 states and the District of Columbia.AF is a non-profit organization founded by the insurance industryin 1943 and the nation's largest arbitration and subrogationservices provider.

Being able to conduct subrogation activities online hasproven to be a money saver. In 2010, when the E-Subro Hub systemoperated in only 23 states, it handled about 115,000 subrogationdemands valued at nearly $206 million. With the system operatingnationally, companies will be able to electronically send andreceive subrogation demands, attach supporting documents, managesubrogation claims, and electronically file inter-companyarbitration.

According to W. Russ Smith, president and CEO of AF, E-Subro Hubmakes it possible to close cases within days rather than the weeksor months it took to manually manage the workflow. It also meansprinting and mailing costs have been eliminated, which adds to thesavings. Most importantly, it means deductibles are returned topolicyholders faster. That is pretty appealing to participatingE-Subro Hub carriers, self-insureds andpolicyholders. 

The insurance process is based on the foundation of correctlyassessing losses, both the potential for loss and an analysis aftera loss occurs. If subrogation were not available, the actual costof insurance would rise in part because there would be no mechanismto prevent the insured from collecting from both the insurer andthe party responsible for the same loss. That brings up anotheradvantage: Subrogation has the effect of reducing lawsuits. Becauseinsurers have the right to recover benefits from the responsibleparty, the insured has no concern over repaying the subrogatedcarrier.

A fuzzy-sounding word like “subrogation” may compel skeptics tobelieve they have something to lose. It is up to us to explain whatthey gain and to use the process to add transparency to ourbusiness.