What happens when subrogation demands come into yourorganization?  If you are like many in the industry, thenresponding is not necessarily a high priority. Inthe eyes of some handling these types of claims, it is often viewedas being just another carrier on the other end of thedemand. 

But what happens when the subrogation demand comes in and sitsuntouched for a month, resulting in an arbitration or litigationfiling? What if the demand is reviewed, but improperly negotiated?What if it is simply rubber stamped, despite the demandingcarrier overpaying the cost of repairs, loss of use,towing, rental, or storage? What if they paid items often not evenowed, such as diminished value or administrativefees?  

During my tenure as a claims and quality assurance businessleader with multiple “top 10” property and casualty (P&C)insurers, subrogation response was a source of significant leakage.It also provided a tremendous opportunity to implement a processthat resulted in timely and accurateresolution. 

While there are no hard and fast rules for subrogation response,there are steps that can be taken to dramatically improveresults. In looking at the industry as a whole, there arethree prevailing methods for handling auto subrogationresponse. 

1. Liability adjuster review and pay. Thesubrogation demand goes to the liability adjuster who reviews theclaim for payment. The challenge in this model is thatmany liability claims adjusters do not have experience in thematerial damage or auto repair side of the business. In some cases,these “low priority” demands are simply rubberstamped. 
2. Estimate re-keying. In this model, the inbounddemands are sent to a material damage adjuster or appraiser tore-key. While this can result in some estimate reduction,it is a time-consuming process and often lacks a containmentmechanism for excessive rental, diminution of value, oradministrative fees.  
3. Estimate redlining. Adjusters will review theestimate and then redline certain items that standout. While quicker than re-keying, this solution is lesscomprehensive and often limited in effectiveness, especially whenone is seeking out alternative parts or attempting to adjust laborhours.    

In many instances, the savings found throughre-keying or redlining aren't realized when the claim is sent backto the liability adjuster to negotiate. While theidentified savings may be captured, the more important metric isthe realized savings. For example, if an insurer uses a re-keyingmethod and the appraiser reduces the estimate by 10 percent, thenhow much of that savings is actually realized after the negotiationprocess? In addition, is the realized savings taking into accountthe time it takes to re-key the estimate? 

Shared Culpability
Another critical oversight is comparative negligence. Whenreviewing claims in your organization, does there appear to be adisproportionate number of liability decisions at either zero or100 percent? If my experience spanning more than 20 yearsof claims leadership is any indication, then the answer is“yes.”  

The reality is that far more accidents have sharedculpability than most people realize. According to JuryVerdict Research, a national organization that tracks such data,rear-end auto accidents accounted for only 45 percent of auto casesadjudicated, with intersection collisions, lane changes, chainreactions, and parking lot scenarios comprising the remainder. Inother words, this translates to a lot of claims in whichthere was shared liability. 

Insurers should certainly not expect to set a benchmark quite sohigh, as few claims actually make it to trial. What aninsurer can do, however, is bank on the fact that money is beingleft on the table if fewer than 35 percent of its collision claimsin pure comparative states are closing without comparative fault.Of course, this benchmark should be adjusted downward for modifiedcomparative and contributory jurisdictions.

To attain improvement in this area, thechallenge is to effectively train staff to not only identifyopportunities, but to also effectively negotiate. When consideringsubrogation response, there are seven key areas where anorganization can benefit while gaining a competitive edge in themarketplace. 

• Estimatics opportunities. While this can bepartially accomplished by re-keying or redlining, why not take thenext step and use automation to identify opportunities? Note thatthis step can also enhance productivity.
• Historicalalternative parts identification. Subrogationresponses can be significantly impacted by determining whether usedor aftermarket parts were available on the date in history when theclaimant carrier wrote its estimate.
• Adjust the fluff. How much are you beingbilled to tint paint, feather edge, cover cars, and dispose ofhazardous waste? While not the bulk of the estimate, fluff canreally add up. 
• Diminution of value. There are rarely statutoryguidelines that govern how much is owed, if anything, because ofdiminution of value. After all, is there really any diminishedvalue until the owner sells the car, discloses the accident, andsuffers diminished value as a result of the disclosure?
• Comparativenegligence. This is arguably one of the mostoverlooked aspects of the subrogation response process. Byeffectively understanding the principles of shared liability,claims adjusters can more effectively apply the laws in their givenstates. This is also an aspect of the claims process thatcan be measured and continually improved upon. 
• Loss of use. Did the claimant really needtheir rental vehicle for 30 days when the estimate called for 16hours of repair time? The reality in many claimsorganizations is that rental is not well managed. In somecases, the process of overseeing rental is even outsourced to therental company who is in the business of increasing their ownrevenue, not yours. By applying a reasonable standard,such as one day of rental for every few hours of repair,one can effectively reduce what is owed in thisregard.  
• Towing and storage. A basic premise ofindemnification includes the concept of mitigation of damages. Itis incumbent upon all parties involved in claims process to ensurethat vehicles are not incurring excessive towing and storage feesin order to take reasonable steps to mitigate these costs.

While there are sometimes other critical aspects of the processworthy of consideration, these seven key areas will providecarriers with the fundamental building blocks for processimprovement. Of course, the ultimate success will be determined bythe negotiation skills of the adjusting team. Remember, it is easyto say what you think something is worth; it is an entirelydifferent story to convince others.

As subrogation demands come in, consider the steps that arebeing taken to identify opportunities. While there aremany aspects of claims that can often be improved to benefit theorganization, subrogation response provides an immediate financialgain because those effectively handling this process will gain acompetitive edge over those who are not.