Filed Under:Markets, Commercial Lines

Subrogation solutions for insurers

Over the last decade the insurance industry has begun to recognize that a successful subrogation program can greatly contribute to a carrier’s bottom line performance.

Aside from revenue derived from non-growing premiums and poorly performing investments, subrogation recovery dollars have become an important source of income for an insurer. 

Most claims professionals know that subrogation substitutes one person or thing for another, but few realize the tremendous financial value the subrogation process brings. 

Subrogation programs are often handled in-house, while others are fully or partially outsourced. Each company needs to make a decision on which model will be the most cost effective and efficient for their organization.

They must be diligent in developing a subrogation team with the knowledge, skills and eagerness to do the job well. And perhaps most importantly, any individual associated with the identification of subrogation potential, overseeing the investigation, participating in the negotiations and ultimate settlement of subrogation cases should be well informed and experienced.

Not too long ago, subrogation adjuster roles were considered a gateway to other insurance claims positions. This “entry-level” position was often given to recent high school graduates (college degree not mandatory), who were invited to join the claims department in the subrogation sector and learn the claims process from the tail end. These “newbie” employees in some instances had never even handled an auto collision claim, but developed negotiation skills and insurance knowledge out of their survival instincts. 

This model did not always develop the in-depth understanding of negligence and liability needed to handle the more complex workers compensation, property, liability and fidelity claims. As the mature insurance professional knows, complex claims require skills that need to be taught and developed over time, with frequent exposure to losses involving liability analysis, claim evaluations (both property damage and bodily injury), product failure, employee dishonesty and contractual obligations. 

Frequently, as the subrogation adjuster developed sharper skills and more knowledge of the business, an interest in pursuing a career as a liability, property or workers compensation adjuster developed. This most likely happened due to a desire for more growth opportunities, the perception of a wider career path accompanied by stronger financial rewards, the desire to have more recognition within the organization, or just a deep-rooted sense of curiosity and the satisfaction of accomplishment.

It is widely believed that over the next decade the insurance industry will suffer the loss of a significant amount of its knowledge base as more “baby boomers” move into retirement.  Companies will be facing a recruitment crunch as they try to backfill these vacancies as well as increase staff to support strategic growth initiatives.  Several studies have predicted the insurance industry faces severe challenges in attracting talent:  a poor reputation, a limited understanding amongst career seekers of insurance career opportunities, and a limited pool of trained talent. With this in mind, insurance organizations may be reluctant to sacrifice the strengths of their claims team in the development of a strong subrogation team.

Accident investigator

So what kind of individuals should we be looking for? Individuals should possess a natural curiosity and desire to “put the pieces of the puzzle together.” They should have good organizational and investigative skills and the ability to perform with logic and order. Qualified candidates should be “hunters” and tenacious in their approach. They must have excellent comprehension, communication and writing skills. Other desirable qualities include solid intuition, a creative mind and a willingness to drive success. In their job search, career seekers are searching for employers which offer interesting career choices. Insurance organizations must diligently promote awareness and a very positive image of the dynamic elements of a subrogation role as well as its significance in the overall success of the organization.

Some carriers view subrogation as an element of the overall claims handling process, believing  the adjuster who worked the claim from inception knows all the facts and parties involved (a birth to death philosophy). However, even the most qualified and seasoned claims adjuster may lack the expertise to identify subrogation potential or miss the opportunity to recover money. 

Property adjusters are focused on coverage issues, the resulting damages of a loss and the cost to repair, as well as the timeliness of getting the loss paid. Workers comp adjusters initially focus on compensability issues then quickly move on to ensuring they are properly reserved for the medical and indemnity loss. They must analyze and evaluate the loss severity and project the number of weeks the claimant will not be able to return to work, and possibly become involved in the development of a return to work program. 

While it would seem logical that a claims handler would be most familiar with the claim itself, the subrogation or lien recovery works best with a dedicated subrogation professional who has a liability background with demonstrated abilities in investigation, analyzing facts and exploring the root cause of a loss.

Carriers may choose to partner with subrogation vendors to outsource their subrogation program entirely or support an internal subrogation department. Successful subrogation firms have experienced claims adjusters with the sole focus of recovering money. Usually the vendor offers several alternatives for service which may include full outsourcing or customized options. 

When selecting a subrogation vendor, the carrier should ensure the vendor’s staff includes adjusters with expertise in their line of business. Vendors should have a verifiable record of success. Fees should be in alignment with the carrier’s financial objectives. Contingency-based fees allow the firm to receive a percentage of the settlement, which is a great motivation for pursuing recovery encourages the vendor to obtain the highest settlement possible or compromise their fee.

All subrogation vendors are not alike and it is important to establish a rapport between the insurer and vendor. When outsourcing some or all of their subrogation process, a carrier should ask about:

  1. The frequency of net recovery refund checks
  2. Transparency in claims handling
  3. Client accessibility to the recovery platform
  4. Handling applicant and respondent arbitrations
  5. Relationships with subrogation counsel across the country

There’s an old saying about there being a cover for every pot. With subrogation, there is no blanket solution that is right for every carrier. There is value in building and trusting an internal subrogation staff, and there may also be value to outsourcing some or all of the inventory. The real value is in finding the right people to handle subrogation because quality people will bring quality results.

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