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

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 improperlynegotiated? What if it is simply rubber stamped,despite the demanding carrier overpaying the cost ofrepairs, loss of use, towing, rental or storage? What if theypaid items often not even owed, such as diminished value oradministrative fees?

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 significantleakage. It also provided a tremendous opportunity toimplement a process that 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 awhole, there are three prevailing methods for handling autosubrogation response:

Liability Adjuster Review and Pay. Thesubrogation demand goes to the liability adjuster who reviews theclaim for payment. The challenge in this model is that manyliability adjusters don't have experience in the material damage orauto repair side of the business. In some cases, these “lowpriority” demands are simply rubber stamped.

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 estimatereduction, it is a time-consuming process and often lacks acontainment mechanism for excessive rental, diminution of value, oradministrative fees.

Estimate Redlining. Adjusters will review theestimate and redline certain items that stand out. Whilequicker than re-keying, this solution is less comprehensive andoften limited in effectiveness, especially when one is seeking outalternative parts or attempting to adjust laborhours.

In many instances, the savings found through re-keying orredlining aren't realized when the claim is sent back to theliability adjuster to negotiate. While the identified savingsmay be captured, the more important metric is the realized savings.For example, if an insurer uses a re-keying method and theappraiser reduces the estimate by 10 percent, then how much of thatsavings is actually realized after the negotiation process? Inaddition, is the realized savings taking into account the time ittakes to re-key the estimate?

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 years ofclaims 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, a lot of claims in which there was sharedliability.

As an insurer, you certainly should not expect to set abenchmark quite so high, as very few claims actually make it totrial. What you can do, however, is bank on the fact thatmoney is being left on the table if fewer than 35 percent of yourcollision claims in pure comparative states are closing withoutcomparative fault. Of course, this benchmark should be adjusteddownward for modified comparative and contributoryjurisdictions.

To attain improvement in this area, the challenge is toeffectively train your staff to not only identify opportunities,but to also effectively negotiate. When consideringsubrogation response, there are seven key areas where yourorganization can benefit while gaining a competitive edge in themarketplace.

1. Estimatics opportunities. While this can bepartially accomplished by re-keying or redlining, why not take thenext step and utilize automation to identify opportunities? Thisstep can provide an improvement in both opportunity recognition andproductivity.

2. Historicalalternative parts identification. Subrogationresponses can be significantly impacted by identifying if used oraftermarket parts were available on the date in history when theclaimant carrier wrote their estimate.

3. 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.

4. Diminution of Value. Thereare rarely statutory guidelines that govern how much is owed, ifanything, due to diminution of value. After all, is there reallyany diminished value until the owner sells the car, discloses theaccident and suffers diminished value as a result of thedisclosure?

5. Comparative Negligence. Thisis arguably one of the most overlooked aspects of the subrogationresponse process. By effectively understanding the principlesof shared liability, claims adjusters can more effectively applythe laws in their given states. This is also an aspect of theclaims process that can be measured and continually improvedupon.

6. Loss of use. Did the claimantreally need their rental vehicle for thirty days when the estimatecalled for 16 hours 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 asone day of rental for every few hours of repair, one caneffectively reduce what is owed in this regard.

7. Towing and storage. A basic premiseof indemnification includes the concept of mitigation of damages.It is incumbent upon all claim parties to ensure that vehicles arenot incurring excessive towing and storage and that they takereasonable steps to mitigate these costs.

While there are sometimes other critical aspects of the processworthy of consideration, these six key areas will provide carrierswith the fundamental building blocks for process improvement. Ofcourse, the ultimate success will be determined by the negotiationskills of the adjusting team. Remember, it is easy to say what youthink something is worth; it's an entirely different story toconvince others.

As subrogation demands come in, consider the steps that arebeing taken to identify opportunities. While there are manyaspects 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.