Focus On Subrogation Missing From Many Firms, Survey Finds

The poll also asked the executives about their firms' profitability, reporting and operations. The online responses were collected between October and early November.

When asked to rate the impact of subrogation recoveries on their company's net income, 67 percent of participants indicated subrogation recoveries had "some" or "significant" impact on their company profits.

Aside from premiums and investment returns, subrogation is one of the few remaining ways insurance companies generate revenue, according to Praxis. The survey concluded that companies with CFOs who view subrogation as a core operation are more likely to see greater impact on their financial results.

According to Ward Group's industry benchmarking research, subrogation expenses make up approximately 11 percent of the gross recoveries for auto collision lines. This means for every $100 recovered, a company can expect to spend about $11 in the pursuit of subrogation. Spending $11 to make a net recovery of $89 yields a return on investment of 809 percent–yet only 17 percent of CFOs were aware of their return on investment and able to provide it, the survey found.

Thirty-nine percent of the CFOs referred to subrogation as a core activity at their company, indicating it plays a significant role in discussion and planning carried out by senior management.

The 17 percent of CFOs who felt they could more effectively utilize the headcount and expenses associated with subrogation elsewhere in their company, however, rated subrogation as having some or no strategic importance.

A correlation was found by the survey between a CFO's satisfaction with their subrogation department and how their results compare to their competitors.

CFOs that considered subrogation a core activity averaged a satisfaction rating 35 percent higher than those that considered it an ancillary activity as well as a 38 percent higher rating with regards to how their results compared to their competitors.

When asked about the frequency with which subrogation information was reported to them, 83 percent of CFOs indicated receiving regular reports on their subrogation department's performance.

Most CFOs reported receiving reports monthly or quarterly. In most cases (70 percent), the subrogation results were presented by the claims department.

Seventeen percent of the CFOs reported not receiving regular updates on the results of their company's subrogation efforts. These same CFOs all rated subrogation as not strategically important and considered it an ancillary activity.

CFOs also were asked to indicate what type of subrogation data was reported. Most CFOs (83 percent) focused on total subrogation dollars recovered as the key metric they reviewed.

Eighty percent of respondents benchmark their subrogation performance. The most common metrics measured the companies' subrogation performance against internal benchmarks.

Only 22 percent of the CFOs reported receiving company results compared to industry benchmarks. A majority of CFOs felt their subrogation results were on par or outperformed their peers, even though 78 percent do not receive regular industry comparisons.

More than half (56 percent) of the CFOs were aware of and able to provide their company's overall subrogation recovery ratio (gross subrogation dollars recovered divided by paid losses). The subrogation recovery ratio average for those who could provide this ratio was 8.41 percent. However, 44 percent were not aware or able to provide this information.