The recession is wreaking havoc in all sectors of the economy. Hit particularly hard has been the insurance sector, where companies continue to search for ways to scale back. As a result of these cuts, frontline adjusters and subrogation collectors are receiving more claims per day than ever, which is having an unintended consequence on bottom lines as the push for disposition undermines quality.
Exacerbating this challenge are the ongoing mergers, acquisitions, downsizing, and consolidation that have dramatically changed the face of business in America. While this permits companies to tout the economic upside to shareholders, there are many economic downsides for those who do not properly meet the challenges presented by this dynamic. Nowhere is this more evident than in subrogation, where increased demands can decrease results. Equally as challenged are claim departments across all lines of insurance, where claims are often closed with missed subrogation opportunities.
Having spent more than 20 years running claim and recovery operations for multiple "Top 10″ property and casualty (P&C) carriers, I am quite familiar with these challenges; in particular the closure of more than 15 percent of all files industry-wide with missed subrogation opportunity.
As staffing is reduced and the pool of knowledge scaled back, claim outcomes continue to deteriorate. Regardless of carrier — or even industry for that matter — it seems that time, staff, and money are enough to hamstring any organization. However, there is a solution that leverages the strengths of your greatest assets: your people, with business partners who have particular expertise in areas where carriers often struggle.
According to the 2008 Auto Benchmarking study conducted by the National Association of Subrogation Professionals (NASP), 78 percent of subrogation claims are insured, with 22 percent uninsured. Of the latter, as many as 82 percent are closed with no recovery at all, the study concluded. This is in addition to the 15 percent of claims closed by adjusters where subrogation was completely overlooked.
The good news is that many of these "missed" opportunities can be recouped with a structured workflow analysis and subsequent process improvements. By directing the attention of your internal staff to the most collectible types of claims, it is possible to not only increase recoveries but also to increase productivity by focusing on claims that have a higher recovery probability with less complexity.
By outsourcing difficult claims, you will immediately gain a competitive edge in the marketplace, as your net back to the bottom line will increase. Net back is a simple concept of placing an emphasis on the actual money returned to your bottom line instead of the fees or costs associated (either internally or externally) with collecting the money.
Comparative Negligence
Beyond maximizing returns on complex subrogation scenarios are those that involve comparative negligence, a straightforward concept with which many carriers struggle.
According to benchmarking studies, standard carriers make a subrogation recovery on approximately 28 percent of collision payments. That figure is 22 percent for non-standard carriers. In result from multiple Six Sigma projects conducted for a variety of carriers, the overall pool of potential comparative negligence derived from quality reviews on statistically valid samplings has been roughly 37 percent. The recovery gap is the variant opportunity for improvement that carriers can expect when staff fully understand and effectively apply the concepts associated with comparative negligence.
Aside from straight forward situations such as intersection or parking lot accidents, there are myriad opportunities where comparative fault would apply in virtually any product line. Concepts such as assumption or risk or last clear chance, phrases often not heard since our adjuster boot camps, need to once again become part of the daily claim vernacular.
While conducting investigations, adjusters must consider all of the duties owed and duties breached while thinking outside of the box for ways to more accurately recreate what happened when the claim occurred.
This can become a challenge for organizations where staffing has been whittled down, with experienced adjusters having been let go, and processes such as First Notice of Loss (FNOL) sent overseas. When accuracy of information and data collection become problematic, it will have a direct and quantifiable impact on a carrier's bottom line. Adjusters are often measured in terms of the volume of production versus the quality of their work, and critical items often slip through the cracks. A missed witness statement here and a missed police report there can add up to billions of dollars lost as an industry.
By focusing on two critical areas — maximizing recoveries on the tough collections and developing an acute understanding of comparative negligence — carriers can battle their way out of the red ink. These opportunities are ubiquitous throughout the claim arena, and the carriers that leverage expertise in them will gain an instant competitive advantage in the marketplace.
A renewed focus on execution associated with effective and accurate investigations and outcomes will drive overall subrogation recognition, a key component to improving profitability. Recognizing subrogation as an area of opportunity and then focusing on continuous process improvement by leveraging expertise in the industry is what will define the most successful carriers in coming years.
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