Building a successful property subrogation program

Related: Creative learning: Changing the status quo for subrogation education

Subrogation identification processes can be the responsibility of the claims handler who identifies the opportunity and then passes it along to a recovery specialist or pursues the recovery as part of the claim handling process. The process can vary between an in-house subrogation team, which examines every claim searching for recovery opportunities and periodic independent claim file reviews conducted by subrogation vendors.

In many instances, the entire recovery process may be outsourced to a subrogation partner offering a First Notice of Loss program, which will investigate recovery potential and create new recovery claims simultaneously, while the loss adjustment process continues by the carrier or its authorized representative. The intervention by subrogation/recovery personnel places potentially responsible parties on notice even before payment has been issued to the policyholder.

Recovery strategies can vary greatly in the subrogation process depending on the nature of the claim, local negligence rules and statutes, but there will surely be no recovery without identifying the opportunity.

Property losses require a prompt investigation to prove faulty workmanship or damage from a defective product. (Photo: Shutterstock) 

Raising the roof

Developing a successful subrogation program requires implementing a series of actions which follow the identification process and achieve the desired result. These recovery strategies may vary due to the line of business involved as well as who is charged with pursuing the recovery.

Company staffing often dictates "who" handles the recovery, either the claims adjuster or a dedicated recovery specialist. Successful subrogation requires a different skill set from claims handling — skills which demonstrate assertive and creative tactics rather than the defensive reactions to claims being presented to the carrier.

Related: Subrogation claims put insurers in the policyholder's shoes

Facts revealed and explored by a claims adjuster during the investigation process will greatly benefit the recovery opportunity, but the subrogation process has other elements which may be unfamiliar to claims adjusters. For most recovery opportunities, these elements include the passage of time and the preservation of evidence.

The passage of time rarely improves the subrogation process, which makes subro awareness training and early intervention critical to success. Missing evidence, improper preservation of evidence and the consequences of spoliation may not be concepts familiar to a claims adjuster who is more focused on an amicable resolution to the claim itself.

For example, the facts of an automobile claim probably won't change much over time, yet it remains important to both the defense of a claim and aiding a successful recovery to obtain scene photos and witness statements close to the date of loss. In most auto claims a police report will preserve the loss facts, while in property losses when the evidence is discarded, provable facts and fault are lost. Subrogation efforts may begin long after claim disposition, making any missing information more challenging to obtain.

Property losses require a prompt claims investigation, which is imperative to successfully prove faulty workmanship or a defective product resulted in a fire or extensive water damage. The recovery specialist knows he will need the faulty product as evidence, a fact which may not be recognized by the property claims adjuster. Too often the recovery specialist receives a case to pursue and learns that crucial evidence was damaged, misplaced or thrown out during the repair process, reducing the recovery opportunity.

Many losses have subrogation possibilities if adjusters know what to look for and how to protect the evidence. (Photo: Shutterstock)

Subro awareness and early intervention

At one time, subrogation was seen as the final function of the claims process; however, for a subrogation program to be successful, the recovery process must begin early in the claim lifecycle as the facts are being developed. A close relationship and open communication between the claims team and the recovery team before the claim is even paid can lead to the kind of success every claims management team is seeking.

Related: Subrogation and the Act of God defense

Early intervention, especially in property subrogation, can dramatically increase the likelihood of a successful recovery. Training to educate all staff on rules of negligence and recovery rights in the statutes where the company writes business is critical. Beginning training and subrogation awareness at the first level of claims, the individuals responsible for taking the first report, will benefit the company. Awareness training should be conducted annually and include all adjusters and anyone who may be in contact with a policyholder.

Many property claims are handled remotely without a physical inspection or by independent adjusters who may note there is a subrogation opportunity but do nothing to preserve the recovery such as obtaining or protecting evidence. Policyholders anxious to start renovation work after a fire or water loss frequently dispose of the defective product or part which may have caused the loss.

Without the missing evidence, it is nearly impossible to substantiate the subrogation claim. Gaining the co-operation of the policyholder combined with strong efforts to preserve the evidence will substantially impact the results. Having the subrogation adjuster involved early in the process increases the chance of a successful outcome.

Training and early intervention can increase the likelihood of a successful recovery. (Photo: Shutterstock)

Claims management and continuing education

Enough time must be allowed for thorough recovery investigations to be conducted together with securing and preserving evidence, and obtaining all facts crucial to the ultimate disposition of the case, which includes subrogation recovery.

Tutoring staff on the value of expertly written arbitration contentions which properly lay out the facts and cite local statutes will deliver a successful outcome. Education in the review and defense of claims denied or improperly reduced also needs attention. Knowing how to respond and negotiate damage disputes is becoming increasingly more important.

All staff, including recovery staff, should receive ongoing training on subrogation awareness, investigation, rules of negligence and local statutes which impact recovery opportunities. Membership in industry associations such as NASP (National Association of Subrogation Professionals) which provide valuable resources and training opportunities might be considered. Developing relationships with subrogation counsel, recovery vendors and industry experts to support recovery initiatives all contribute to subrogation success.

Creative claims handling

Creative subrogation efforts can result in the identification of recovery opportunities even in storm losses which at first may appear to be an Act of God, but investigated and proven to be poor construction or improper work performance. These efforts require the cooperation of the insured to build a solid case against a third party.

The main objective for any project should always be a successful outcome. Studies have revealed approximately 15% of claims are closed without recognizing a recovery opportunity. That means there is a lot of room for improvement. A smart objective for every insurer or self-insured entity should be to reduce that percentage through the development and construction of an aggressive subrogation program, using available internal and external resources to deliver success.

Kathleen J. Smith, CSPR, (ksmith@spartanrecoveries.com) is managing director of Holbrook, N.Y.-based subrogation recovery services company Spartan Recoveries LLC. Donna Geraghty (dgeraghty@spartanrecoveries.com) is the business development manager at Spartan Recoveries.