My first Subrogation Cash Cow article was published back in 2010, followed by a series of educational training modules over the next few years. But as we evaluate the state of subrogation practices today, it seems that for as much as the world has changed in the past decade, many subrogation practices remain the same.
Back in 2010, carriers faced some big challenges largely driven by the crash of the housing market and the great recession. Today, the challenges faced are from an ongoing pandemic. Claim volumes have fluctuated up and down. There seems to be less predictability in an already unpredictable world. Exacerbating these challenges are ongoing mergers, acquisitions, downsizing and much consolidation within our industry.
So how does this impact claims, in particular subrogation. Increased productivity demands, fewer resources, and ever changing technology all play a role in the quality of claims investigations and outcomes. Arguably one of the biggest opportunities in the world of claims as the estimated 15% of claims closed with missed subrogation opportunities at an annual cost to the industry of over $15 billion dollars!
In a recent conversation with a long time colleague, we discussed how it was “back in the day”. Claims were handled with a generalist approach requiring adjusters to have their eye on the ball at all times. In today’s more specialized world there are arguably more opportunities for defects in the claims handling process. While there may be economies of scale and productivity gains, there is also a greater risk of leakage, which can offset many of the other gains.
When it comes to subrogation, the key to winning the game is ID. If you don’t ID the subrogation you are going to miss the recovery. Vince Lombardi once said, “If winning isn’t everything, why do they keep score?” It is a pretty simple formula. Despite this, many opportunities do get missed as our industry leading subrogation experts often see in routine closed file audits.
In this day and age of advanced algorithms, AI and machine learning this just shouldn’t be the case. The reality is that all of the aforementioned are good, and vitally important. But they only get you 80% of the way there. Certainly technology can do a good job at the majority of claims, but when you have complex recovery scenarios, PIP nuances, convoluted workers’ compensation laws and ever changing case law, basic technology simply can’t adapt fast enough. This is why SecondLook has deployed Chameleon technology, which has been shown to outperform AI.
Today, we are going to focus on two key strategies to drive subrogation outcomes. Comparative Negligence and Complex Liability Scenarios. When looking at recoveries on collision claims, there is a wide range, but generally it falls to a range of about 22-28%. When evaluating Six Sigma studies of quality reviews for a variety of carriers the statistically valid samplings find a recovery range of 37-40% on these same claim scenarios. 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 straightforward situations such as intersection, lane change or parking lot accidents, there are a myriad of opportunities where comparative fault would apply in virtually any coverage line. Concepts such as assumption of risk, laden versus unladen vehicle weight and last clear chance, phrases not heard since our adjuster boot camps, need to once again become part of the daily claim vernacular.
In simplest terms front line adjusters often miss comparative negligence assessments. Audits that I have been involved with routinely show that a mere 3-5% of claims have a shared liability assessment. This is a much different outcome that we see with juries where it is estimated that more than 50% of cases adjudicated have liability apportioned between the parties.
As the adjusting population ages and retires, there is going to become an even bigger void in experience that will likely result in even more missed subrogation. This is further exacerbated by the outsourcing of First Notice of Loss, often overseas. While FNOL can serve as a valuable training experience for future adjusters, the costs savings of outsourcing is what some carriers are more focused upon. When accuracy of information and data collection become problematic, it has a direct and quantifiable impact on a carrier’s bottom line. When relying on subrogation models, the output is only as good as the data being collected.
Beyond FNOL, adjusters are often measured in terms of production versus the quality of their work, which results in critical items slipping through the cracks. A missed witness statement here, a overlooked piece of evidence there, missing police reports, witness statements, etc., can all add up to billions of dollars in leakage across the industry. Carriers that see the highest subrogation success rates are those who are consistently utilizing impartial auditors for closed file reviews, as well as enhancing processes to leverage business partners to augment staff and provide valuable services such as applicant and response arbitrations.
By focusing on two areas- maximizing recoveries on tough collections and developing an acute understanding of comparative negligence- carriers can battle their way out of the red ink. These opportunities abound in our industry, and carriers that leverage expertise in these areas will have an immediate competitive advantage.
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 focusing on continuous process improvement by leveraging expertise in the industry is what we will define the most successful carriers in coming years.
Chris Tidball is an Executive Claims Consultant with SecondLook, an industry leading subrogation firm with over 600 years of collective experience that has recovered over $1 billion dollars for clients. His career spans over 30 years, including adjusting, management and executive roles with multiple To 10 P&C carriers. He is a frequent industry speaker and the author of multiple books including Re-Adjusted: Taking Your Claims Organization From Ordinary to Extraordinary! To learn more about no cost closed file reviews to ID missed subrogation please contact firstname.lastname@example.org