A Strategic Tool on The Rise
As P&C insurance carriers grapple with rising losses, executives are viewing subrogation expertise as a crucial aspect of the claims process due to its potential to improve cash flow and boost profitability. Judging by trends in RFP activity, carriers are increasingly outsourcing subrogation processes to a select group of top-tier subrogation firms. These firms do more than perform subrogation identification and recovery. When needed, they can integrate seamlessly with clients’ operations, deliver cutting edge technology and analytics, and provide additional consulting services designed to enhance efficiency and drive results over the long term.
Below, we dive deeper into the trends driving an increased focus on subrogation, look at some key metrics for judging the effectiveness of a subrogation program, and provide guidelines that a carrier can follow to select a best-in-class subrogation partner.
Pushing Back on Rising Costs
Historically, many insurance carriers did not fully appreciate the strategic value of subrogation. Several developments over the past few years, however, have raised awareness of subrogation’s potential. One such factor was the loss of internal subrogation staff due to the COVID-19 pandemic, which strained internal claims departments. Another was the emergence of new technologies that can identify missed subrogation opportunities rapidly and at scale, raising carriers’ awareness of the amount of leakage stemming from missed subrogation. As a result of these shifts, many insurance carriers today view subrogation expertise as an important tool to help offset the relentless increase in loss costs driven by litigation and claim severity.
The focus on subrogation makes sense when you consider the potential rewards. Across approximately a dozen recent closed-file audit engagements with P&C carriers and self-insureds, our firm identified that an average of 16% of claims with subrogation opportunities were missed.
The percentage missed ranged from a low of 11% to a high of 21%. In terms of dollars missed, a recent engagement for a large, self-insured employer—where our firm audited policies across commercial auto, commercial general liability, and workers’ compensation—identified $50 million of missed subrogation. A similar audit for another large retailer identified $10 million of missed subrogation. Our experience shows that the opportunity for carriers to improve their subrogation processes-and therefore their bottom lines-is significant.
Key Takeaways
- Our experience shows that the opportunity for carriers to improve their subrogation processes—and therefore their bottom lines—is significant.
- Carriers are recognizing the challenges of subrogation and are looking for ways to improve recovery rates and understand why they are missing subrogation opportunities in the first place.
- Identifying a subrogation partner with the right mix of expertise, experience, technology, and tactical know-how can be key to improving the process.
The percentage of claims missed can vary significantly across auto, property, and workers’ compensation lines due to various reasons:
- Auto Subrogation Recovery. Auto subrogation presents unique challenges for insurance carriers, including complex fault determination, uninsured or underinsured at-fault drivers, and disputes over diminished vehicle value after repairs. Fault disputes often delay recovery as parties contest liability and rely on sometimes-limited evidence. In cases with at-fault drivers lacking sufficient coverage, carriers may recover only partial costs, or none at all. Additionally, variations in state regulations impact standardized recovery processes, complicating efforts to pursue claims across jurisdictions.
- Property Subrogation Recovery. Property subrogation requires accurate determination of the damage cause, often requiring expert input to identify whether defects, negligence, or environmental factors were involved. When multiple parties, like contractors or utility companies, share liability, negotiating recovery becomes more difficult. The high value of many property claims intensifies the need for detailed documentation and can prolong negotiations. Additionally, the urgency of evidence collection after incidents, such as fires or floods, is critical but often hampered by safety concerns or access issues, complicating effective recovery.
- Workers’ Compensation Recovery. In workers’ compensation subrogation, proving third-party liability is challenging, especially when injuries involve multiple contributing factors, like defective equipment or unsafe premises. Carriers may also face obstacles in securing cooperation from the injured employee, which can be crucial in establishing the case. Rising medical costs further complicate fair reimbursement efforts, particularly for future care, and these cases often become lengthy and costly due to complex legal processes when multiple responsible parties are involved.
Addressing Performance Shortfalls
As subrogation’s strategic focus rises, more carriers are outsourcing subrogation processes. They are especially seeking out the few independent full-service subrogation firms that have expertise and background to serve as true strategic partners.
Carriers recognize the challenges of subrogation and want to improve recovery rates and, more importantly, understand why they are missing subrogation opportunities in the first place. For example, adjusters may be handling more claims and have less time to focus on subrogation, especially in complex situations. Bringing on a subrogation partner helps to address these challenges and strategically identify—and remedy—the root causes of performance shortfalls.
Larger carriers in particular look for subrogation firms that have evolved their models beyond just handling recoveries to providing broad, end-to-end solutions. This could include running liability audits to identify subrogation opportunities, assessing internal identification models, training adjusters, and scoring first notice of loss (FNOL) files.
Carriers also recognize that technology is playing a critical role in subrogation today. Subrogation programs that combine manual identification with predictive analytics and artificial intelligence (AI) are likely to be the most efficient and score the highest. Technology can be applied at the front end of the process so that high-probability files are fast-tracked, leaving the more complex files to the human adjuster. It can also be applied at the back end as a safety net to pick up anything adjusters may have overlooked (this is a good way to identify training opportunities by spotting errors and omissions). Note that one size does not fit all, and carriers should experiment to determine what process works best for them.
Identifying a subrogation partner with the right mix of expertise, experience, technology, and tactical know-how is key. In the final section of this paper, we provide some guidelines that a carrier should consider when selecting the right subrogation partner.
Benchmarking the Gains:
Four Key Measures for Benchmarking Subrogation Programs
In our experience, there are four metrics, among many, that carriers should focus on to gauge the effectiveness of their subrogation programs.
- Recognition Percentage: Dollars identified by claims adjusters as recoverable from dollars paid
Depends heavily on having adjusters who understand subrogation, have local jurisdictional knowledge, and can negotiate shared liability settlements. In industry benchmarking studies, subrogation recognition counts generally range from a high of 45 files to a low of five for every 100 new claims. In our experience, the optimal collision referral rate, while dependent upon negligence laws, should be around 35% in pure comparative legal jurisdictions, and lower in others. - Recovery Rate: Dollars recovered as a percentage of total dollars paid
Measures both gross and net recovery after factoring in expenses. When adjusting for comparative negligence and improper referrals, the recovery rate should be in the range of 85–90%. This requires adjusters to properly identify subrogation opportunities, assess comparative negligence, and pursue only what they are entitled to. Note that policy limits have always affected overall recovery results and are even more of a factor with increased claim costs. Comparing performance in light of the specific situation will help to provide a better apples-to-apples comparison on individual adjusted performance. - Recovery Rate per Full-Time Employee: Dollars recovered per adjuster
Measures both gross and net dollars after expenses incurred. There is a wide variance among adjusters, based on the type and complexity of the claim file. Traditionally, the target was $1 million per adjuster, but this bar is rising as claims expenses climb and technology delivers increased capacity and productivity (for example, using AI for document summation and classification and APIs for platform integration and streamlined data flow). We have seen some adjusters hit four or five times the $1 million benchmark. - Cycle Time: Time from subrogation identification to recovery
The industry average cycle time is around 100–120 days, but the average time to issue final payment is about 10 days. With the ability to fast-track arbitrations and leverage technology, the 100- to 120-day average could be compressed to fewer than 60 days. Beyond technology, studying the behaviors and performance of carriers on the other side of the table can help a firm make the right decision on the next step of their process—that is, testing to see whether the subsequent follow-up produces a more successful outcome or pushes performance back.
Selecting the Right Subrogation Partner
When selecting a subrogation partner, carriers have typically focused on the three R’s—results, reputation, and references. These are all valid criteria and should be part of the selection process. But here, we go beyond those core requirements to list an additional four features that we think define a top-tier subrogation firm.
- Technical Innovator:
The subrogation partner should be familiar with new technologies and adept at using them. These could include predictive intelligence to identify subrogation opportunities faster and more accurately than humans can, automation to streamline repetitive tasks, fraud detection to weed out subrogation dead-ends, cybersecurity tools to safeguard carrier data, and data analytics to generate reports and key performance metrics in real time, enabling transparency and continuous improvement. Many vendors will develop and operate their own proprietary analytics and models. At the same time, the right partner would understand that technology is only a starting point—human expertise and experience will always be needed to validate and verify what the models are saying. - One-stop Solution:
Measures both gross and net recovery after factoring in expenses. When adjusting for comparative negligence and improper referrals, the recovery rate should be in the range of 85–90%. This requires adjusters to properly identify subrogation opportunities, assess comparative negligence, and pursue only what they are entitled to. Note that policy limits have always affected overall recovery results and are even more of a factor with increased claim costs. Comparing performance in light of the specific situation will help to provide a better apples-to-apples comparison on individual adjusted performance.
- Strategic Team-player:
The subrogation partner should be able to step in and work in harmony with the carrier starting on day one. Its team should act as a seamless extension of the carrier’s team, and it should demonstrate an understanding of the carrier’s business in all its nuances. There is no room for cookie-cutter solutions. The right subrogation provider would make communication a priority and ensure full transparency for the carrier. It will build the necessary technical processes, train the carrier’s personnel and develop performance metrics for the carrier to track. It will act as a true strategic consulting partner and a vital member of the carrier’s team. - Integration Specialist:
Data integration can be a major pain point for a carrier when engaging a subrogation provider and providing access to claim files. There is always a soft cost involved—the time and effort the carrier must invest in the process. A strong subrogation partner will make that cost as low as possible, even negligible. It will assume the main tasks of integration—like building data feeds and point-and-click functionality—and do it efficiently. It will work well with the carrier’s existing IT setup so there is no need to make significant systematic changes or tie up internal resources. Data integration should be built into the subrogation provider’s overall fee so the carrier does not face billing surprises or unforeseen costs.
Premier P&C Subrogation Solutions
SubroIQ is a full-service property and casualty subrogation specialist that uses proprietary technology and unparalleled industry experience to help carriers identify missed subrogation opportunities and maximize recoveries.
Our firm has grown significantly over the years and now provides unmatched size, scale, and support across all lines of business. Our expertise spans auto (liability, PIP, and UM), property, general liability, workers’ compensation, cargo, specialty lines, and more. We offer a full breadth of subrogation services that can be customized to meet a carrier’s needs from closed file reviews to full subrogation outsourcing. We combine proprietary analytics with highly experienced claims analysts and an unmatched data security infrastructure, resulting in the identification of more missed subrogation opportunities, and more and faster recoveries. Last year, we analyzed more than 20 million claims files and recovered more than $400 million on behalf of our clients.
Our clients include multiple top 20 carriers, regional carriers, TPAs, and self-insureds. SubroIQ works collaboratively with its clients to build custom solutions that meet their unique requirements. Each engagement protocol is tailored to specific needs. Our streamlined workflows minimize internal resource loads, and our online portal gives clients complete transparency on program status down to claim level, plus on-demand reporting and program metrics.
Whether we are your primary subrogation provider, arbitration partner, demand reviewer, closed file review auditor, or a second or third look provider, our team can help improve your claim outcomes and we have the results to prove it.