March Madness: The Cinderella Subrogation Process

March 21, 2011 at 9:22 am 1 comment

March Madness is in full force, with the Cinderella’s beginning to emerge.   After last year’s great run, is Butler poised to do it again?   The ability of teams not often basking in glory to rise to the top is arguably what makes college hoops in March so appealing.   Seeing a #13 defeating a #4 brings a sense of parity to the field and humbles those of us whose brackets are now in shambles.  

It also reinforces that organizational success can often come from unexpected sources.   As I discuss in Re-Adjusted: 20 Essential Rules To Take Your Claims Organization From Ordinary to Extraordinary, one of those sources for insurers is subrogation.    So the question remains, what can be done to take the Cinderella of claims processes to the top of the industry? 

One of the first questions that should be asked pertains to judgments, and what percentage are effectively collected?  Nationally, more than 81% of judgments go uncollected.   When it comes to subrogation, this number rises to 92%.   Despite this, many insurers utilize counsel to obtain judgments without the benefit of a predictive modeling process to improve collectability results or a thorough understanding of effective post judgment remedies.    

One of the often cited reasons for obtaining judgments is that they are required in many jurisdictions to suspend a driver license.   While this can be a meaningful tool, more often than not the types of people that drive with no insurance aren’t likely to have much concern about a license suspension.   Rather, by focusing on the characteristics of the people who will care, insurers can dramatically increase recovery results. 

An even bigger challenge for insurers is how to best staff an organization.   There is no one size fits all approach, with variances depending on business model, types of business and complexity of claims.    Another consideration is the quality of staff that is being hired to fill critical roles.   Historically, subrogation roles have had limited advancement opportunities and at times were filled with personnel that struggled in other claims capacities.   By recognizing the key role that subrogation plays in the end to end process, developing talent that can investigate, negotiate and resolve often complex cases can pay big dividends.

Equally as challenging is the actual organizational structure, which can take on many variations.   From centralized and decentralized to outsourced or off shored, there is no limit to the creativity of insurance carriers.    In Six Sigma projects and quality assurance reviews, the results have increased to the extent that insurers focus on putting the right claim into the hands of the right adjuster.  

Insurers often show a core competency when dealing with other insurers, in particular on cases where liability is not any issue and the other carrier is a member of inter-company arbitration.   The challenges tend to rise when liability is an issue, as far more accidents than people realize have shared liability. 

According to Jury Verdict Research, a national organization that tracks such data, rear end auto accidents accounted for only 45% of auto cases adjudicated, with the remainder comprised of intersection collisions, lane changes, chain reaction and parking lot scenarios.  In other words, a lot of claims where there was a high probability of shared liability. 

As an insurer, you certainly shouldn’t expect to set a benchmark that high, as very few claims actually make it to trial.  But what you can do is bank on the fact that if fewer than 35% of  collision claims are closing without comparative fault,  money is being left on the table. 

Another challenge arises in the health care arena where insurers may be entitled to reimbursement when third party liability claims are present.   While there are tremendous tools available to proactively identify this subrogation potential, many insurers utilize a process by which a letter is sent to the insured in hopes that they may provide the information necessary to pursue these types of claims.  Unfortunately, these letters are often discarded with billions of dollars left on the table annually. 

Across the insurance universe more than 15% of all claims are closed with a missed subrogation opportunity.   Even when recovery potential exists, a significant number of additional claims are closed for a variety of reasons.  Having spent more than twenty years in various line, management and executive capacities for multiple Top 10 P&C insurers, I can attest to the challenges that can hamstring any operation.    From staffing and evolving case law to limited understanding of jurisdictional nuances and constantly changing organizational objectives, it is enough to make any manager’s head spin. 

Often, the best results are obtained with a well thought out, methodical plan that merges the best of all competencies.   By adapting a triage process that places the right claim with the right adjuster, be they an employee or a business partner, carriers are assured to dramatic improvement.  

But this is only the beginning, as the true success comes from creating an organizational foundation upon which core competencies are required; beginning with first notice of loss.   By improving the quality of the end to end claims process, implementing a claims focused quality assurance process and calibrating the entire organization, carriers have the ability to take their game to an entirely new level.  This unparalleled level of excellence results in higher levels of customer satisfaction, increased retention, improved investigations, reduced cycle time and most importantly accurate claim settlements. 

Christopher Tidball is an insurance claims consultant and the other of Re-Adjusted.    He provides insurers with proven methods to dramatically improve quality, performance and results.  To learn more, please visit www.christidball.com or e-mail chris@christidball.com.

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1 Comment Add your own

  • 1. Jacquelyn Finney  |  March 21, 2011 at 12:43 pm

    Original subrogation investigation, “Kaiser Permanente Plunders Patients’ Piece of the Pie,” is posted on YouTube.

    Reply

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Chris Tidball is a claims and revenue management consultant and author of the "20 Essential Rules" series of self and organizational improvement books. You can ask him a question at chris@christidball.com

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