The Art Of Subrogation Response
I am sharing this informative article from Chris Tidball.
hat happens when subrogation demands come in to your organization? If you are like many in the industry, responding is not a high priority amongst adjusters. In the eyes of many handling these types of claims, it is often viewed as being just another carrier on the other end of the demand.
In looking at what carriers are doing, there are various processes in place. While some are effective, others are very time consuming resulting in adjusters putting these off even longer which can result in an increase in arbitration or litigation filings.
While there are no hard and fast rules for subrogation response, there are steps that can be taken to dramatically improve results. As I consult with insurers, it seems that there are three processes that tend to govern how these types of claims are handled.
1. Liability Adjuster Review and Pay- The subrogation demand goes to the liability adjuster who reviews the claim for payment. In many cases, these “low priority” demands are simply rubber stamped.
2. Estimate Rekeying- In some instances, the inbound demands are sent to material damage adjuster to rekey. While this can result in some estimate reduction, it is a time consuming process and often lacks a containment mechanism for excessive rental, diminution of value or administrative fees.
3. Estimate Redlining- Adjusters will review the estimate and redline certain items that stand out. While quicker than rekeying, this solution often has limitations on effectiveness, especially when seeking out alternative parts or identifying included and overlap operations.
In many instances, the savings found through rekeying or redlining aren’t realized when the claim is sent back to the liability adjuster to negotiate. In a recent meeting with an insurer, they conveyed that their material damage team was reducing estimates by nearly 10%, yet when the actual payment detail was reviewed, these found savings were realized less than 1% of the time. As is often the case, the root cause was ineffective negotiations.
Another critical oversight is comparative negligence. When reviewing claims in your organization, does there appear to be a disproportionate number of liability decisions at either 0% or 100%? In my experience the answer has always been yes.
The reality is that far more accidents than most people realize have shared culpability. According to Jury Verdict Research, a national organization that tracks such data, rear end auto accidents accounted for only 45 percent of auto cases adjudicated, with the remainder comprised of intersection collisions, lane changes, chain reactions, and parking lot scenarios. In other words, a lot of claims where there was 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. What you can do, however, is bank on the fact that if fewer than 35 percent of your collision claims are closing without comparative fault, then money is being left on the table.
Again, the challenge is to effectively train your staff to not only effectively identify opportunities, but teach them how to negotiate.
When considering subrogation response, there are six key areas where your organization can not only benefit but gain a competitive edge in the marketplace.
1. Estimatics opportunities – While this can be partially accomplished by rekeying or redlining, why not take the next step and utilize automation to identify opportunities?
2. Historical alternative parts identification – Subrogation responses can be significantly impacted by identifying if used or aftermarket parts were available on the date in history when the claimant carrier wrote their estimate.
3. Adjust the fluff- How much are you being billed to tint paint, feather edge, cover cars and dispose of hazardous waste. While not the bulk of the estimate, fluff can really add up.
4. Diminution of Value- There are rarely statutory guidelines that govern how much is owed, if anything, due to diminution of value. After all, is there really any diminished value until the owner sells the car, discloses the accident and suffers diminshed value as a result of the disclosure?
5. Comparative Negligence- This is arguably one of the most overlooked aspects of the subrogation response process. By effectively understanding the principles of shared liability, adjusters can more effectively apply the laws in their given states. This is also an aspect of the claims process that can be measured and continually improved upon.
6. Loss of use- Did the claimant really need their rental vehicle for thirty days when the estimate called for sixteen hours of repair time? The reality in many claims organizations is that rental is not well managed. In some cases, the process of overseeing rental is even outsourced to the rental company who is in the business of increasing their own revenue, not yours. By applying a reasonable standard, such as one day of rental for every few hours of repair, one can effectively reduce what is owed in this regard.
As subrogation demands come in, consider the steps that are being taken to identify opportunities. While there are many aspects of claims that can often benefit from improvement, subrogation response provides an immediate financial gain because those effectively handling this process will gain a competitive edge over those who are not.
Christopher Tidball