CCC Intelligent Solutions

Despite its potential for significant economic implications, insurers often deprioritize subrogation because “it’s complicated.” In many ways, they’re right. Subrogation is complex. It involves multiple stakeholders - including insurance companies, their insured(s), and third parties – and it requires a unique combination of experience, timing, and focus on specific elements within the claims process.

Identifying at-fault parties and quantifying losses demands significant time and resources, which are already in short supply, and pursuing legal action requires experts to comply with state laws and regulations, which are subject to intermittent change. Subrogation also requires deep connectivity and data management across a swath of external parties to ensure optimal recoveries.

On the other side of the equation, carriers receiving subrogation demands want to ensure that they pay what they owe. These carriers can leverage external TPA’s and other vendors to help evaluate inbound demands, which are evolving. Whereas a few years ago the most common point of disagreement was the apportionment of liability, now the most common disputes are often related to part selection, labor hours, and advance charges.

Subrogation has been an Afterthought in Claims, But Sophisticated Carriers Know Subrogation can Efficiently Improve their Bottom Line

“Just about every claim executive would appreciate the direct application of subrogation recovery to their combined ratios,” says Senior Solutions Engineer for CCC Intelligent Solutions, Tim Christ. “The largest portion of their direct spend is within indemnity payments and loss adjustment expenses, which means carriers stay focused on activities from first party claims and less focused on optimizing their subrogation team.”

Indeed, at a time when the insurance industry is experiencing significant gaps in people, and other economic and societal headwinds, subrogation can put enough stress on carriers that they’d rather pay an insured’s losses (even when their insured isn’t at fault) than take time to create a repeatable, streamlined process that can translate exorbitant operational expenses into direct net profits. But this approach is short-sided.

“Suboptimal subrogation can directly affect bottom-line profitability, the combined ratio of the insurance carrier, and ultimately what underwriting charges for premiums,” Christ continues. “In fact, a growing number of actuaries are getting involved in the subrogation process since they have a unique understanding of how subrogation really affects the claims departments, and they want to better understand how the carrier operates internally so they can be more prescriptive with their pricing.”

The Case for Improving Subrogation Outcomes

Subrogation returns roughly $10B in auto reimbursement annually, but the operational expenses of inbound and outbound subrogation departments are north of $500M. With greater efficiency, the industry could translate those operational costs into net profit.

A strong subrogation program can have a positive impact of 3-5% of a company’s operating ratio.

“Subrogation has been an afterthought in claims, but sophisticated carriers understand the potential impact of subrogation in efficiently improving bottom-line performance,” says Karlyn Carnahan CPCU, Head of Insurance, North America for CELENT. “Avenues for indemnity recovery are shifting significantly, particularly in the automotive space. Carriers positioned to win will have a recovery strategy and devote needed resources to maximize efficient recoveries.”

Subrogation is unique in that it’s not only part of the Claims organization, but also a beneficiary of the adjusters’ work to settle claims timely and accurately. Carnahan’s recommendation to carriers seeking to implement more successful subrogation processes is to focus on optimizing the timing of recoveries, the number of dollars recovered, and the alignment of their subrogation team with the lines of business they support to ensure seamless transition from settlement to recovery.

“Proactive carriers who understand the value of recovery are always on the lookout for missed subrogation opportunities,” adds Patty Bullis, AVP of Claims for AAA – The Auto Club Group. “Often, recognition of subrogation potential happens later in the claim process, making it more challenging to recover. The earlier subrogation potential is recognized, the greater the likelihood of high return.”

To unlock the revenue potential from a rapidly evolving subrogation industry insurers will need to modernize processes to identify subrogation potential sooner. And on the other hand, inbound subrogation shouldn't be overlooked. When on the receiving end of a demand, subrogation technology can review details including coverage, potential degree of liability, parts selection, labor hours, advance charges in both repairable and total loss situations, to help assess reasonability and safeguard against overpayment .

Leveraging both proliferating data and artificial intelligence-enabled technologies like robotics processing, predictive analytics, and machine learning support this endeavor with the added benefit of automating repetitive tasks and redeploying human capital to handle more complex claim scenarios.

Catalyzing Subrogation Improvements and Claims Transformation

Beyond relying on in-house subrogation specialists who use their own experience and judgment to streamline recoveries, one of the fastest ways to improve subrogation is to adopt workflow technologies that reduce the number of touchpoints and repetitive manual tasks and enable seamless cross-functional work, thus transforming claims processing and improving claims handling efficiencies.

“Every dollar recovered is important,” says Bullis. “Subrogation tools and process changes focused specifically on early identification of recovery potential should be a key piece of any successful transformation, and the use of technology where appropriate in the recovery process is a critical piece of any claims-transformation strategy.”

Subrogation can thrive in the digital environment if only carriers would include it in their digital strategies. The most successful carriers recognize that subrogation begins with first notice of loss (FNOL) and see it as part of the customer experience. Many carriers now have digital reporting channels, at a minimum, and some have end-to-end digital experiences. Obtaining the necessary information upfront, regardless of the FNOL reporting channel, sets the recovery process up for success, and optimizing subrogation effectiveness gives carriers the opportunity to invest in other ways to improve financial and customer outcomes.

At the same time, the lack of professionals accustomed to the intricacies of subrogation poses a significant threat to modernization. Claim handlers aware of recovery potential early in the claim lifecycle should be trained to complete the investigation with recovery in mind. After all, not every catastrophe is an act of God. In-house experts with the acumen to spot and magnify subrogation opportunities can effortlessly manage a high volume of claims.

Larger carriers with significant claims volume can add more capabilities and resources to identify all subrogation opportunities. Similarly, smaller carriers can outsource the entire subrogation operation to third-party experts. Regardless of the road taken, carriers must find the right balance between higher recovery rates and operational costs.

Optimized Subrogation Processes in Practice

Increased transparency across the claim lifecycle is the first win for every stakeholder in the mix. Carriers can leverage gained insights to create better products, make strategic decisions to improve customer experience, and ultimately increase profitability and market position.

An industry leader with a track record of processing over a trillion dollars of claims on behalf of customers, CCC Intelligent Solutions is helping carriers in turning optimized subrogation into a reality. Optimizing subrogation can also provide the added opportunity to enhance 1st party claims processes and manage indemnity and LAE costs as well.

"Our unique position within the market makes us a natural fit to help carriers drive further efficiency within both their outbound and inbound subrogation processes,” says Christ. “Continuous innovation is in our DNA."

By acquiring Safekeep, and its award-winning innovation, CCC affirms it's commitment to adding even more value to insurers. Safekeep technology uses AI and machine learning models to predict potential subrogation opportunities and allows carriers to effectively manage the entire process.

Subrogation, in automobile insurance, typically oscillates between 8 to 35 percent of carriers' total paid losses, which is critical to determining whether insurers have a profitable or unprofitable year. CCC subrogation solutions can help drive incremental revenue with improved outcomes. The carriers embracing subrogation management solutions with AI-accelerated workflows will likely thrive and stay ahead of the curve.