03 Apr Best Practices in Subrogation
A typical subrogation case averages 100 days from the time a subrogation demand is delivered to the time payment is made.
Reducing fleet costs by improving recovery yields and reducing cycle times
Organizations that self-insure truck or auto fleets often struggle to make subrogation a priority. Small staffs are focused on keeping vehicles on the road, and the details of subrogation are more about insurance than fleet management – so expertise may be in short supply. As a result, subrogation often doesn’t get done – or it’s outsourced on the philosophy that any money recouped is a bonus.
But if subrogation is tiresome, hands-on work, it’s also a reliable means to manage the cost of running a fleet. Many companies underachieve at recovering money when other parties are at fault for accidents – which means they’re spending more than necessary on fleet operations.
According to data collected by Fleet Response, an industry leader in claims management and subrogation for self-insured fleets, an average of one in four auto claims has subrogation potential. The amount of money recovered through subrogation typically totals 10-15 percent of physical damage costs for all the reported claims.
But working with a subrogation specialist should yield far better results. By streamlining the subrogation process and applying industry best practices, a subrogation expert should help a company recover 33-35 percent of total physical damage costs. Counting just those claims with subrogation potential, it’s not unreasonable to expect a yield of 95-98 percent.
Here are some proven strategies for better subrogation results:
Look beyond physical damage
To increase the amount of money collected, experts subrogate not only the repair cost, but also reimbursement for loss of use, diminished value of the repaired vehicle, rental charges and, in some cases, loss of revenue or profit for the time the vehicle is out of service.
Understand state law
Not all states recognize loss of revenue or profit as a recoverable expense, which is just one of the many complexities that make subrogation so difficult to manage in-house. Working with adjusters who have expertise in state-by-state case law is an important part of improving subrogation returns.
Shorten cycle time
A typical subrogation case averages 100 days from the time a subrogation demand is delivered to the time payment is made. In most cases, this can be shortened to about 53 days through case management that hits deadlines at the earliest moment allowed, and discourages paperwork from sitting around.
Pursue even difficult claims
Not all claims are sure bets, and organizations that do subrogation on the side quickly abandon the tough cases. The main obstacle is a shortage of dedicated staff with claims management expertise. In these outfits, the potential return of smaller claims tends to be measured against the value of other work that team members do – and it’s usually the lower priority.
In the case of difficult and disputed claims, many are dropped when the longer cycle time and the cost of legal or other specialized counsel is considered.
Cumulatively, these tough claims will represent a significant portion of the total subrogation potential, and choosing not to pursue them increases the total cost of fleet operations.
If you’re committed to improving your own subrogation work – here are five best practices, according to Fleet Response Subrogation Manager, Megan Aloisi:
1. Accurate loss reporting: Effective subrogation begins the moment an accident is reported. Getting detailed loss information when the driver calls in is vital. A standard set of questions that will cover most situations can be scripted in advance with help from a subrogation expert. This assures you’ll have unbiased, detailed information to make a strong subrogation demand when the time comes.
2. Knowledgeable loss information review: Each loss report should be reviewed as soon as possible by an experienced loss review team to determine the responsible party and subrogation potential. Aloisi has repeatedly observed the correlation between the speed of this finding and the success of a subrogation demand.
3. Prompt notification of the responsible party: Quickly notifying the adverse party or insurance carrier that a subrogation claim is likely to be filed sets a no-nonsense tone for the entire claim cycle. It’s the first step in verifying coverage, and according to Aloisi, it improves the chances for a prompt and full settlement.
4. Thorough documentation: Creating a comprehensive documentation package streamlines the subrogation process and protects against legal disputes. Documentation should include photographs; witness information and statements from the accident scene; any police reports; photographs of repairs; and invoices of all repairs, storage and expenses.
5. Skilled adjusters: The right adjuster will provide an accurate repair estimate without a lot of back-and-forth. This helps return the vehicle to pre-accident condition quickly and at a fair price. It also reduces negotiation over the amount of the subrogation package – shortening the length of the claim and minimizing process costs for everybody.
If this list looks daunting, that’s because few companies outside of the insurance industry are set up to do this specialized work. Many fleet operators now outsource their subrogation activity, but even outsourcing doesn’t assure uniform results.
Here are some considerations when working with a subrogation partner:
How does the claim get built?
The upfront costs for subrogation can be daunting – from rounding up witness accounts and police reports to paying filing fees for arbitration. In selecting a partner, consider how – and when – these activities are handled. If they aren’t part of your fleet’s accident management process, you’ll have to pay extra to collect information needed to determine whether a case even has subrogation potential. Look for a partnership that integrates these activities to minimize cost and encourage pursuing even the iffier claims.
How does the partner get paid?
Many subrogation contractors charge a flat fee for handling a file, or have a fee schedule for different steps in the process. This may work for easy claims, but it discourages the pursuit of claims that are less certain or involve more processes.
Look for providers that only charge when money is recovered. It’s a no-risk arrangement that gives the provider incentive to take on a wider range of claims, while safeguarding against running up a bill with claims that are unlikely to ever be paid.
How good are they really?
Contested claims take longer to recover if litigation is involved – sometimes years. A skilled diverse team with good tools, strong processes and commitment to communication can shepherd the process through each step, accept the risk of an extended claim, and recover money long after others would have given up.
Do you get the information you need?
Your organization’s work flow and reporting requirements may demand information some subrogation providers aren’t set up to provide. Identify the information you’ll need in your role, and look for a subrogation partner that is able to provide it on a routine or real-time basis.
Megan Aloisi has been Subrogation Manager at Fleet Response since 2012, and over the course of 15 years has handled thousands of subrogation claims for the company and its clients.