JOHN D'ALUSIO, executive vice president, claims, at Avizent, a national risk management service and provider of claims management, medical managed care, self-insured groups, alternative risk financing and RMIS software
Subrogation has never been the most popular topic around the coffee machine. It's not that people have a built-in bias against it. For some, it's more a matter of not really understanding what subrogation is and how it works. For others, it may be that subrogation is seen as a secondary function that may or may not add value. In turbulent times, though, when every penny counts, getting smart about subrogation and knowing how it can make a positive contribution to your financial performance takes on greater importance than ever.
Smart companies are beginning to change their view of subrogation and to recognize its true potential as an essential--and highly lucrative--component of the claims settlement process.
They've recognized that every dollar recovered through subrogation is hard money that goes right to the bottom line. For self-insured employers, improving recovery through subrogation can also have a positive effect on their reinsurance treaty by demonstrating that losses are actually reduced through effective subrogation.
For insurance companies facing declining returns on investment income and the possible loss of premiums because of market shifting, cost control becomes even more critical. Focusing more intently on subrogation is one of the least costly and safest ways to achieve a substantial return on money spent.
WHAT IS IT?
In essence, subrogation is when a third party is determined to be responsible to some degree for an insurance claim and then reimburses the injured parties--or insurance companies--for all or part of the damages.
In the context of workers' compensation, when an employee is injured, the employers may pursue subrogation if the injury was the fault of another party, such as the manufacturer of a faulty piece of equipment or material.
Most subrogation issues, especially in business enterprises, are not so simple and clear-cut. The time and effort required to work through the complexities of some claims may deter adjusters from pursuing subrogation fully.
In other cases, adjusters may be knowledgeable about subrogation for one area, property or automobile claims for example, but lack experience or expertise in dealing with subrogation relating to workers' comp. The result may be significant recoveries unclaimed and possible revenue unrealized.
THE CARDINAL RULES
Like many areas of insurance, the degree of specialization needed to pursue subrogation can vary by situation and circumstances. There are of course some cardinal rules that all can observe, including a deliberate and timely review of every claim for subrogation potential.
In workers' compensation, this means considering subrogation from the minute the first report of injury is made. Early identification means investigations can begin immediately and important documentation--medical records, police reports, eyewitness accounts and environmental conditions, to name just a few--can be gathered while the information is still fresh and readily available.
Additional cardinal rules are persistent pursuit, serious negotiation and close attention throughout.
All of this requires time and resources, which are often in short supply for claims adjusters. That's why many companies who recognize the great potential value to be gained from recovery efforts are turning to subrogation specialists, either as internal units or as services offered by a third party.
For starters, the concept of a one-size-fits-all adjuster may not result in optimizing subrogation potential. Subrogation specialists often have highly developed investigation skills and situational knowledge that are beyond the scope of an adjuster's training or experience. By augmenting the adjuster's expertise and specialized skills, the outcomes can be improved dramatically.
Specialists often have access to a more expansive subrogation toolkit, including innovative solutions such as arbitration forums or finely tuned negotiating techniques. There's also evidence that specialized subrogation units close cases quicker, which also contributes to lower overall claims costs.
As the accompanying case study from the rental car industry illustrates, specialized subrogation professionals have demonstrated significant success in the percentage of cases where recovery has been realized, as well as in the greater sums of money received.
A REAL-WORLD EXAMPLE
How does subrogation play out in real life? An actual case example from Enterprise Rent-A-Car, a major national player in the rental car industry, demonstrates the potential value that can be realized from an aggressive approach to subrogation.
With thousands of rental car locations nationwide, the workers' compensation claims for this company are very complex.Claims management requires not only industry-specific knowledge, but also state-specific knowledge and experience in highly specialized disciplines.
The company's third-party claims administrator recognizes that this industry provides high potential for recoveries from other parties and focuses special attention on the subrogation process. A dedicated team works closely with Enterprise Rent-A-Car in an aggressive subrogation effort that follows a clearly established plan of action from early recognition of subrogation potential and investigation of liability, to lien notices and collection of funds.
The claims company also developed special subrogation training to educate all adjusters on the unique needs of both the industry and the client, and the processes required for successful subrogation.
Designated subrogation specialists work hand-in-hand with adjusters in reviewing every case from the beginning, focusing especially on proactive contact and negotiation with potentially responsible parties. The claims administrator also uses its proprietary claims management system to automatically schedule subrogation in an adjuster's diary and "things-to-do" notes to ensure timely follow-through.
One goal of the program is to pursue no-cost options for recovering funds, which helps avoid litigation fees and passes along more funds to the client. For nonpaying insurers, the administrator files complaints with the appropriate state's insurance department; for nonpaying attorneys, they contact the state's bar association. The client also attempts to negotiate liens in-house, rather than through an attorney, to save on legal fees.
Focusing on aggressive pursuit of subrogation has paid off. In the contract year ending in 2008, subrogation efforts reached a new milestone that far exceeds industry standards--recovering more than $1 million. The industry average for workers' compensation recoveries is 2.59 percent. The industry ideal is 3 percent. For this client, subrogation delivered an unprecedented 12.83 percent in recoveries for the year.
February 26, 2009
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