- Subrogation and arbitration recoveries are not affected by adverse market conditions making them an invaluable revenue stream in a downturned market
- Subrogation is what separates good insurance companies from great insurance companies. An effective and successful subrogation department can drive value generation, create competitive advantage, and increase customer service for an insurance company
- Arbitration can be a powerful tool if it is placed in the hands of skilled and competent arbitration specialists. It can increase recovery, reduce cycle time, and eliminate costly litigation expenses
- While there are significant advantages to joining inter-company arbitration, there are several disadvantages that need to be considered before joining to ensure that arbitration is right for your organization
- Himes Consulting Group has considerable experience at creating measurable bottom line results through their subrogation and arbitration services
Did you know…
- It has been shown that companies that achieve superior operating results subrogate claims at about twice the rate of average companies.
- CFOs that view subrogation as an important business process report higher profits.
- An effective subrogation department can recover 5-25% of paid losses depending on the line of business.
Subrogation is one of the few processes that can generate revenue without being tied to investment performance, increased premiums, or cost reduction initiatives. With the recent economic downturn, insurance companies need that ability more than ever. Customers are disappearing, claims costs are escalating, and combined ratios are rising. Carriers across the country are searching for ways to maintain corporate profitability but very few are reaping the full potential that can be found in their subrogation and arbitration processes. Given subrogation’s ability to generate significant value in any kind of market, subrogation may be the key to surviving and thriving in our current market conditions.
How does subrogation impact your bottom line?
Subrogation impacts your profitability by recovering funds that were paid for a loss or injury caused by the negligence of another party. By recouping these funds, the insurance company effectively negates a portion of their paid losses and inserts that value back into the company.
Why should you care? Isn’t subrogation just another part of the claims process?
While subrogation is indeed part of the claim process, the importance of an effective and efficient subrogation and arbitration process should not be minimized. By improving your subrogation processes, both property & casualty and healthcare insurance companies can realize substantial benefits such as:
1. Value Generation
- A single, skilled and knowledgeable subrogation specialist is able to save $2 to $3 million per year through effective subrogation recoveries.
- A successful subrogation department can recover between 5%-25% of paid losses depending on the line of business.
2. Competitive Advantage
- Effective subrogation differentiates good insurance companies from great insurance companies.
- Consider the following example where A & B are competitors with similar operations.
Company A Company B $1 Billion in Paid Losses $1 Billion in Paid Losses High level of Customer service High level of Customer service Effective claims adjusting practices Effective claims adjusting practices Subro Recovers 20% of paid losses Subro Recovers 5% of paid losses Through their more effective subrogation processes, Company A:
- Substantially lowers their paid claims.
- Transfers paid losses to their competition, thus increasing their competitors’ paid loss amounts.
- Gains operating flexibility that allows them to lower premiums and attract larger market share.
3. Customer Satisfaction
- Successful subrogation saves the customer money by recovering their deductible and by keeping their premiums constant.
Subrogation PLUS: Maximizing subrogation recoveries by leveraging inter-company arbitration
Arbitration is a profitable extension of subrogation. It is a form of alternative dispute resolution used by insurance companies to resolve subrogation claims where liability or damages are in contention.
In order to participate in inter-company arbitration, your company must become a signatory member of an arbitration group such as Arbitration Forums, Inc. or NAMIC. As members of the arbitration group, each company agrees to forgo traditional litigation to resolve their disputes and instead, submit a legal brief pleading their case to an independent third party. That independent third party reviews the case and then makes a binding liability decision regarding which party must reimburse the other. The arbitration system creates some powerful advantages but the advantages must be carefully weighed against the disadvantages to determine if arbitration is right for your company.
Benefits of participating in inter-company arbitration:
- Additional value generation above and beyond traditional subrogation recovery
- A skilled and knowledgeable arbitration specialist is able to recover over 90% of the funds they pursue and increase subrogation recovery by an additional 30%.
- Arbitration allows you to collect on claims that were previously unrecoverable by compelling non-cooperative carriers to pay through mandatory arbitration.
- Arbitration removes your need to negotiate reduced settlements for your subrogation claims. If your insured did not contribute to the loss, you can file arbitration to recover your full damages.
2. Reduces the costs associated with traditional subrogation litigation
- Arbitration replaces the traditional legal system and eliminates the costly attorney fees associated with pursuing and defending subrogation actions in court.
3. Faster claims resolution
- The subrogation recovery cycle is significantly shortened since many arbitration claims resolve in less than 90 days and payment is required within 30 days of the decision.
It’s not all good news, however. There are potential disadvantages to intercompany arbitration:
1. Arbitration is a two-way street
- Just like you can pursue recovery against adverse parties, adverse parties can pursue their recovery against you.
2. Arbitration is more time consuming than traditional subrogation
- Subrogation specialists have to research, document, and draft arbitration pleadings to submit to the arbitration panel. These pleadings can be time consuming and require a specialized skillset to complete effectively. Traditional subrogation specialists are more equipped to focus on the “easy money” that only requires a phone call and quick negotiation.
3. You only get one chance to prove your case in arbitration
- The decision rendered in arbitration is final and legally binding with no opportunity for appeal. If you fail to prove your case and a decision is entered against you, your opportunity to recover your damages is lost. Your arbitration specialists need to be just that, specialists with a significant depth of experience in subrogation and arbitration to ensure that your recovery opportunities are not lost.
Conclusion
As discussed earlier, your subrogation and arbitration processes have the ability to produce dramatic results for your organization and help offset any market effects. By maximizing the effectiveness of your subrogation and arbitration processes, you can add significant value to your organization.
Don’t wait to gain that added value trapped in your subrogation group. With our unique subrogation and arbitration services and our proven implementation experience, Himes Consulting Group can help you drive performance in these often overlooked processes.
Contact Himes Consulting Group to learn more about our services by emailing Rob Himes at robhimes@himesconsulting.com.