8. April 2021 By Thomas Raninger
Optimising processes in subrogation handling
The craft of underwriting is in a deep sleep
I would like to start this blog post with a quote from German Wikipedia on the subject of legal recourse:
- Insurance law: Insurance companies have extensive rights of recourse against their policyholders or third parties. When settling a claim, insurance companies always check whether they are entitled to subrogate the person who caused the damage or the policyholder...
Whoever wrote this entry is right in theory, but has probably never seen the inside of a claims department.
There is certainly no guarantee that any insurance company will ‘always’ check whether subrogation is an option. Caseworkers have too high as caseload to deal with this and they usually don’t receive enough IT support either. But I don’t want to denigrate this work in any way. We’re already aware of the majority of cases that may potentially lead to subrogation, but it is a long and rocky road until payment is actually received, and there are high friction losses.
Once the subrogation procedure has been initiated, the tedious part of the work begins: debtors have to be located, disputes about liability, fault and/or the amount of the damage arise, notices of claim are filed with liability insurers, expert opinions are drawn up and solicitors are contacted. And after all that, it emerges that the debtor has a poor credit rating and hasn’t paid their liability insurance premium. This is a worse-case scenario, but it does happen.
Eventually there comes a point when the facts of the case have been clarified or there is even a legal title, but the debtor still has no intention of paying, despite repeated requests. Now good advice is expensive, in the truest sense of the word. The person handling the subrogation can forward the case either to a solicitor or to a debt collection agency and both will charge for each additional step taken.
Overview of some of the levers that can be used to optimise processes in subrogation handling
In this blog post, I’d like to provide an overview of some of the levers that can be used to optimise processes in subrogation handling. But first, I’d like to mention two crucial caveats:
The first is that every type of claim has its own idiosyncrasies to contend with. For example, subrogation involving motor vehicles is often routine but case numbers are high. In turn, subrogation involving natural disasters is difficult to find and third-party negligence is often impossible to prove.
The second caveat is that when I talk about subrogation, I only mean those cases in which there is a legal assignment pursuant to Section 86 of the German Insurance Contract Act (Versicherungsvertragsgesetz, VVG). This would also include those cases in which an opposing insurance company bases a claim on this legal entitlement.
1. Finding cases that may lead to subrogation: The bulk of the work lies with the caseworkers and experts who, thanks to the knowledge they have acquired over the years, can identify these cases if they have enough time to do so. It is essential to provide training and constantly raise awareness. It is also worth controlling cases on the basis of rules and checking whether they may lead to subrogation without being prompted by an initial suspicion.
2. Gather information: It is essential to put the individual subrogation case in context and to assess the overall situation so as to avoid wasting money chasing bad debts. Two of the most important points are the debtor’s credit rating and obtaining proof of debt, for example by preserving evidence at the place of damage. The quicker you can identify a case where subrogation isn’t worthwhile, the less it will cost to handle. You can use the time you save to do something productive.
3. Act quickly: The shorter the timeframe in which subrogation takes place, the higher the chances of success in exploiting the full potential. It starts when the claim is first filed and ends when it is handed over to a debt collection agency. The sooner you appoint a solicitor or debt collection agency, the better the chances they’ll have of being successful, too.
4. IT support: Nowadays, it should no longer be an effort to record and enforce deadlines or to monitor incoming payments. An instalment plan is often the only way to receive payments at all. However, outdated IT systems often make this financially impossible to administer.
5. Cost-optimised partner management: A reliable debt collection partner who weighs up costs and risk with a level head is just as important as a solicitor who specialises in insurance subrogation and acts in their client’s best interests.
As is the case in many areas, success here also depends on four essential factors:
- An experienced team
- Streamlined processes
- The right tools to be able to react appropriately to the situation
- An IT landscape that provides the necessary support and that enables subrogation officers to concentrate on the important part of their work.
The aim must be to act proactively and quickly to achieve a planned annual result.
In my experience, it’s more than possible to recover two per cent of the annual claims payment from a broadly positioned composite insurer if subrogation is handled optimally – even if you only receive the actual money in the following years.
If marginal productivity in anti-fraud and personal injury management is achieved, I’m sure that subrogation will become the focus of insurers. Every euro recovered is reflected positively in EBIT.
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