Subrogation describes the insurance carriers’ right to legally pursue a third-party responsible for causing loss to the insured, in property, auto, commercial, and workers’ compensation lines. The process of subrogation recovery is initiated after the insurer settles the claim for the loss to the insured.
Subrogation claim is an important process, as the money recovered goes directly to the insurance company’s bottom line and reduces the insurance loss ratio. An insurance company’s operating ratio will improve considerably if subrogation is handled properly. Despite its importance, the subrogation process is often overlooked by insurers leading to several missed opportunities for subrogation and recoverable claims.
An overlooked function
The subrogation function is of strategic importance. But it has been traditionally constrained due to limitations in people, technology, and processes. Insurers initially followed a decentralized but inefficient operational model for subrogation that later changed to a centralized model to realize higher recovery ratios and shorter subrogation recovery times. For long, insurers didn’t contemplate making any strategic investments to improve claims applications, other than for functions such as fraud detection.
The claim function has predominately remained human-intensive, with claims and subrogation adjusters spending more time and effort against competing priorities to manually analyze the claim records. The decisions are made based on incoherent data, leading to human biases, inaccurate ascertainment of liability, inability to place the right adjuster with the right tools, errors in judgment by adjusters, and investigation missteps.
As claim settlement experience is the ultimate moment of truth for customers, it is getting renewed attention by insurers. Consequently, insurers are pursuing initiatives for claims transformation and digitalization. The abundance of risk data and deep AI are revolutionizing the claims process. Emerging technologies are being leveraged to provide additional insights to the claims and subrogation adjusters.
Let us look at few technologies that can smoothen the subrogation process:
Robotic process automation (RPA) in subrogation
RPA is used to automate rote manual tasks that do not require decision-making, such as subrogation initiation, sending standard mails, receiving, and mapping email replies, triggering follow-up mails, and allocating recovery. This automation enables the adjuster to focus on the more important task of settling claims.
The right analytical tools can considerably assist in managing the process. Providing adjusters with sophisticated tools improves their efficiency for successful subrogation. The success of subrogation collection and optimization of recovery time can be achieved using models for subrogation identification, segmentation, and collection effectiveness. All these tools are being used early in the process.
Artificial intelligence (AI)
AI models are applied to identify subrogation opportunities throughout the claim lifecycle and flag cases. Machine learning (ML) models are used for intelligent triaging of a case by mapping to the right case to the right person at the right time, which will alleviate subrogation leakages to a great extent. Deep learning capabilities are being explored to derive insights from structured and unstructured data in claims notes, and historical data is being used to identify the recovery potential.
Blockchain—Decentralizing data entry and storage
The high promise of blockchain is being explored by insurers to create a collaboration platform with other insurers. Industry-level consortiums are being explored for deploying a blockchain-based solution in which the participating insurers can preserve the evidence and create an immutable single version of truth regarding the claim event. Smart contracts enabled by blockchain will automatically enforce the terms and conditions under a policy.
Internet of things (IoT) — Enabling real-time data availability
The paradigm of connected insurance manifests into several forms such as telematics, connected home, connected life, smart factories, and the like. These advanced technologies are reinventing the risk and claims landscape. The data from sensors and connected devices could be leveraged to reconstruct the claim event for investigation. In the future, digital twin technology will revolutionize the way in which the subject of insurance is continually monitored, and its digital twin is synthesized and stored.
The inevitable tomorrow
There is a conscious effort to shift the beginning of subrogation function from the current end-of-claims-settlement stage to start it alongside the first notice-of-loss. The engagement models among the insurers, customers, adjusters, and other stakeholders have been moderately reinvented using digitalization. Insurers will relook at the subrogation process, by taking into consideration the data extracted from new sources, and the intelligence it provides to automate the settlement of subrogation. Insurance carriers that look to outsource the subrogation process must consider the technology solutions offered by the vendors. Besides, they need to ensure that the data and insights gathered by their claims adjusters are properly transferred to the vendor.
An efficient subrogation not only helps in improving the company’s balance sheet but also impacts customer retention and experience by returning the deductible to the customer.