in all aspects of the economy, the lingering recession … · the rfp process, it is critical to...

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IN ALL ASPECTS OF THE ECONOMY, THE

LINGERING RECESSION IS TAKING A TOLL.

THIS IS PARTICULARLY TRUE IN THE ARENA OF

INSURANCE, WHERE COMPANIES CONTINUE

WITH BELT-TIGHTENING TECHNIQUES THAT

HAVE LEFT THEM WITH LIMITED RESOURCES

TO ADDRESS DAILY NEEDS.

BY CHRISTOPHER TIDBALL, VICE PRESIDENT OF BUSINESSDEVELOPMENT, SEQUOIA FINANCIAL SERVICES, GLENDALE, CA

Reprint Courtesy of the National Association of Subrogation Professionals. 2010 © NASP Subrogator® Winter 2010 Issue.NASP / 800.574.9961 / www.subrogation.org

ront-line adjusters and subro-gation collectors are receivingmore claims per day resulting

in higher pending inventory.Exacerbating this challenge are the

ongoing mergers, acquisitions, down-sizing and consolidation that havedramatically changed the face of busi-ness in America. While this permitscompanies to tout the economic upsideto shareholders, there are many eco-nomic downsides for those who do notproperly meet the challenges presentedby this dynamic. Nowhere is this moreevident than in subrogation, whereincreased demands can decrease results.Equally as challenged are claimsdepartments, across all lines of insur-ance, where claims are often closedwith missed subrogationopportunities.

As a formerclaims executive formultiple Top 10P&C insurers, I amcertainly no strangerto these challenges, as itwas not uncommon to findmissed opportunities on 15% or moreof closed claims. Regardless of carrier,or even industry for that matter, itseems that time, staff and money areenough to hamstring any organization.

But, there is a solution that com-bines utilizing the strengths of yourgreatest assets; your people, with those

who have expertise in areas where car-riers typically struggle.

According to the 2008 NASP AutoBenchmarking study, 78% of subroga-tion claims are insured and 22% areuninsured. Insurers have proven to berelatively effective in pursuing and col-lecting on claims where there isinsurance, especially if the claimant car-

rier is a member of ArbitrationForums. These are claims

that are well withinthe wheelhouse ofmany insurers,and claims uponwhich carriers can

likely leverageeconomies of scale to

do quite well on.This brings about the rest of the

mix, including not only uninsuredclaimants, but carriers who are notmembers of inter-company arbitration,claims involving conversion, endorse-

ment fraud and double-dipping aswell as foreign debtors and manufac-turers of faulty products. These typesof cases take a lot of time, a lot ofeffort and most of all extensivecollection knowledge.

Of all claims that are uninsured, the2008 NASP Auto Benchmarkingstudy found that among large compa-nies, as many as 82% may be closedwith no recovery. This is a lot of moneybeing left on the table. Making mattersworse, are claims with subrogationpotential that aren’t identified byadjusters and referred to subrogation.While serving in a prior capacity asAuditing Director for a large P&C car-rier, leakage was often identified usinga unique combination of analytics,resulting in a substantial lift to the bot-

F

67NATIONAL ASSOCIATION OF SUBROGATION PROFESSIONALS

Just as a football team succeedswith a variety of plays,

positions, coaches and mentors,carriers must do the same.

Reprint Courtesy of the National Association of Subrogation Professionals. 2010 © NASP Subrogator® winter 2010 Issue.NASP / 800.574.9961 / www.subrogation.org

tom-line recoveries. For this one car-rier, annual increases were measured inthe millions; think of the potentialacross multiple carriers!

The good news is that much of these“missed” opportunities can be recoupedwith a workflow analysis and subse-quent process improvements. Byfocusing your internal staff on the mostcollectible types of claims, it will be pos-sible to not only increase recoveries, butto also increase productivity by focusingon claims that have a higher recoveryprobability with less complexity.

By outsourcing the difficult claims,you will immediately gain a competi-tive edge in the marketplace, as yournet back to the bottom line willincrease. Net back is a simple conceptof placing less emphasis on fees associ-ated with collections and more onbottom-line returns.

One of the pitfalls of outsourcing isthat cost often becomes the end-all andbe-all, when it should just be one fac-tor. Much of this can be traced to theRFP, or Request for Proposal, conceptwhere vendors bid against one anotherfor business.

While I don’t want to detract fromthe RFP process, it is critical to con-sider everything that is contained in aproposal. It is quite simple for an unso-phisticated company to state that theywill provide subrogation services for a

flat fee, but have the inability to recoupeven a fraction of what a more sophis-ticated and knowledgeable companycan do for just a few dollars more.

Much of this mindset comes fromthe many voices of the consumer stud-ies that show consumers focus mainlyon price when considering an insur-ance carrier. Again, it can be arguedthat this is short-sighted on the part ofthe consumer who may be forsakingquality, timeliness and certain benefitsto save a few bucks. That said, busi-nesses should have a morestrategic outlook than, Joe, the autoinsurance consumer who, at the endof the day, often buys the Sony insteadof the Vizio.

I often pose a question to businessleaders as something to consider.What if the vendor at 25% had theability to bring in twice the annualrecoveries of the vendor at 20%?There are a variety of reasons that peo-

ple pay more for products, rangingfrom computers and TV’s to cars andhomes. In our personal lives, pricedoes matter; to a point. Just as we doin our personal lives, it is critical thatwe balance price with quality, serviceand outcome.

When selecting a vendor, it isimportant to get an understanding ofwhat they can bring to the table. Dothey have an established history? Havetheir tactics resulted in litigation, inparticular class action litigation, whichultimately costs the carriers a premiumfar greater than the low contingencyfee that they initially thought theywere getting?

Just as you are vetting a vendor, theywill be doing the same of you; this willbe especially true as the economyimproves and more business opportu-nities for vendors arise, bothdomestically and internationally.

A good recommendation is to meetwith multiple vendors and gain anunderstanding of what they have tooffer. Most importantly, do they haveexecutive and front-line knowledge of

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The reality is that subrogationis a unique type of collection

and the steps taken to maximizethis type of recovery oftendiffer greatly from hospitalor credit card collections.


69NATIONAL ASSOCIATION OF SUBROGATION PROFESSIONALS

the insurance industry? Do they havestaff who walked in your shoes, or theshoes of your adjusters? This type ofknowledge will substantially improveyour bottom-line returns.

The reality is that subrogation is aunique type of collection and the stepstaken to maximize this type of recoveryoften differ greatly from hospital orcredit card collections. With higheraverage balances, subrogation has

become intriguing to many in the fieldof debt collection, making it all themore critical that your vendor have notonly extensive industry knowledge, butindustry experience, as well.

To further maximize results, look atthe timeliness of your referrals. Thequicker a claim is referred for recovery,the higher the probability. Accordingto the 2008 NASP Auto Benchmark-

ing Study, carriers wait an average of62.9 days to refer a claim to their out-side vendor. Some carriers wait 90, 120or even 180 days. By doing this, theyare limiting the likelihood of seeing anyrecovery at all.

By promptly outsourcing the veryclaims that will get the least attentionin house, carriers will see a dramaticimprovement in both rate of recoveryand bottom-line money. With debtorsmoving an average of every ninemonths, timeliness of referrals meanshigher bottom-line returns. The realityis that collections are like concrete; thelonger they sit the harder they get.

Other considerations are the flexi-bility of vendors work on creativepricing solutions. Perhaps benchmark-ing current results and offering ahybrid fee based upon commissionsand increased profitability would bebeneficial, as everyone would havesome skin in the game.

The reality for carriers in today’stough economic times is that there is

money being left on the table. This is auniversal issue that touches everyonein the industry to some degree. Myexperience in closed-file reviews is thatit can be as little as 5% of collision dol-lars and as much as 35% of collisiondollars; often missed due to poor inves-tigations and settlement negotiations.

This poses a challenge for claimsexecutives who may view the finding ofmissed opportunities as a negativeaspect of their existing processes. Noth-ing could be further from the truth; asit is one ubiquitous aspect of claimshandling that exists in every carrier.Rather than looking at missed subro-gation from a negative vantage point,simply understand that this money wasfound as the result of a partnershipdesigned to maximize bottom lines,which makes all involved look good.

The truth is that most missed sub-rogation opportunities are not theresult of anything that the claims exec-utives have done, but rather front-lineadjusters, agents or those taking firstnotice of loss. In fact, many times, itcan be the result of an insured or

According to the 2008 NASP AutoBenchmarking Study, carriers waitan average of 62.9 days to refer a

claim to their outside vendor.


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claimant who fails to provide criticalinformation. There are many thingsthat can go wrong during the life ofthe claim, and often partnering withexperts in the field of predictive ana-lytics can find these missedopportunities with tools not even avail-able to the insurance industry.

Just as there are missed opportuni-ties within the claims organization,equal opportunity exists in the world ofdebt collection. Just as all carriers arenot created equal, neither are debt col-lection agencies. Any company is onlyas good as its weakest link. This is pre-cisely why a robust second, third oreven fourth look at files should beimplemented to further bolster a carri-ers bottom line.

While much of this enhanced recov-ery optimization process has beenoverlooked within the insurance indus-try, the success of this process is evidentin other industries. Arguably, the pin-nacle of maximizing ones bottom linelies with telecommunication compa-nies, such as AT&T or Verizon, whoemploy multiple collection agenciesand benchmark results on a daily basis.

In addition to this level of competi-tion, other industries employmechanisms to ensure success, such asallowing collection agencies to onlyhold files for six, nine or twelve monthsand then mandate that everything betransferred to the next agency. By forc-ing accountability, vendors must stepup to the plate with high-caliber staffand state-of-the-art technology result-

ing in improvements, which can bemeasured with the implementation ofmeaningful metrics.

To truly achieve subrogation opti-mization, carriers should continuallyfocus on process improvement. Thesubrogation process should be viewedas part of the end to end process,and opportunities to maximizeresults should always be soughtwith those who perform beyondexpectations rewarded.

Case in point is a large public utilityin California who put out a bid forRFP and awarded the contract to threevendors. Over the past three years, theaverage rate of return was 8%, with thetwo vendors who had submitted thelowest bids at less than a 4% recoveryrate, while the vendor with the highestbid was at 18%. At the time ofrenewal, this utility realized which ven-dors were maximizing their recoveriesand actually increased the contingency

rate as a result of their gaining a betterunderstanding of the net back concept.

To achieve true success in theprocess of maximizing recoveries, it iscritical that the focus be on blockingand tackling. Just as a football teamsucceeds with a variety of plays, posi-tions, coaches and mentors, carriersmust do the same. There is a reasonthat professional sports teams paypremiums for playmakers, whichinevitably increase revenues. Just as aprofessional sports team needs a play-maker, so does an insurance company,as it is this type of talent that can be thedifference between posting a profitor a loss. By focusing on what ittakes to form a winning team,insurers are bound to succeed in thelong run, giving them a competitiveedge when it comes to pricing andgaining market share.


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