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Digitalized Subrogation – A Focal Point for Loss Ratio Improvement

Digitalized Subrogation – A Focal Point for Loss Ratio Improvement
February 14, 2019

Optimized Processes in Claims Lifecycle and Straight Forward Claims Settlement in Fast track are some of the Buzzwords being articulated repeatedly when the Insurers look for improving their Loss Ratio. On the other side, being used as a Risk Transfer/Risk Mitigation Mechanism, the Insurance Device is prompting to get converted as a Risk Avoidance Mechanism through various ways such as

  1. Gamification of Processes
  2. Avoiding Claims
  3. Improving Risk Management Habits

There are numerous ways like the above to improve the Loss Ratio of an Insurer. Though the insurers are looking for every possibility to reduce the new claims, there is another way of improving loss ratio which has been considered as the less prioritized method – i.e. through effective Subrogation Recovery.

More than a decade, the Insurers were continuously shifting between Centralized and Decentralized Subrogation efforts as part of their Claims Process Enhancements. As a result, the efficiency on realizing the Subrogation Potential and the effectiveness on the Recovery Mechanism were greatly disrupted.

Living Issues in Subrogation

United States is the only country among the World where the Subrogation opportunities are realized more compared to any other Nations. But there also, underutilized Subrogation opportunities or missed out opportunities exist. On an elevated view about Subrogation issues,

  • The technological innovations directed to multiple Business/Technological/Legal entities involvement that results more intricacy in Subrogation Recovery.
  • Too much efforts spent for the recovery of very small amount
  • Time taken to close the file with a positive recovery figure keeps on increasing drastically.
  • Lack of Cooperation from the Policy Holders when requested for facts and supporting documentation
  • Continuous Increase in the numbers of missed out subrogation opportunities.
  • The less availability of experienced Recovery Experts from the Insurer’s side
  • Very less (or) nearly No Focus on the Targeted training to keep the current Recovery staff up-to-date with ever changing laws, Regulatory Guidelines, Product defects or recalls and statues of limitations affecting Subrogation

According to the NASP (National Association of Subrogation Professionals), up to 15% of the Insurance claims are resulted in missed out Subrogation Opportunities. In addition, there are approximately up to 32% of the total reported claims where the Subrogation opportunities are identified, but not pursued for recovery collection (or) the files are closed with Zero dollars recovered.

There are approximately up to 32% of the total reported claims where the Subrogation opportunities are identified, but not pursued for recovery collection (or) the files are closed with Zero dollars recovered.

Ways to Think through – Improved Subrogation Recovery

Subrogation Recovery – When targeted as a process for improvement, below are the common ways that an Insurer explores and dig in further.

Improved Subrogation Recovery
  • Efforts saving on Subrogation Recovery Processes
  • Identifying every opportunity for Subrogation without fail
  • Improved Recovery Mechanism

The Present Digital Trends can help to improve the various processes on end to end Subrogation Lifecycle.

The Digitalized Subrogation

The Industry understands and agrees that End to End Digitalization would not be attainable at least in near future due to multiple entities entanglement in the Subrogation Recovery Process. But there are various sub-processes that can get facilitated (with the help of Digital) through which Loss Ratio can be organically improved.

Digital Trend/Technology Benefits/Opportunities for Subrogation Improvement
  • By applying Analytics in the Historical Claims Data, During the First Notification (FNOL) phase itself, the Subrogation Opportunities can be distinguished and prompted in System.
  • Through Earlier Segmentation, Conglomerate claims (with reference to Subrogation Recovery) can be designated to Experienced Recovery Specialists
Natural Language Processing (NLP) With the help of Natural Language Processing (NLP), text analytics can be applied on Customer Notes and Subrogation opportunities can be identified more efficiently and without any manual efforts spent. The number of claims with missed Subrogation opportunities will reduce greatly with the help of this NLP & text analytics.
Robotic Process Automation With the help of RPA, the Email Communication Processes with Predefined templates requesting for the Recovery can be completely Automated.
Augmented Reality & Virtual Reality
  • With the help of augmented reality (AR) and virtual reality (VR), the ever open challenge/concern in the Subrogation Process – i.e. the training to the Recovery executives on Case to Case Basis can be done through Virtual Trainings.
  • Augmented Reality can be used for measurement of properties, Projection of Risk affected areas etc.,

Benefits of Digitalized Subrogation

The primary concern when targeting Subrogation for Digitalization would be as below. The Cost towards Digitalization will be more even for few sub processes to be enhanced. But assuming that all the above sub processes in the Subrogation Recovery lifecycle combined would bestow for 20% of efforts and time, then Digitalization on all these sub processes would definitely contribute a minimum of 5 % improvement in the Subrogation Recovery and subsequently appreciable improvement in the Loss Ratio of an Insurer.

From the Insurer’s process optimization point of view,

More than 30% of the Subrogation identified cases would be with very small recovery amount. So these files can be closed knowing that the efforts to be spent would cost more when compared with the amount to be recovered. But with the help of Automation, all these small amount recovery files can be evaluated without any human intervention. Out of the above mentioned 30% Subrogation Identified cases, with the help of this Digital Innovations/Techniques, assuming that a minimum of 15% cases get successfully recovered, then it will result a great improvement in Loss Ratio.