Found Money (Edited and Excerpted)

One of the reasons that subrogation typically doesn’t make it to the front burner of many organizations that use ART programs is that they do not realize just how valuable this process can be. So, at this point, you may be asking yourself, just how much money is involved in the subro process? While each situation is different, according to Erik Stremke, director of client development for Subrogation Division, Inc. (SDI), Spanish Fork, Utah, there are industry benchmarks that can shed some light on the amounts involved.

Depending on the size of the program, there can be significant dollar amounts associated with the subro efforts, particularly in the workers compensation arena.

And the good news regarding this issue is that, not only is this a valid cost savings method going forward, but it can also be used retroactively for closed claims. Stremke explains that most closed claims have good potential for about three years, which is the average statute of limitations that is in place in most states. Typically, a review of the closed claims for the past three years will provide a good indication of recovery potential.

Most people believe that they have to incur significant costs just to pursue a recovery. But this is where the potential of subro really shines, because firms such as SDI typically work on a contingency fee basis. So, in practice, what this means is that there is no up-front cost for the client, notes Stremke.

Many prospective clients are surprised at the potential amounts that are available via subro. “A number of them wonder how come similar returns are not available from traditional insurance claims departments or even third-party administrators,” Stremke says. But he also points out that most claims operations, regardless of whether it is an insurance company or a TPA, tend to focus on “closing claims in a timely fashion for the least cost.” And while many insurance companies have a subro department, as do most TPAs, few use best practice methods to achieve a high level of recovery.

Maximizing the recovery potential of a claim requires the services of specialized subrogation personnel. And since few organizations can afford to retain this type of expertise, they frequently outsource these tasks. SDI is a good example of a firm that has the needed specialized services since, as Stremke mentions: “This is what we do, day-in and day-out; this is all we do.” As a result, he says, “We don’t have any other distractions.”

There are few “win/win” situations in today’s business world, but utilizing subrogation services that are provided on a contingent fee basis may be one of them. And when it can have such a positive impact, it should be pursued. “A properly managed, comprehensive subrogation program can reduce the overall corporate loss ratio by two to three points, simply by pursuing recoveries,” notes SDI’s Stremke. And this is particularly true for those accounts that involve any type of ART arrangements.

Although subrogation and claims management are inextricably linked, they are inherently different operations. And while the basic concept of subrogation is relatively straightforward, it is considered to be a highly technical area of claims management. In order to get the maximum benefits from any subro efforts, the services of subrogation professionals are required. This is a valued-added service that any broker/agent or captive manager should be eager to introduce to its clients. Because, as Stremke points out: “This is found money.”