Using AI for Smarter Claims Subrogation

Insurers looking for ways to improve their combined loss ratios should seek inefficiencies in their subrogation processes. Smarter claims subrogation can help insurers identify more opportunities while reducing the administrative burden and costs. 

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Subrogation Is a Powerful (and Underused) Tool

When insurers pay claims when a third party is liable, they have the right to seek recovery of the funds – paid through the process of subrogation. According to Investopedia, subrogation is most common in auto insurance lines, but other property lines, casualty lines, and even health insurers also use it. In a typical example, a policyholder’s vehicle is totaled in a collision caused by another driver. The policyholder files a claim under his own collision coverage. The insurer pays the claim but then goes after the at-fault driver to recover the funds. This obviously benefits the insurance company, but it can also benefit the policyholder, especially if it leads to reimbursement of the deductible. 

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According to a paper titled “How’s the Recovery? Salvage and Subrogation in the Property Liability Insurance Industry” by Jill M. Bisco and Stephen G. Fier, insurers used salvage and subrogation to recover close to $51.6 billion in auto physical damage, commercial auto liability, and personal auto liability lines of business in 2021. However, this figure could have been even higher. The insurance industry loses an estimated $15 billion a year in neglected subrogation opportunities. 

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Subrogation is a way to manage costs and boost profits. This is something insurers need right now. Verisk says the U.S. property and casualty sector experienced a net underwriting loss of $26.9 billion in 2022, whereas J.D. Power says auto insurance customer satisfaction is dropping. 

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Identity Your Subrogation Opportunities More Effectively

Insurers are leaving billions of dollars on the table each year due to missed subrogation opportunities. AI could change this.

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For example, insurers could use an AI program to review claims documents and flag any situations that often lead to subrogation, such as collisions caused by a third party or vehicle damage caused by negligent road maintenance.

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This is important because claims handlers may miss some of these subrogation opportunities, especially if they’re overworked or if the subrogation potential was not obvious. It’s also possible that the claims professionals might note an opportunity but, due to issues with communication, the insurance carrier might never follow through. AI can spot easy-to-miss opportunities and flag them in a consistent way.

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Reduce Your Incoming Subrogation Administrative Costs

Your company also spends a substantial amount on time managing incoming subrogation claims. Imagine Carrier A wants to pursue subrogation against Carrier B. Someone from Carrier A reaches out to Carrier B by phone to report the subrogation claim. This doesn’t just eat up time on Carrier A’s end – it also takes up time on Carrier B’s side. Now, Carrier B stands to lose money in two ways: through the claim itself and through the processing of the claim.

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There are several opportunities for improvement:

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1. Create a different service channel for handling subrogation claims. Rather than sending other insurers to the same call center that your policyholders use, and burdening your human resources, create a digital FNOL process for subrogation claims. It makes sense. Other insurers already understand the process, have the correct information, and can navigate without assistance. They are perfect candidates for digital FNOL. 

1. Use AI tools to facilitate the first claim review. Subrogation processes often drag on. This can be due to disputes over liability and complex rules, but it can also be the result of inefficient administrative processes. By leveraging AI-powered digital FNOL processes to verify data, provide summaries and flag key points and anomalies, the process can be much faster.

1. Automate approval and payment in some instances. If the subrogation claim should obviously be approved and falls within certain parameters, you could go as far as enabling AI to initiate approval and digital payment. This is especially helpful for low-dollar claims. How much time could you save if a file handler never had to touch 25 percent of your incoming subrogation claims?

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The Time is Now

Property, casualty, and – most of all – auto insurers are under extreme pressure right now. Claims costs are up, profits are down, and policyholders are increasingly dissatisfied. Insurance markets always go through cycles – it’s reasonable to assume that the situation will improve with time. However, to survive this challenging period, insurers need to be as efficient as possible. Subrogation is an often-overlooked area that’s ripe for improvement. 

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Could smarter claims subrogation give your company some breathing room? Liberate’s platform provides everything you need for end-to-end automation. By integrating with your current system, it delivers results in less time and at a lower cost. Learn more.