Using AI for Smarter Claims Subrogation

While insurers look for ways to improve profits, they’re leaving billions on the table in missed subrogation opportunities. Manual subrogation processes often result in opportunities falling through the cracks, but AI allows for smarter processes.

Amrish Singh

min read

Key Takeaways

Insurance companies lose approximately $15 billion a year in missed subrogation opportunities.
AI can flag subrogation opportunities that busy claim handlers might overlook.
Subrogation is a win-win for insurers and policyholders, controlling costs without increasing rates.
Insurers can also use AI to help manage incoming subrogation requests.
By using AI in subrogation processes, insurers can reduce administrative costs.

An effective way of improving combined loss ratios is staring property and casualty insurers right in the face, but many aren’t taking full advantage of it. In the past, seizing subrogation opportunities could be prohibitively resource-consuming, but AI has opened the door to smarter claims subrogation with a lower administrative burden. Insurers that fail to take advantage of this are hurting both their profits and their policyholders.

How Does Subrogation Help Insurers?

Sometimes insurance companies need to pay claims quickly to support policyholders and avoid disputes even though a third party is liable for the loss. It’s a common problem, and subrogation is the accepted solution.

According to Investopedia¹, subrogation is most common in auto insurance lines, but other property and casualty lines 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.

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. Fier², 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.

Why Aren’t Insurers Leveraging Subrogation More?

It’s rare to come across a cost-containment strategy that benefits both insurance carriers and policyholders. Often, insurers control costs by raising premiums or reducing coverage, and that puts them at odds with policyholders. Subrogation is the exception. It’s a win-win, so why aren’t insurers using it more?

It’s not like property and casualty insurers couldn’t use the boost to profits. According to NAIC³, the U.S. property and casualty insurance sector reported a combined ratio of 102.5% in 2022, representing a net loss.

Since then, the situation has improved somewhat. S&P Global⁴ says the combined ratio was 96.5% in 2024, the best annual performance since 2013. However, S&P Global⁵ warns that the high level of profitability could be fleeting. Natural disasters and other loss trends are putting pressure on underwriting, and insurers have already frustrated policyholders with steep rate hikes.

Insurers need new strategies to contain costs, and smarter claims subrogation is a logical solution.

So why aren’t insurers taking advantage of the opportunity? Insurers are embracing AI, but with so many potential use cases, some opportunities are bound to be overlooked. That appears to be the situation with subrogation right now.

How Can Insurers Identify Subrogation Opportunities More Effectively?

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

For example, insurers can use AI 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.

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.

‍How Can Insurers Reduce Incoming Subrogation Administrative Costs?

Insurers also spend a substantial amount of time managing incoming subrogation claims. Once again, AI can help.

Here’s a common scenario:

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.

There are several opportunities for improvement:

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.
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.
Automate approval. If the subrogation claim should obviously be approved and falls within certain parameters, you could enable AI to initiate the approval workflow. This is especially helpful for low-dollar claims. How much time could you save if a file handler never had to touch 25% of your incoming subrogation claims?

The Time is Now

If P&C insurers are going to achieve growth, they need a way to protect underwriting profitability while offering competitive rates. Smarter claims subrogation is a golden opportunity.

Could smarter claims processes give your company some breathing room? The Liberate platform provides everything you need for end-to-end automation in sales, service and claims.

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