Developing World Class Subrogation Metrics

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In a previous role, I led a subrogation team at a large carrier, and while large carriers aren't flawless, managing by the numbers is generally core to their approach.

Recently, a colleague at another carrier shared her experience of moving to another carrier, expressing disbelief at how simplistic their subrogation measures were, and how it presented an immediate opportunity to enhance operations.

I wish I could say I was as surprised.  I have had the opportunity to talk with other carriers in the US and globally. Many view subrogation as merely found money and not an area requiring significant focus, and spending significant time tracking detailed metrics is not worth the effort. This perspective is misguided, as subrogation benefits can substantially impact not only a carrier’s bottom line but also a customer’s experience, typically by returning deductibles and improving loss history. As with other topics I cover, assessing your subrogation operations and metrics is crucial to know where you are and where you can improve.

Below is a concise list of (some!) subrogation metrics that I have found helpful:

• Indemnity: Starting with an easy one (hopefully!). Reporting amounts paid on claims is a common practice and this metrics should be easily accessible. Indemnity is necessary for calculating the recovery ratio (and serves as the denominator).
  

• Gross Subrogation Recovery: While most carriers track this, it doesn’t capture the cost of recovery.
  

• Gross Subrogation Recovery Ratio: This is a simple ratio to provide a quick sense of recovery performance (gross recovery/paid indemnity).
  

• Subrogation Recovery Expense: Identifying expenses specifically incurred due to recovery efforts can be challenging for some carriers. However, some expenses are incurred, and no recovery is realized. It is important to understand this investment. Additionally, from a vendor/supplier perspective, tracking their performance is important as well.
  

• Net Subrogation Recovery Ratio: Again, this only difference here is that the ratio accounts for expenses incurred (net of expense recovery/paid indemnity).
  

• Catastrophic Claims vs. Non-Catastrophic Claims. Identifying performance variation is key to providing value in metrics. If you cannot reveal meaningful variation and understand it, the metric being tracked has no value. "CAT" claims have major potential to artificially add variation to recovery metrics. For some carriers, a handful of claims might even represent a majority of all recoveries within a calendar year. Not separating CAT claims will make it difficult to see true, day-to-day performance.
  

• Deductibles. Separate this as a distinct column.
  

• Contingent Legal Spend. Some carriers fail to track contingent recovery spend separately in their legal spend metrics, which is a significant oversight, especially when counsel may be given significant latitude on deciding how much effort to put into a recovery effort!
  

• Referral Rate – Count/Ratio:

  • Track to Highlight Performance, Missed Opportunities and Variation. Track referral rates to understand emerging issues, especially in high-volume lines like auto and recovery. Unusual variation might be worth discussion with the line of business.

  • Source of Referral - by team, individual, etc. can be helpful in gain more granular insight on training and engagement opportunities.

  • Organic v. Predictive - if you are fortunate enough to have a predictive recovery tool, understanding what is organic versus AI-driven is good to understand.
    

• Conversion/Abandonment: Understand how many referrals convert to viable recoveries, even if abandoned. Identifying reasons for abandonment can provide proactive insights to the lines of business.
  

• Other Thoughts

  • Report regularly - I'd recommend at least quarterly.

  • Understand the difference from operational and performance reporting.

  • Consider other metric breakouts, such as retail v. commercial, generating business unit (BU), etc. BU information can be especially insightful when it comes to lost recoveries due to customer behaviors or special handling.  

Finally, as most subrogation professionals will confirm, benchmarking data, while available, is not always helpful due to significant variations in the way carriers track recovery metrics, as well as their underlying books of business.

While NASP (National Association of Subrogation Professional) has historically provided baseline insights, caution is needed when comparing subrogation metrics across carriers. Carriers vary in their pursuit of recovery opportunities, often influenced by special handling or other nuances in their book of business. Hence, it's crucial for carriers to establish solid metrics and study them year-over-year to identify anomalies.

Again, this isn't a complete list of things I'd consider, but it should help you set a baseline. If you have other metrics, you track, feel free to share with me!