September 29, 2011 by Canadian Underwriter
Insurers need to consider potential indemnity and not just costs in deciding whether to pursue subrogation claims, according to panelists at the National Insurance Conference of Canada (NICC).
Subrogation is a term used when an insurer tries to recover costs it paid for a claim from a party it deemed to be at least partially responsible for paying some or all of that loss.
At times, insurers will look at how much it will cost to carry out litigation against the party deemed responsible and walk away, figuring the effort is not justified by the costs.
“A lot of companies will only look at [subrogation] as a cost,” said Joseph Turcotte, vice president and operations claims manager for FM Global’s Toronto operations. [Turcotte said that he was expressing his own personal views and not necessarily the position of FM Global.] “What’s the cost of the recovery? How will we manage the costs?’
“They’re not really looking at our measuring the indemnity side. ‘How much money are we going to get back? How often do we get it back?'”
NICC panel moderator Chris Giffin, president of Giffin Koerth Smart Forensics, observed that in declining to engage in subrogation, insurers might potentially be leaving “hundreds of millions” of dollars on the table. He is referring to money the insurer might have recovered had it pursued a subrogation claim against another party.
Turcotte said the potential indemnity is quantifiable.
“You’re looking at about 60% of our files are subrogation claims,” he said.
Between 60% and 70% of these files offer true potential for recovery, he added. And of those that go forward, Turcotte said, about 70% result in some form of recovery of costs.
“When you do the math on that, it ends up you get about 20% back,” Turcotte said. “That’s potentially 10 to 20 points of your loss dollars that can be recovered through subrogation.”