Subrogation Collection Best Practices

General

Insurance executives are familiar with subrogation, the insurer’s legal right to pursue damages after paying a claim. However, it turns out that many insurers are unable or neglect to pursue their subrogation rights, or do not use best practices in doing so. This results in profit opportunities lost forever, as well as inefficiency and excess overhead expense in the recovery effort. In both ways, it hurts insurers’ profits.

Every dollar of subrogation you capture goes to the bottom line, and every dollar that ages out and gets written off is profit lost forever.

Focus

Subrogation is an integral part of the insurance process – not an afterthought – and should be managed as such. It is worth millions or even tens of millions of dollars in profit opportunity. When a subrogation recovery function is optimized, it can have a material effect on the insurer’s operating ratio.

Perhaps as much as $1 of every $4 paid in claims can be recovered through subrogation. Many, perhaps 1/3 of all claims are never handled at all.

This area is a huge opportunity for every insurance company and requires a greater level of focus and management (or expert outsourcing) in order to capture the opportunity.

Processes and Systems

Clear and well thought out processes must be developed so that the subrogation is efficient and  timely, and produces the desired results. There is too much money involved. This includes well-crafted demand letters. Here are some quick tips:

  • Organize and summarize documentation for a quick understanding
  • Implement a computerized knowledge base for subrogation
  • Implement collection strategies depending on the type of issue
  • Implement real-time collection monitoring systems
  • Implement performance goals and tracking
  • Train your personnel

Documentation

Documentation must be secured and organized for quick analysis of the potential. If there is a lot of money involved, it may be helpful to check to see if the party from whom you are attempting to collect has the funds, before you invest too much in the recovery effort.

Systems

You need smart systems to track claims, their status and all collection/resolution activities. A collaborative system is the key, since you should be able to escalate a case internally or for additional input or advice. This system should include automated workflows, follow-up protocols guaranteeing that no claim ever slips through the cracks, and automated claim communications. A plus would be the ability to push a button to assign a claim or category of claims to an outsourcer/agency, and continue to track the results through your system.

State of the art web-based software, such as that used by Leib Solutions, includes all this, plus uses robotic processes that replace repetitive and error-prone manual work with automated error-free and on-time solutions.

Tips

·      Reengineer processes from beginning to end

·      Automated systems eliminating repetitive tasks

·      Install management oversight dashboards

·      Have a collaborative system so that resources throughout the company can be  accessed   

    according to the circumstances.

·      Use performance tracking

The system of course, should track the performance of individual subrogation analysts with concise management reports. You will find that in a staff of ten, the success rate can vary wildly, with some more than twice as effective as others. Smart performance reporting can identify areas of success or weakness; it should be used to initiate a virtual feedback loop and training for staff.

Statute of Limitations

While a majority of states allow subrogation claims for either two or three years, or even longer, after the incident, there are a few that allow only one year so you need to aware of state laws in this regard. Allowing subrogation claims to age out so far – which many insurers do – is a bad practice on all accounts and will reduce the ultimate recovery. If you can’t get to them all promptly, by all means outsource collection to an agency.

First-Party Payments

When making first-party claim payments, you will need to prove that the amount paid was reasonable and well documented. It’s on you to prove the payment was appropriate. Further, you cannot recover Replacement Cost, even if you paid it, only Actual Cash Value.

Advise of Subrogation

Advise the insured as soon as possible that you are going to pursue subrogation to preclude them taking actions which may hurt your case, as well as to elicit their cooperation. Early notice should also be given to your insurance counterpart, along with documentation supporting your case. The faster you start the process, the sooner you will achieve a successful outcome.

“Tort” Vs “Debt”

A subrogation claim is generally considered a “tort” – not a “debt”, so it has been found by the courts as not subject to the FDCPA. This is important as defendants have in the past tried to use assertions of FDCPA violations as a potential hammer against collectors.  Note: there are some state laws that go contrary to this.  It’s important you have this knowledge so you can protect yourself.

Expansive Rights of Insurer

Remember that you have all the rights of your insured against responsible third parties, even if those rights are contractual rather than founded on tort law.

Lawsuit vs. “Amicable” Resolution

The expense of litigation should give one pause. Sometimes lawsuits (or the threat thereof) are required. However, claims most often remain unresolved because of lack of attention and the inability to give the issue the time and focus needed. That is where an agency comes in.

Conclusion

Subrogation claims come in all sizes and varieties so you have to balance the potential recovery vs the amount it costs to get it. This is called the “netback”; how much do you end up with after labor, agency or attorney costs. If you engage a professional agency, the expense may (or may not) be higher, but the old saw applies: 65% of something is better than 100% of nothing.

However, every insurer has limited expert resources, so the more time you spend on any function (such as subrogation) that is tertiary to the core mission, means less time spent elsewhere. Frequently, we find that when subrogation issues get less attention than they need and require, they age out and become more difficult to resolve as a result.

In addition, complex disputes such as subrogation are hugely expensive to handle; often on average hundreds of dollars per claim. Managing subrogation is a balancing act, and this is where an experienced outside agency can be very helpful.

Fortunately, there are professional organizations such as Leib Solutions that enable you to cost-effectively outsource subrogation claims. What Leib offers include:

  • Expert staff
  • Maximum recoveries
  • Top customer service
  • Commission based on results vs. overhead expense
  • State-of-the-Art collaborative collection technology
  • Client performance dashboards
  • Legal forwarding (when required)

Please contact us for more information.

Automation For New Account Credit Applications

“Back to the Future” in Credit Management

Marty McFly would recognize today’s business credit applications as going back to his grandfather’s generation. Little has changed – until now, that is.

The Credit2B ECOS™ Platform  changes all this, as it completely automates and accelerates the on-boarding of new customers, even integrating industry sector trade, customer trade references and  credit bureau data, and delivering a complete “decision file”.  ECOS is a reinvention of  the manual credit processes that have not changed in many decades.   

In short,  ECOS automates and integrates all aspects of the B2B new customer on-boarding process:

  • Beginning to end decision workflow: Customer -Sales – Credit
  • Applications, Guaranties and Compliance Agreements, digitally signed and filed
  • Financial statements
  • Customer Credit and Bank References
  • Industry trade experiences
  • Major credit bureau information
  • Liens, Filings, etc.
  • Optional bureau analyst guidance
  • Automatic credit review followups

The objective ofECOS is to eliminate the convoluted process and time-consuming work of on-boarding new customers, accelerate the approval of new customers, improve compliance and results, while slashing related overhead costs. TheECOS process starts with the new customer, who inputs and upload the information needed by the creditor, even digitally signing any required documents. All information and documents are retained in a secure file, plus uploaded to client.

In a survey of fifty clients, Credit2B found that over 80% expended significant sales effort, in addition to the credit department for processing  new account applications, with excessive on-boarding delays often as ,long as one or two weeks.  

Credit2B has partnered with Experian and Equifax for integrated bureau data, Docusign e-sign for enforceable digital signatures, and Dow Jones for corporate sanctions compliance, and from the Credit2B network extensive industry viewpoints and trade experiences.

Benefits include:

  • Remarkably faster customer on-boarding, and slashed overhead
  • Reduction of errors and re-work
  • Eliminate paper with secure digital files  
  • Client customized branding
  • Automatic scheduled renewals
  • Eliminate wasted sales representative time
  • Custom workflow and follow-up timelines

For information, contact info@leibsolutions.com, and we’ll put you in touch.

 

(Note: Credit2b.com is one of our affiliated companies)

Calculating Bad Debt Reserves

In most companies, calculating Bad Debt Reserves is not a super-complex affair, but should be approached with a consistent methodology from period to period.

Generally Accepted Accounting Procedures (GAAP) requires that a Bad Debt Allowance (BDA), which is a forecast – an estimate of future bad debt write-offs, vs just directly writing off bad debts as they occur.

The BDA can be estimated using one or a combination of factors

  1. Your historical bad debt experience is a good starting point in evaluating up a general reserve to cover your typical Bad Debt Allowance (BDA)  needs. However, you can do a better job by also considering other factors – below.
  2. Try an allowance of a percentage by aging bucket as you analyze your receivables; i.e, 0.5% of the 30 day column 0.75% of the 60 day column, and so on.
  3. In addition,  outside your normal experience you might have major customers that are at risk of defaulting and going into bankruptcy. For this category, you should establish a specific reserve category for “named” customers.
  4. Your industry’s experience is instructive to make sure you are forecasting the right trend. Check public company competitors’ 10Ks to see how they are estimating their bad debt allowances and see bad debt trends.
  5. You want to re-evaluate your BDA process annually and make adjustments based on your experience. Is your reserve too light, too high, or just right. It needs to be realistic.

As write-offs for actual bad debts occur, the BDA is credited with the amount of the write-off. A “bad debt” occurs when you have taken material steps to collect the amount owed and have realistically come to the conclusion that a debtor cannot pay its obligations.
The Journal of Accountancy  covers this subject in greater depth should you want more information.

Leib Joins the Smyyth-Creditek Companies

We are proud to announce that Leib Solutions LLC has become one of the Smyyth companies, joining Smyyth LLC, Creditek, Carixa, and Credit2b.Com, all leaders in their respective fields of B2B credit, collections, deductions and accounts receivable management, offering expert outsource services and best-in-class technology. For information, contact Carl Torban, Chief Operating Officer.