While subrogation is increasingly on claims executives’ collective radar, there is still work to do to convey the importance of subrogation and the role it plays in the claims process. CLM Member Ashton Kirsch, Matthiesen, Wickert & Lehrer, S.C., possesses a wealth of expertise on subrogation, and, here, he shares some of his knowledge regarding how to identify recovery opportunities, and why subrogation needs to be a top-of-mind concern for the industry.
Q: If you had one message about the importance of subrogation that you believe the CLM community needs to hear, what would it be?
A: Subrogation is not simply a recovery mechanism; it is a cornerstone of economic fairness within the insurance system and our economy as a whole. At its most fundamental level, subrogation ensures that the party responsible for causing a loss ultimately bears the financial consequences of that loss. Without subrogation, the cost of negligence would be shifted away from the responsible party and distributed across the entire insurance pool, forcing policyholders and employers to absorb losses they did not cause.
Subrogation therefore performs an important societal function: It discourages negligent conduct by ensuring that those responsible for causing harm remain financially accountable for the damages they create. It also protects the stability of the insurance marketplace by returning loss dollars back into the system so that they can be used to pay future claims.
Q: How has subrogation evolved over the years, and what are some of the biggest changes happening today?
A: Historically, subrogation was often treated as an afterthought within the claims process. In many organizations, subrogation departments operated quietly and passively behind the scenes and received far less attention and investment than other aspects of claims handling. Recoveries were frequently viewed as “found money,” which created the mistaken perception that subrogation success required little strategic effort.
Over the past decade, however, the industry has begun to recognize that subrogation plays a far more significant role in the financial performance of insurers than previously appreciated. Increased litigation complexity, rising claim costs, and a greater focus on operational efficiency have prompted carriers to examine recovery programs more closely. As a result, subrogation has increasingly moved from the margins of the claims process to a more strategic position within many organizations.
Q: Given the current realities of the property and casualty marketplace, do you see a greater focus from carriers on pursuing subrogation opportunities?
A: There is clearly greater awareness of subrogation’s potential within the property and casualty marketplace, but the industry is still learning how to approach recovery efforts strategically. In some cases, carriers have responded to financial pressures by focusing heavily on cost reduction rather than recovery optimization. While cost control is certainly important, subrogation is not an area where the lowest-cost option necessarily produces the best outcome. Recoveries often depend on careful investigation, the retention of qualified experts, and the involvement of attorneys and professionals who specialize in plaintiff-oriented recovery work. The above-referenced Everest Group article noted the sad truth that, “subrogation has remained one of the most manual and under-optimized functions within P&C operations.”
Subrogation claims frequently involve complex liability questions that differ significantly from the defensive mindset traditionally associated with insurance litigation. Pursuing a large property loss involving a product defect, construction failure, or commercial equipment malfunction requires an investigative and legal approach similar to that employed by plaintiff’s counsel in catastrophic injury litigation. Evidence must be preserved, engineering issues must be evaluated, and liability theories must be developed with precision. When carriers treat these claims as routine collection matters or attempt to minimize costs by selecting the least expensive vendors, they risk undermining the recovery potential of the claim.
There is positive movement, however. The carriers that achieve the most consistent recovery results are those that recognize subrogation as an investment rather than a cost center. These organizations focus on early case evaluation, careful expert selection, and partnerships with professionals who have substantial experience pursuing recovery claims. When approached in this manner, subrogation can become one of the most reliable and productive sources of financial recovery within the claims operation. In an environment where insurers are seeking ways to offset rising claim severity and operational costs, subrogation represents a significant opportunity to recover losses that never should have been borne by the insurance system in the first place.
Q: How well equipped are carriers to identify and pursue subrogation opportunities? What needs to be done from a training perspective to create the necessary expertise?
A: The majority of lost recovery dollars occur not because claims are pursued unsuccessfully, but because potential subrogation cases are never recognized at the outset. Throw TPAs and claims vendors into the mix and the problem gets even worse because of a lack of defined subrogation roles and responsibilities. If a claim is not identified early in the process, the opportunity may be lost permanently due to the destruction of evidence, the expiration of statutes of limitation, or settlement decisions that inadvertently compromise recovery rights.
For that reason, effective training is essential to building successful recovery programs. Front-line claims professionals—property adjusters, liability adjusters, field investigators, and claims supervisors—are often the first individuals to encounter facts that indicate third-party responsibility. Providing consistent and comprehensive training on how to recognize those indicators can dramatically increase the number of claims referred to subrogation teams. Training should not be limited to the technical aspects of subrogation law and investigation. It is equally important for claims professionals to understand why subrogation matters—not only for their company, but also for the insurance industry and society as a whole. Building that understanding fosters pride in the profession and helps cultivate a culture in which identifying and pursuing subrogation opportunities is viewed as a critical responsibility rather than an optional exercise.
Organizations should therefore consider incorporating broader educational components into their training programs that explain the societal and economic importance of subrogation. Quarterly educational sessions for front-line claims professionals on “Subrogation 101” and claim identification techniques can significantly improve recovery rates. Participation in industry conferences such as CLM allows claims teams to stay current with legal developments and evolving investigative techniques. Carriers can also benefit from partnerships with experienced recovery professionals who provide ongoing education and guidance to claims personnel.