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This article was originally co-authored by George McMullin and Kevin Degarmo as a publication of CLM, November 2021. Legal opinions may vary when based on subtle factual differences. All rights reserved.
Insurance carriers have invested in core systems to help streamline their internal claims-handling processes. As a result of improvements in these internal processes, data is more readily available for analysis. As such, carriers are leveraging this data in order to develop metrics to measure the performance of their subrogation recovery programs.
Not only does the use of metrics provide a way to measure performance in key areas of the recovery process, but also it clearly communicates the primary performance areas upon which everyone will be measured.
As metrics clearly communicate what information is important to insurance carriers, service providers are re-evaluating how they deliver their particular services to insurance carriers and developing their own internal metrics to ensure that they are performing well in the areas being measured.
With the implementation of sophisticated claims-handling processes by all, the collection and analysis of data has significantly improved. However, if the data collected is inaccurate or incomplete, then the metrics developed from that data may not be an accurate reflection of performance. Therefore, insurance carriers have invested both financial and implementation costs to ensure that the data being collected is accurate and readily available for analysis.
Additionally, to ensure that the analysis is an accurate reflection of the performance in those key areas being measured, insurance carriers have expanded their data collection efforts beyond internal sources of claims data, and are now including information gathered from external sources, including service providers.
How this external data is integrated into data analytics can significantly impact the accuracy of the results obtained. If the service providers do not “buy in” to the process, then it may create a conflict between the insurance carrier and the service provider. If the service providers conceptually do not believe that a specific metric being used by the insurance carrier is an accurate reflection of the quality of the services being provided, then they may not spend their own limited resources to collect the necessary data, or they may not take the time to ensure the accuracy of the data. This type of “garbage in, garbage out” data can significantly impact the analysis.
Since insurance carriers will clearly continue to utilize metrics to evaluate their recovery processes, those service providers that wish to continue their relationship with the insurance carriers must invest in their own internal data collection processes, as well. As the metrics measure performance in key areas of the recovery process, they are often used to compare one service provider against another. Therefore, the stronger service providers want to ensure that they are providing accurate data so the metrics reflect their value to the recovery process.
While insurance carriers will communicate the results of their analysis to their existing service providers, those service providers that wish to continue the relationship will also take the time to understand the analysis being undertaken so that they can evaluate their own processes to ensure that they are meeting the desired performance standards. With the use of metrics, most would anticipate that insurance carriers would utilize the stronger service providers more frequently, which will cause all service providers to evaluate their own behaviors or processes to ensure that they are meeting the performance standards being measured.
As metrics are clearly here to stay, subrogation professionals and their service providers are communicating about the performance standards being measured, and collaborating for the collection and distribution of data. By working together, the insurance carriers and their service providers ensure that the metrics being measured are an accurate reflection of the desired performance, and that the data being integrated into the analytics is accurate and reliable.
As indicated earlier, metrics are merely a means to measure performance against a desired standard. As such, the development of the metrics is only the first step. Now that carriers have the internal processes and the technology to measure various aspects of the subrogation recovery process, they are turning their focus to using these metrics to improve their subrogation recoveries.
As any insurance carrier knows, identifying every subrogation opportunity is key to maximizing subrogation recoveries. To ensure that all subrogation opportunities are at least evaluated, carriers are using predictive analytics to help identify claims with potential subrogation opportunities early in the claim lifecycle. By identifying these claims early, the subrogation professionals can take the necessary steps to properly investigate the claim, retain evidence, retain experts, and, ultimately, improve the possibility of a successful recovery.
Additionally, insurance carriers are using predictive analytics to identify those files with higher potential for recovery. As an insurance carrier’s resources are not limitless, predictive analytics can allow subrogation professionals to focus their resources on only those claims that are likely to result in a recovery. By focusing on those claims with a higher probability of recovery, we would expect to see an improvement in the subrogation recovery outcomes, either through higher recoveries, more frequent recoveries, lower investigation costs, or some combination thereof.
Furthermore, as many different insurance carriers utilize the same or similar metrics to measure their own performance, the information can be shared throughout the industry so that the insurance carrier can compare its own performance against industry standards. This type of benchmark comparison allows the insurance carrier to identify those areas within their subrogation recovery processes that need to improve relative to their competition.
The use of metrics will continue to be utilized in the subrogation recovery process in order to allow subrogation professionals and service providers to measure their performance, assist in the decision-making process, improve recovery processes, and maximize recoveries.