Accidents happen.
That’s what insurance is for, right?
Yes, but it’s not always so simple. Every single insurance claim shouldn’t be written off as a “cost of doing business.” In cases where your business is not at fault, filing a claim (and the deductibles and premium hikes that come with it) don’t have to be the end of the story.
Enter subrogation.
Keep reading as we explore subrogation from all angles and discuss ways it may help your business recover lost money!
What Is Subrogation?
Subrogation sounds like a fancy insurance term.
It’s really not that complex.
It’s the process by which your insurer can recoup costs from an at-fault third party.
As the policyholder, your insurer is legally compelled to make you whole after a covered loss. This payment to you will result in a cash outflow by your insurer, hurting their bottom line.
Therefore, if the loss is caused due to someone else’s negligence, your insurer has the legal right to recoup this payment from the at-fault party’s insurer (or the party themselves if they are uninsured).
Why Do Subrogation Companies Exist?
Subrogation companies exist to help guarantee that the correct (liable) party pays for damages caused in an accident.
Many insurance providers have their own subrogation department. However, these departments are often understaffed and rely on outdated processes. Many use a series of questionnaires that result in a never-ending game of back-and-forth as liability is sought. In some cases, the statute of limitations for a subrogation case will lapse before liability is ever identified.
It is estimated that up to 15% of potential subrogation cases go unidentified. Whether it be due to missed deadlines, technicalities, or simply failure to pursue a reimbursement opportunity, insurance companies pay out billions of dollars each year in claims for which they are not legally responsible.
To remedy this issue, modern subrogation services use the latest technology to guarantee that fewer cases fall through the cracks. The process is faster and less intrusive than standard subrogation fact-finding issued through the insurer. As expert third-party providers, subrogation companies allow you and your insurer to focus more on your core competencies throughout an insurance claim, only receiving payment in the event of successful recovery.
What Value Does Subrogation Provide?
Obviously, revenue recovery is the top benefit of successful subrogation.
Successfully recouping insurance disbursements benefits more than just your insurer. Most policies have a deductible that must be met before payment is rendered. Subrogation can help your business recover these funds. In addition, insurers will inevitably hike premiums every time they pay a claim. If a claim is successfully subrogated, you will not have to pay these ongoing price increases. There could also be some additional expenses (e.g. business interruption) not covered by your insurance that could come to light during the subrogation process for which your business could potentially sue.
In addition to money recovery, successful subrogation offers some more intangible benefits. It can create a safer workplace culture and reduce the likelihood of accident recurrence. It can improve vendor (contractor) accountability when working at your facility. It can protect the reputation of your business by assigning fault to the correct party.
When Might Businesses Use Subrogation?
As mentioned, some subrogation cases are not adequately pursued. This may be because opportunities are not identified. Don’t place limits. If your business suffers a loss, there is a chance for subrogation to be in play. Let’s take a look at some hypothetical scenarios where your business and/or insurer may be able to recover money via subrogation.
Shipping Damage
Consider a small batch coffee roaster.
The wholesale beans used for roasting were supposed to be shipped in a climate-controlled truck. However, the driver did not perform adequate temperature checks, and the beans were exposed to extremely high temperatures during their journey.
This resulted in a contaminated batch that made several customers sick.
Business liability insurance kicked in to pay for the medical care of the sick customers. It also reimbursed for the beans that had to be thrown out and the total cost of the recall.
To recoup the cost of this claim, the business liability insurance can open a subrogation case against the delivery driver’s insurance, as his negligence in checking and logging his truck’s climate controls resulted in the contamination.
Vendor Negligence
Consider a small family chiropractic office.
The business recently purchased a cryogenic therapy chamber to help patients with their recovery from injury. During installation, the certified installation professional damaged the clinic’s water lines. This resulted in a major repair covered by the clinic’s property insurance. It also decreased revenue by 60%, as the office had to cancel many appointments to accommodate the repairs. This was covered by a business interruption policy carried by the clinic.
Both the clinic’s property insurance and business interruption insurance may pursue subrogation cases against the negligent vendor’s insurance to recover their payouts.
Identify Subrogation Opportunities and Unearth a Trove of Hidden Revenue
Subrogation is an impactful way for businesses and their insurers to recoup funds paid out during an insurance claim. By partnering with a leading subrogation company, you can guarantee that your small business most successfully identifies subrogation opportunities and collects reimbursement from at-fault parties. For more of the latest trends in entrepreneurship and small business, explore the content at Enterprise Podcast Network for additional thought leadership!
Author Bio:
Sam Willis is a freelance writer that loves sharing his knowledge and expertise in engineering, construction, and business. He lives in Atlanta, Georgia where he enjoys spending time with his wife and family in his free time. Sam’s work as a freelance writer can be found on Building Product Advisor, a construction industry resource site.
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