Subrogation is a concept that will often come up when dealing with insurance claims, but it can sound a little confusing if you’re not familiar with how it works.
As we often like to do here on our myCOI blog, let’s break this down into simpler terms. At its core, subrogation is a legal process that allows an insurance company to recover money for losses from the third party who is actually responsible for it.
If you’ve ever filed an insurance claim and later noticed that your insurer pursued someone else for payment, you’ve seen subrogation in action. Even if it doesn’t come up in your claim’s case, the right is usually included as a crucial and understood part of a contract, unless it is intentionally negated through what’s called a waiver of subrogation.
Subrogation plays an important role in maintaining fairness and financial stability in the insurance industry and makes sure that individuals aren’t unfairly burdened with costs they didn’t cause. In this blog, we’ll explain how and why companies subrogate and use examples to paint a clearer picture. Let’s get started.
What Is Subrogation with an Example?
Subrogation is essentially the process of your insurance provider “stepping into your shoes” to seek compensation for a loss they’ve already covered for you from the party at fault.
While your insurance provider is still responsible for financially covering the damages from your accepted claim(s), subrogation helps leave you out of the behind-the-scenes of how that happens, because it sometimes involves chasing down an involved third party. This process ultimately makes it so that the party responsible for the damages takes on the financial consequences of their actions, with subrogation giving your insurer the right to make that happen.
Imagine, for example, that you’re involved in a car accident where a driver runs a red light and rear-ends your car. You file a claim with your insurer, who covers the cost of your car repairs. Later, your insurer goes after the other driver’s insurance company to recover what they paid on your behalf—the recovery process being subrogation.
Subrogation allows you, as the policyholder, to be largely kept out of the negotiation or legal action as the insurer will handle everything directly with the at-fault party or their insurance company to recover the amount that they compensated you with.
Why Would An Insurance Company Choose To Subrogate?
Insurance companies subrogate for a number of reasons, the most important being cost recovery, aka getting damages paid for from the right sources.
When an insurer pays out a claim, they incur a financial loss. By subrogating, they can recoup that money from the at-fault party (or more likely, their insurer), helping them maintain their financial stability and continue providing coverage to other policyholders.
Subrogation also has a generally positive impact on premiums. If insurance companies didn’t have the option to recover their payouts, they’d likely have to raise premiums across the board to cover those costs. By recovering funds through subrogation, they can keep costs more affordable for their customers.
Finally, subrogation can help streamline claim settlements by reducing disputes between insurers and making sure that claims are handled equitably. At the end of the day, subrogation is a key insurance practice that benefits both insurers and policyholders by promoting accountability and financial fairness.
How Do You Deal With Insurance Subrogation?
If you find yourself facing a subrogation claim—firstly, don’t worry; it is common and manageable—and secondly, it’s important to understand your rights and responsibilities.
The first step you’ll want to take is to carefully review all communications and instructions from your insurer or the third party’s insurer about the process. Typically, insurers will handle the bulk of this themselves, but you may be asked to provide documentation or statements to support the claim.
Additionally, if you believe the claim is unjustified, you have the right to dispute it. Be sure to consult an attorney if you’re not sure about your options in your situation to ensure that your interests are protected. In some cases, such as when liability is shared or unclear, you may be able to negotiate a settlement.
Whatever your subrogation situation, maintaining open communication with your insurer and all involved parties is paramount to ensuring swift resolution.
How Often Is Subrogation Successful?
Since subrogation is a common practice in the insurance industry, it’s often successful in recovering funds. Statistics suggest that insurers recover significant portions of their payouts through subrogation, particularly in cases where the fault is clear and well-documented. For example, auto insurance subrogation claims tend to have high success rates, since evidence like traffic cameras and police reports can clearly establish liability. There are also considered to be many missed opportunities where insurers could have subrogated but chose not to.
Of course, the success of subrogation will vary by sector and specific circumstances. Factors like the availability of evidence and the legal environment will influence the outcome. In some cases, insurers may recover only a portion of the claim amount, or they might decide that pursuing subrogation isn’t cost-effective for them.
Despite the challenges that can sometimes arise, subrogation remains an essential tool for insurers to manage risk and maintain financial stability.
Still Have Questions? We Have Answers
Understanding concepts like subrogation can feel daunting, especially when legal nuances are involved. However, it’s an important part of the insurance process helping to ensure fairness for all parties involved.
Want to simplify your insurance management and learn how to navigate subrogation and other complexities with ease? Book a demo with myCOI today. Let us help you streamline your processes and keep your business protected.