Non-Standard Auto Insurance Subrogation

Non-Standard Auto InsuranceEven non-standard auto insurers enjoy getting checks in the mail. The effective subrogation of Med Pay, PIP, UM/UIM, and collision claims by non-standard auto insurers means money coming into a segment of the insurance industry that historically has been much better at paying it out. The reasons this segment of the insurance industry has been somewhat subrogation-challenged are many but is emphasized by the fact that the non-standard auto insurance market is highly-specialized, geographically-segregated, and transaction heavy. It’s time for non-standard auto carriers to aggressively step up their subrogation game and pursue those responsible for causing losses and claims and return those claim dollars to the carriers that paid them and insureds who desperately need them.

Non-standard auto insurance is an important piece of the American insurance puzzle, providing a major role in helping certain underserved segments of American society find appropriate auto insurance coverage. Low-risk drivers have hardly any problems finding carriers willing to insure them. The financial reality, however, is that there are many people who drive daily who do not qualify for these “standard” auto policies and must seek out and purchase what are referred to as “non-standard” auto policies. This includes new or young drivers, drivers with credit problems, drivers with multiple losses or moving violations, people who want only minimum limits coverage and those with an unusual driver’s license status.

Some lawyers and insurance practitioners derogatorily refer to these carriers as “sub-standard”, but the truth is that while the terms “standard” and “non-standard” seemingly connote that “non-standard” auto policies are less desirable, the only true difference between the two are the types of policy forms they are written on and the range of applicants who qualify for them.

Standard auto insurance coverage is designed for drivers who are not likely to make claims—the low risk gamble for an insurer. These auto policies are very similar and do not differ much from one carrier to another. They are regulated by the state in which they are issued, participate in state guaranty funds, and have more restrictions as to who they will insure. Non-standard auto policies, on the other hand, while written on state-approved policy forms, are highly-tailored to meet the needs of the individual policyholder and differ greatly from one policy to the next. They are sometimes referred to as “Excess and Surplus Lines” and carry higher premiums than standard auto policies. A non-standard auto carrier frequently requires an insured to stay with a non-standard auto policy for a certain period of time before they can switch over to a standard provider.

Some non-standard auto carriers are not licensed by the state and are referred to as “non-admitted” or “surplus lines” agents. The problem is that such carriers are not required to adhere to financial solvency regulations and tend to be the companies for which state guaranty funds and associations have to step up and take responsibility for. In fact, many standard auto insurers offer both types of coverage. Companies such as Geico, Progressive, State Farm, and Allstate are among them. Other well-known non-standard auto carriers include Access, Affirmative, Alliance United, Dairyland, Direct General, Gainsco, Infinity, Safe Auto, and United Automobile. It is not a market for the faint of heart and is not for everyone. Since 2007, carriers writing non-standard auto policies have reported deteriorating operating performance and many have struggled to maintain market share.

The states of Texas, California, and Florida are home to 60% of all non-standard auto premiums written in the country. The rest is spread across the other 47 states with no state boasting more than 5%. The total size of the non-standard market is something of a mystery. It is hard to pin down for many reasons, but estimates are that it constitutes approximately 35% of the total private passenger auto insurance industry, and accounts for nearly 60% of all direct premiums written. That equates to nearly $40 billion and represents a significant opportunity for subrogation.

Subrogation remains a viable and cost-effective means of countering deteriorating profitability of this market and contributing toward increased profitability. In the world of auto insurance, proactive carriers can see between 12% and 25% of their paid losses each year returned to them in the form of subrogation recoveries. This not only affects the carrier’s bottom line, but also produces a significant pro-rata (depending on the state) return of the insureds’ deductibles, which does wonders to keep them from wandering to other carriers with larger marketing budgets.

Companies wishing to breathe new life into subrogation programs currently on life support should start by contacting a reputable subrogation firm. Vendors are good and have their purpose. However, only a law firm carries with it the punctuation mark of anticipated legal action should a settlement demand go disregarded. According to the National Association of Subrogation Professionals (NASP), up to 32% of recoverable claim dollars are not pursued for recovery. Files are closed with no recovery, no reimbursed deductible, and another hit to the bottom line. Every year, the industry pays out nearly $35 billion in collision damage payments. An improvement of just 1% in subrogation results equates to a significant bottom line advantage.

All auto carriers—especially non-standard auto carriers—should be actively looking to build a best-in-class subrogation model. Educating and training your subrogation recovery team is vital to a successful recovery program and larger recoveries. You could start this process by contacting Matthiesen, Wickert & Lehrer for a free auto subrogation webinar to jump start your recovery team. A free two-hour recorded auto subrogation webinar covering the nuts and bolts of auto subrogation in all 50 states touching on every topic imaginable, can be viewed HERE. Making the subrogation horsepower of a national firm available to your subrogation team is as easy as making them aware of a Subrogation Question feature, such as the one found HERE. Referring a new auto subrogation file for review and recommendations is free and is as easy as submitting a short form and uploading claim file documentation HERE.

If 25% of paid auto property damage claims can be recovered through subrogation recovery, the clear impact on the bottom line means that insurance companies must invest in optimizing subrogation to have a competitive advantage. A lack of willingness to invest the time and effort into effective subrogation is not the only villain. Even in companies with personnel responsible for recognizing, preserving, and taking affirmative action on third-party subrogation, such potential is often not recognized. If it isn’t recognized, it can’t be acted on. Files are often closed with incomplete documentation and evidence as to the tortfeasor’s liability. In files where there is some indication of a third party, there is often lack of a proper strategy, and the trail goes cold when initial, feeble efforts are met with resistance.

Human nature leads each of us toward simplifying our lives and jobs; not the opposite. Quite often, claims handlers have no formal subrogation training, but remedying that can be easy. Companies often lack a subrogation system with proper metrics and performance monitoring. Disputes, claims, litigation, and especially arbitration claims involving subrogation are frequently handled improperly, resulting in a low recovery rate and an eventual determination that it simply isn’t worth the time and trouble. An informative article on The Top Ten Mistakes Carriers Keep Making can viewed HERE and a free recorded webinar on this topic can be viewed HERE.

A successful subrogation program is never an accident and it cannot be developed as an after-thought or a last resort. It is always the result of a commitment to excellence, informed decision-making and planning, subrogation knowledge, an investment of time and money, and an intensely-focused effort and perseverance. Good judgment comes from experience, and experience comes from bad judgment. There is no time like the present to begin the first steps to seeing checks flowing in to an insurance company, instead of just out. It was Henry Ford who famously said, “Failure is simply the opportunity to begin again; this time more intelligently.” Subrogation success requires time and action, but the reward is exponential.

If you are interested in an auto subrogation training webinar for your subrogation recovery team, please contact Gary Wickert at [email protected].

Gary L. Wickert

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has nearly four decades of litigation experience and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and a national and international speaker and lecturer on subrogation and motivational topics.