Study Shows Top 10 and Bottom 10 States for Subrogation Claims Recovery
In the world of real estate, location is everything. Put two identical houses in dissimilar markets, and the home values are likely to be entirely different. The world of uninsured motorist (UM) subrogation is not much different. Where the responsible party lives and where the claim occurred influence the expected amount recovered per claim.
For example, we know UM subrogation claims in New Hampshire can result in 5x the payments when compared to similar claims in New Mexico. It is precisely the kind of information that can (and should) guide your UM subrogation treatment strategy and tactics.
Why the Difference?
If you think about it, it's no surprise. Just like real estate markets, there are economic, demographic, and regulatory factors that impact performance by geographic market. In the real estate market, that performance is home sale values. In UM subrogation, performance is dollars collected per claim.
The Geographic UM Collectability Index
In early 2015, we set out to make sense of it from a UM claim perspective. We analyzed 188,000 UM claims across nine insurance carriers, from 2011 to today. The claims were referred to Afni after the carrier was unsuccessful with their recovery efforts. For the sake of this analysis, all claims where insurance was found or where the claim was referred for litigation were excluded.
The Geographic UM Collectability Index is a score for each state, where 1.00 equals the average amount collected in that state for an entire portfolio. An index score of 2.00 indicates the accounts placed from that state collect an average of two times the average for the entire portfolio. A score of 0.50 indicates the state collected at half the performance of the entire portfolio.
Further, our team compared the liquidation index to macroeconomic and regulatory realities to determine there are two factors that strongly impact UM collectability.
"The first isn't surprising. There's a high correlation between the social-economic status of a state's residents, and their likelihood to pay," said John O'Donnell, Afni Vice President of Receivables Management. "The other relationship we see is a higher likelihood to pay in states where laws require drivers to have insurance and states that suspend licenses for uninsured drivers who cause accidents," he said. "In general, states that actively suspend licenses will collect 80% more than states who do not suspend."
How This Information Can Help
Understanding the differences in collectability by state will help you increase recoveries from a UM portfolio by as much as 15%. If you are not doing so already consider getting started with these tips:
Initiate the license suspension process as soon as you can in the states that allow this provision
While the process of handling the paperwork is time-consuming, many carriers rely on their Uninsured Motorist collection agencies to handle the DOT requests. This keeps their costs down, and it improves the collection rate.
Pursue all UM claims with the same level of intensity for the first 90 days after the date of loss
After that initial period, consider applying a collectability score (either directly or through your collection agency network) at the account level and increasing the recovery treatment on the segments more likely to pay. The collectability model will incorporate many of the geographic characteristics mentioned in our study and will increase the effectiveness of your treatment strategies.
Modify your commission rate structure related to UM referrals
Accounts referred from DOT states collect more. Therefore, a reduced UM rate should be considered. Conversely, non-DOT states are harder to collect from and should warrant a higher commission rate to incent the collection agency to invest further into these accounts.
Want to chat about subrogation and collectability? We'd love to talk. Contact us and let's connect.
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