A Niche Player Tackles The New Frontier in Outsourcing;Insurance Claims Subrogration

t comes as no surprise that BusinessProcess Outsourcing (BPO) isredefining the landscape for businessenterprise management and hasbecome a strategy without boundariesinsofar as industry, organization size, orapplication. More poignantly,outsourcing the collections andaccounts receivable functions hasbecome an essential tool in today’sbusiness environment and the centraldriver of efficiency and success.

rima facie considerations towardoutsourcing the collections includeexpertise, technology, consistency, andcore business focus. It’s important tonote that increased recoveries,

not cost

,is often the number one reasoncompanies turn to outsourcing thecollection process.

he insurance industry, long dominatedby legacy systems and traditionalapproaches, offers a textbook exampleof the benefits that can be derivedthrough outsourcing the critical, yet non-core, business function of pursuingsubrogation recovery—a task thatrequires the skill and talent of aprofessional collector. After all,insurance companies are in thebusiness of underwriting risk andservicing their insureds; pursuing thecollection of third-party reimbursementfor loss events is, at best, a secondaryor subordinate consideration.

ccording to Scott Conant, a 30-yearclaims industry veteran and a principalof Subrogation Partners, a leadingindependent subrogation recovery firmwith 100 employees that specializes intotal outsource solutions for auto,property, and workers’ compensationcases and serves insurance companyclients throughout the United States, “Ifyou’ve been in the business more thanfifteen minutes, you know that a carrier’ssubro department can be found at thelow end of the corporate totem pole.”This observation is shared by many, asinsurance company subrogationdepartments are often viewed as atraining ground for the primary claimsdepartment and staffed by junioremployees who receive limitedinstruction, inadequate collection tools,and are overburdened with case files, alldespite the importance of the task athand.[

recent study by Ernst & Young LLPshows that the average rate ofsubrogation (and salvage) recovery forall claims is 13.05%. A major reason forthis low return is that the averageinternal subrogation adjuster handlesanywhere between 350 at the low endand 1,000 cases at the high end.According to a separate studyconducted by New York-basedmanagement consultant Accenture, thiscaseload is in stark contrast to the 200average claims handled by the non-subrogation claims adjusters.]

side from limited resources, employeecompensation schemes present yetanother constraint when compared tothe “consistency factor” associated withoutside collectors. Unlike typicalcollection enterprises whose employeesenjoy incentive and performance-basedcompensation based on recoveries,insurance company employees aretacitly prohibited from receivingcompensation that is tied to settlements.

ccording to Conant, the combination ofinternal employees being overworked,

under-trained and having no incentive tocollect money, other than a mediocresalary, are classic impediments to thegoals of a consistent and reliablesubrogation recovery program.

he consequences of such inefficiencycan be severe, as the likelihood of“receivable leakage” whether in the formof underachieving the number ofrecoveries, under collecting a particularclaim, or simply surrendering the right torecover by failing to pursue a recoverywithin statute of limitations, only furthersthe point that subrogation recovery is aprime candidate for outsourcing totrained experts that are incentivized torecover the maximum available withinthe shortest time frames.

ntil recently, claims recoveryoutsource has been a cottage industryand comprised of small, regionallyfocused vendors and/or local venue lawfirms that specialize in subrogationcollection. This community is dividedeven further according to practice areas,such as automobile, property,workmen’s compensation, and healthcare. These local practitioners, somewith no more than a phone and homebasement storage space for files, arecorporate collectors and are paid arecovery contingency fee that rangesfrom15% to 30%, depending on thenature of the claim and the scope ofservices provided.

imilar to all cottage industries, anevolution has taken place within thecollections aspect of the industry. Ahandful of dominant players haveemerged, including SubrogationPartners, whose investment intechnology, infrastructure, and multiplepractice area expertise (includinglitigation) addresses each of theaforementioned outsourceconsiderations: expertise, technology,consistency, and core business focus.

hile increased recoveries,

not cost

, isoften the number one reason companiesturn to outsourcing the collectionprocess, firms like Subrogation Partnersgo to great lengths to document not onlythe quality of their services, but thesignificant cost savings that a carriercan enjoy through all-in-one solutions.These firms offer contingency feeschedules that are directly tied to casevolume and performance factors thatinclude cycle time, as well asbenchmarks related to a company’sprojected dollar amount recovery for agiven claim or entire portfolio.

ccording to Conant, “In the past eightyears, we’ve processed more than $1billion in subrogation claims on behalf ofalmost 100 clients. We do everythingfrom “uncovering nuggets” from closedfile audits, our initial service, to wherewe now provide full outsource solutionsand handle portfolios that includethousands of individual auto claims, aswell as significant property andworkmen comp-related claims, includingarbitration and litigation cases.”

utsource collection fee models arepredicated on alignment of interests withclients; and Conant notes “ Withcontingency fees, clients and vendorsare tied to the hip. Our fee remains wellbelow the typical carrier’s internal costof collection, which we know fromexperience is 30 to 40 cents per dollarrecovered.” Adds Contant, “But to reallysucceed in this business, we also knewthat we had to establish and maintainour competitive advantage, not onlywhen comparing the bottom linerecovery results of our workflow processto a company’s internal department, butwhen also compared to the outsidemarketplace…”; one that is dominatedby close-knit relationships, and not oftenenough based on outsource quality anddepth and accountability of servicesprovided.

n the collections business, theoutsource model is about identifying asolution that is better, faster andcheaper than what the enterprise can