Captive insurance companies are insurance companies established by a parent group or groups of companies with the objective of covering the insurance risks to which the parent is exposed; it is one form of self-insurance. According to AM Best, currently there are more than 5,000 captive insurers worldwide, far more when there were only approximately a thousand in 1980. Along with this growth over the past three and a half decades, the industry is also embracing the same operating trends as the commercial market, according to Crawford & Company’s senior vice president of Global Markets, Neil Allcroft. One of those trends is the use of subrogation—the legal right for an insurer to pursue for damages a third party that caused an insurance loss to the insured.
Neil highlights subrogation as a useful tool that should always be available and urges captive owners to explore the process in more detail.
“Captives and their corporate parents should learn more about subrogation as the process presents great opportunities and can often result in driving a more efficient corporate performance,” says Neil. “By effective subrogation, damage is often repaired more quickly, cash flow is improved to the corporation and the experience of the third party is often better despite the incident. Crawford has witnessed cases where recoveries have been driven well in excess of the costs involved.”
Despite the possible benefits, subrogation can be seen by captives as a challenging task. However, Neil highlights the challenges and stresses that when the right partners are engaged, the process can have a positive impact on the bottom line.
“The key to effective subrogation is data capture at first notice of loss so that the core information required to ensure effective subrogation is obtained. Depending on the environment, some sort of consistent intake tool would be required that thoroughly captures and organizes claim information for detailed evaluation. Quick and decisive triage process which assesses the effort is vital, just as being diligent, tenacious and efficient often increases recovery outcomes.”
Crawford works with a number of captives, of which many pursue subrogation as a matter of course, and appropriate use of subrogation is often part of Crawford’s service level agreements in respect of how its overall performance is measured. “To put in place an effective regime to drive recovery optimization there certainly needs to be a partnership between the adjuster, the captive and the parent company,” says Neil.
However, Neil also says that not all captive owners will find the subrogation route to be suitable, and the willingness to pursue subrogation varies considerably among companies. “Subrogation is certainly not a one size fits all option, and its use will depend on the nature of the parent business, the lines of business, the legal framework and the geographical footprint. But in principle most captives will seek to recover and we would advise them to do so; subrogation should not be automatically excluded,” adds Neil.