Recovery leakage rarely stems from a single mistake. More often, it results from a series of small oversights that compound across thousands of claims, costing insurers millions of dollars in lost recoveries each year.

According to a National Association of Insurance Commissioners (NAIC) study, subrogation leakage costs the insurance industry approximately $15 billion each year. Industry estimates suggest that up to 15% of claims are closed without identifying a viable recovery opportunity, leaving substantial recoverable dollars behind.

Why Recovery Leakage Matters

Subrogation allows insurers to recover claim payments from responsible third parties, improving loss ratios and reducing the overall cost of claims. Yet, each year, many insurers forfeit millions of dollars in potential recoveries due to recovery leakage – the loss of funds that could (and should) have been recovered from at-fault parties.

Common Causes of Recovery Leakage

Some factors that commonly lead to recovery leakage include:

  • Misplaced liability: Treating a claim as a first-party loss because potential third-party liability was not identified during the initial claim assessment.
  • Lost evidence: Lost, destroyed, or improperly preserved evidence can undermine or eliminate the ability to establish liability.
  • Expired deadlines: The statute of limitations related to a claim was missed, barring the insurer from seeking recovery from the at-fault party.
  • Overlooked contractual rights: Failure to identify and leverage indemnification clauses, hold-harmless agreements, or other contractual risk transfer provisions before recovery rights are lost.
  • Improper waivers: An adjuster inadvertently uses a release waiving an insurer’s subrogation rights to settle a claim.
  • Ambiguous laws: Insurers operating in no-fault states must comply with conflicting legal precedent or specific regulations that determine whether or not subrogation applies.
  • Inconsistent workflows: Heavy workloads, siloed departments, and limited subrogation expertise can cause recovery opportunities to be overlooked.

How to Identify and Avoid Recovery Leakage

While recovery leakage presents a significant challenge, it is largely preventable. The right processes, technology, and expertise can help insurers identify recoverable claims earlier and pursue them more effectively. Combined with the growing availability of claims data, these tools create new opportunities to improve recovery outcomes and reduce leakage.

Here are some best practices to identify and avoid subrogation recovery leakage:

  • Revamp intake: Subrogation begins at the first notice of loss. Building structured liability questions, prompts, and automated flags directly into the intake process allows adjusters to recognize recovery issues early—while evidence and memories are fresh.
  • Shore up documentation: Use achecklist to document incident photos, videos, chain-of-custody records, expert reports, witness statements, police reports, and relevant contracts to maintain a strong body of evidence.
  • Proactively gather information: Use technology to identify indemnity provisions, insurer obligations, and contractual risk transfer mechanisms at the onset of a claim. Early visibility into these agreements can significantly improve recovery outcomes.
  • Leverage advanced analytics and AI: Valuable recovery opportunities can be hidden within claim notes, loss descriptions, contracts, and other unstructured data. AI-supported subrogation tools help insurers identify potential recovery avenues earlier, prioritize high-value claims, and reduce leakage associated with manual review.
  • Perform periodic audits: Closed-file audits can reveal missed subrogation recovery opportunities and identify process gaps to help insurers avoid repeat mistakes and hold liable parties accountable.

Don’t Settle for Less: Recover More

Organizations that consistently recover more through subrogation share a common trait: they treat recovery identification as an integral part of the claims process rather than an afterthought. By combining disciplined workflows, experienced professionals, and advanced technology, insurers can reduce leakage, improve claim outcomes, and strengthen financial performance.

For insurers seeking to maximize recoveries, partnering with an experienced subrogation provider can help uncover opportunities that might otherwise be missed. National Subrogation Services (NSS) combines dedicated recovery professionals with the resources of Cozen O’Connor to help clients identify, evaluate, and pursue every viable recovery opportunity.