SUBROGATION | FEATURE 19 June 2015 captivereview.com G enerating revenue for a cap- tive insurance company has traditionally taken place in two forms: premium and investment income. Premiums of course are earned in the anticipation that a much larger sum will eventually be sent back the other way, while investment income can be risky, undesirable or negligible. There is a way, however, to recover a meaningful proportion of those paid claims by proving third party liability at the original loss event. In such cases that is money rightfully owed to the captive. Subrogation, in short, is when the rights of the insured are transferred to the insurer after a claim has been paid. For the past 20 years the large national and global insurance carriers have been investing and building up their subro- gation departments – State Farm’s sub- rogation unit is said to total around 800 employees and recovers $1.5bn a year in paid claims. So are captives following suit? The answer is slowly, but very few. “I find that the self-insureds and the captives are trailing way behind what the carriers have done and where this area has gone over the years,” Jeffrey Baill, partner at Yost & Baill in the United States and founder of the National Association of Subrogation Professionals (NASP), tells Captive Review. This lag can in part be put down to significantly smaller risk management and claims handling departments com- pared to the large insurance companies or under-investment in the captives themselves. In essence, insurance is not the pri- mary or even secondary business func- tion of a large manufacturing, retail or energy firm. “Very few self-insureds have a ded- icated subrogation person so they are more following a model which is 20 or 30 years old,” Baill adds. “As a result of that they are not identifying the opportuni- Written by Richard Cutcher THE MISSING MILLIONS? Commercial insurance companies have invested significant time and money into recovering paid claims to third parties, so is it time captives followed suit?
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SUBROGATION | FEATURE
19June 2015
captivereview.com
Generating revenue for a cap-
tive insurance company has
traditionally taken place in
two forms: premium and
investment income.
Premiums of course are earned in the
anticipation that a much larger sum will
eventually be sent back the other way,
while investment income can be risky,
undesirable or negligible.
There is a way, however, to recover
a meaningful proportion of those paid
claims by proving third party liability
at the original loss event. In such cases that
is money rightfully owed to the captive.
Subrogation, in short, is when the
rights of the insured are transferred to
the insurer after a claim has been paid.
For the past 20 years the large national
and global insurance carriers have been
investing and building up their subro-
gation departments – State Farm’s sub-
rogation unit is said to total around 800
employees and recovers $1.5bn a year in
paid claims.
So are captives following suit? The
answer is slowly, but very few.
“I find that the self-insureds and the
captives are trailing way behind what the
carriers have done and where this area
has gone over the years,” Jeffrey Baill,
partner at Yost & Baill in the United States
and founder of the National Association
of Subrogation Professionals (NASP), tells
Captive Review.
This lag can in part be put down to
significantly smaller risk management
and claims handling departments com-
pared to the large insurance companies
or under-investment in the captives
themselves.
In essence, insurance is not the pri-
mary or even secondary business func-
tion of a large manufacturing, retail or
energy firm.
“Very few self-insureds have a ded-
icated subrogation person so they are
more following a model which is 20 or 30
years old,” Baill adds. “As a result of that
they are not identifying the opportuni-
Written byRichard Cutcher
THE MISSING MILLIONS?Commercial insurance companies have invested signifi cant time and money into recovering paid
claims to third parties, so is it time captives followed suit?