Business NeedA top-30 writer of auto physical damage premiums in the United States wanted to strengthen its bottom line by recovering missed subrogation opportunities within the auto, property and workers compensation lines of business. The company engaged Paragon to perform a historical data analysis to identify and qualify missed subrogation cases with real recovery potential.
Situation AnalysisThe company used a centralized subrogation department to perform its subrogation recovery work. The responsibility of identifying and referring recovery opportunities to the centralized unit belonged to the front-line claims adjusters. Prior to Paragon's involvement, the company employed an outside party to perform periodic closed file reviews to identify missed subrogation.
Paragon's ActionsTo initiate the service, Paragon performed a three month pilot program to allow the company and Paragon to gain an understanding of each other's processes and to evaluate the magnitude of missed subrogation within the company. The program was designed to supplement the company's current identification program and to maximize their recovery potential in a more efficient, low-impact manner than traditional closed file reviews or technology-only solutions.
Paragon's service focused solely on the identification of missed subrogation opportunities. The pursuit of the recovery opportunities was handled by the company.
Project MilestonesParagon believed the most effective, efficient and non-invasive subrogation process required sophisticated technology and experienced people. The pilot program leveraged both to achieve its objectives. The pilot program included the following steps:
Program Start-up
- Paragon's subrogation specialists visited the client on site for a day to gain insight into the carrier's internal subrogation process.
- Paragon's IT Department extracted four years of claims data directly from the client's mainframe systems, freeing up the client's own IT resources for other initiatives
Utilization of Proprietary and Predictive Technology
- Paragon used its proprietary inferential technology, coupled with predictive analytics, to assess millions of claims and transactional records. The primary objective was to filter out claims with no subrogation potential and to score the remaining claims by highest missed subrogation potential.
- To score claims by missed subrogation potential, predictive analytic tools were used to create scoring algorithms. The final scoring algorithms were based on statistically significant variables and models as derived from logistical regression, decision tree and neural network models. The data elements analyzed include both structured data (e.g. dates, loss and payment types, etc.) and unstructured data such as text (e.g. accident description, claim notes, etc.) contained within each claim file.
Implementation of Subrogation Expertise
- Paragon's in-house Subrogation Analysts qualified each claim scored by its software. The qualification process eliminated all "false positives" generated by the system, allowing the client to focus its resources on the pursuit of the missed subrogation opportunities.
- Upon qualification, Paragon's analysts submitted the claims back to the client, along with its theory of liability, for the client to review and ultimately pursue. To facilitate the referral process, Paragon created a client-specific extranet which streamlined communications.
ResultsIn the pilot program, Paragon identified and qualified over $500,000 in missed subrogation opportunities for the client. Based on the pilot results, the client engaged Paragon to complete the historical clean-up of missed opportunities and transition the program to its proprietary, real-time subrogation safety net service. This service supplements the client's existing subrogation processes by analyzing new claims and claim payment for recovery opportunities that continue to be missed by field adjusters.
The results of the client's Subrogation Identification Program to date are:
- For the historical clean-up, Paragon identified an additional 40% in missed opportunities over what was originally identified by the client.
- The client pursued more than 95% of all missed opportunities submitted by Paragon.
- The client has achieved a recovery success rate of 70% for these missed opportunities.
- Through the real-time analysis, Paragon provided approximately $175,000 per month in qualified missed subrogation opportunities.
In less than one year Paragon has identified and qualified over $2 million in missed subrogation opportunities. Based on the recoveries made to date from this population of missed opportunities, the company has achieved a return on investment of more than 300% for the program.