Senior Claims Consultant at HNI
Some risk managers take for granted that not everyone knows how subrogation can work to their benefit — mostly because definitions of subrogation are chock-full of legalese (yuck). Simplifying subrogation for a layperson is harder than it looks!
In our experience, business owners have three big questions about subrogation:
Our mission is straightforward: simplifying subrogation for non-insurance and non-lawyer types.
Please enjoy the following crash course in subrogation basics:
The best way to explain subrogation, hands down, is with an example.
You've got a truck that has an electrical malfunction. The truck burns. Your insurance company pays to replace the truck.
In subrogation, your insurance company can make a claim against the truck manufacturer to get paid back for the money your insurer spent on replacing your truck.
This is what it means when you hear that subrogation is the substitution of one's rights to another. In this case, your rights as the owner of a truck are substituted to the insurance company.
In subrogation, the insurer steps into the shoes of the insured.
From the perspective of a business owner, subrogation is important because it ultimately helps keep your total cost of risk lower.
Insurance companies make money three ways:
When the economy is down, investments made by insurers, just like everyone else, make less money than anticipated. (Yes, even big insurance companies are at the mercy of the markets!)
In a slow economy where investments aren't delivering, getting money through subrogation becomes really important. If subrogations don't come through, premiums for insureds (like you) could go up.
When an insurance company recovers money through subrogation, this could also mean money back in your pocket through reimbursement of deductibles and other out-of-pocket expenses.
What's more, subrogation investigations conducted by insurance companies can give insureds evidence to make claims for uninsured losses. Without a subrogation investigation, you might accept the policy limits and absorb uninsured loss. Subrogation is a recovery tool for business owners.
On a similar note, subrogation investigations can benefit society as a whole by determining causes of damaging events. Think about the hypothetical electrical fire above.
If there was no right of subrogation, the insurance company would have covered the loss and that would be the end of it. If there is right of subrogation, an investigation could have discovered a faulty electrical element and possibly prevented future losses of property — and maybe even injuries to drivers — for other people who own the same truck.
How can we do a better job simplifying subrogation? What other questions do you have about subrogation? Ask them for our subrogation webinar: Introduction to Subrogation and How It Impacts Trucking Companies. This HNI U event will answer frequently asked subrogration questions and dive into contract language. Click here to RSVP for this complimentary subrogation event, or click the button below.