If you're in an accident and it was the other driver's fault, you don't necessarily have to make a claim with the other driver's insurer. If you have collision insurance, you could make a claim on your own auto insurance policy.
But the story might not end there. After you consider the case closed, your insurer might launch a process called subrogation which, if successful, ultimately saves its customers money.
In subrogation, your auto insurance company asks the other driver's insurer to repay the claim cost and reimburse you for the cost of your deductible. The practice has matured in the last 20 years and become a higher priority for insurance companies.
"There's been a real change in the industry," says Jeff Baill, managing partner of Yost & Baill, a subrogation law firm in Minneapolis, Minn., and founder and past president of the National Association of Subrogation Professionals. "More and more companies appreciate what subrogation can do for the bottom line."
Car insurance companies make money from premiums you pay, investments they make and recovery of losses through subrogation.
"Oftentimes, the difference between profit and loss may be due to subrogation," Baill says. "In the last few years, for many companies, the revenue from subrogation was higher than revenue from investments."
The fine art of auto insurance subrogation
For auto insurance, the average success rate for subrogation is 12.5 percent, but some insurers achieve a 20 percent success rate, Baill says. Subrogated claims improve the bottom line, hold down car insurance rates and reimburse consumers for their deductibles."It's as much of an art as it is a science," says Robert Passmore, senior director of personal lines for the Property Casualty Insurers Association of America, an industry trade group.
The return of someone's deductible is no small matter. Twenty years ago, $50 and $100 deductibles were common, Baill notes. Today, a typical deductible is $500 or $1,000.
Passmore estimates that fewer than 1 percent of subrogation cases actually end up in court.
If the other driver is uninsured, your company will try to get the driver to pay the accident bill, setting up a payment plan if necessary.
In states with no-fault car insurance laws, you are generally reimbursed by your own insurance company for medical bills, regardless of who was at fault, and you're restricted in your ability to recover losses from others. But in those states, insurance companies are allowed to subrogate to recover losses for property damage, Baill says. The only exception, he says, is Michigan, where subrogation for car insurance claims is tightly restricted.
Getting your car insurance deductible back
You have a vested interest in the outcome of subrogation. Here's what you can do to help the process go smoothly.
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