The CEI Group4850 East Street Road

Suite 200Trevose, PA 19053

(877) 234-0378

Fleet Driver Management™www.ceinetwork.com

White Paper

HOW THE FLEET INDUSTRY CAN RECOVER MILLIONS MORE IN COLLISION DAMAGE COSTS

Subrogation – the collection of damages from third parties responsible for highway accidents – is one of the few ways that fleets can generate positive cash flow, yet it is quite possibly one of the most overlooked and under-staffed resources in the fleet management world, particularly on the part of self-insured fleets. This is unfortunate, as subrogation can potentially offset as much as much as 25% of the total physical damage costs of fleet accidents, a number that runs into the hundreds of millions of dollars a year across the entire fleet industry, including sedan and truck fleets.

One of the reasons for this oversight is that subrogation is an arcane, specialized field that is far removed from the business purposes of nearly all organizations that operate vehicle fleets. Another is that subrogation is an administrative function, paralegal in nature, that relies on a rare combination of knowledge and skills. These include an array of ever-changing state laws, how the insurance industry operates, motor vehicle accident analysis, accident repairs and claims negotiation skills.

When an organization doesn’t have access to these skills and knowledge base, the result is frequent frustration and low rates of recovery. The combination of these factors often results in subrogation as a tertiary consideration, assigned to a short-staffed fleet department and to a manager or administrator without special training and on a part-time basis.

This paper seeks to encourage organizations that sponsor fleets–including manufacturing and service companies, trucking firms and governments–to reexamine their approaches to subrogation. It also aims to demystify the subrogation process by outlining the steps involved, describing the most common pitfalls and techniques that can avoid them. In the final analysis, fleets that fall short of their accident loss recovery potential and want to maximize it have two alternatives: hiring additional people with the requisite skills or outsourcing to subrogation specialists.

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Recovery potential

According to the National Association of Subrogation Professionals, automotive insurance companies recover, on average, 27% of the total they pay out for physical damage accident clams (repairs plus the cost of rental replacement vehicles) from other “standard” insurance companies.1 But one subrogation professional estimates that 15% of all the motor vehicle accident claims the insurance closes out every year have uncollected recovery potential.

Applying those insurance industry numbers to the fleet industry, CEI, a leading provider of accident management services to fleets, estimates conservatively that sedan and light truck fleets with at least 15 vehicles fail to recover some $488 million in annual accident damages to which they’re legally entitled. We also estimate that large truck fleets miss out on approximately $648 million a year in recoverable damages.2 However, the numbers may be proportionately higher when it comes to self-insured fleets.

CEI has been providing subrogation services to fleets for more than 25 years as part of its comprehensive accident management service. Our subrogation department identifies recovery potential in approximately 30% of all the accident claims it handles and recovers an average of about 95% of the dollars it pursues. The result is the recovery of 25 to 30% of our clients’ aggregate

1 Chris Tidball, “Moving Beyond Traditional Benchmarking to Identify Your Full Potential,” at http:// findingmillions.wordpress.com/2010/10/29moving-beyond-traditional-benchmarking-to-identify-your-full-potential-2/

2 Assumptions: Sedan and light truck fleets: 5.5 million vehicles ( Automotive Fleet 2012-2013 Fact Book); 20.0% accident rate; $2,958 in average physical damage claims (source: Insurance Information Institute, average insurance company auto property damage claim, 2011), and 15% potential recovery uncollected. Large truck fleets: 11.0 million registered vehicles, 287,000 accidents (U.S. Department of Transportation, Commercial Motor Vehicle Facts, November 2011); $15,114 average physical damages (Source: U.S. Department of Transportation, Unit Costs of Medium and Heavy Truck Crashes, March 2007) and 15% recovery potential uncollected).

Fleet Type Vehicles Accidents

Total Physical Damage Expenses

10% Recovery

28% Recovery

Advantage

Sedans, Lt Trucks

1,000 200 $591,600 $59,160 $165,648 $106,488

Large

Trucks1,000 26 $392,964 $39,296 Fl$110,030

Flee

$70,734 t

Type

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expenses for repairs and replacement rental vehicles. Based on our experience, CEI believes it’s not unusual for fleets, on their own, to pursue and recover only 10% of their total accident repair expenses.

The table above illustrates what this means in a single year for two hypothetical 1,000-vehicle fleets, one consisting of sedans and light trucks and the other of heavy-duty trucks.

The question is, what does it take to achieve the higher recovery rate?

Five steps to the recovery process

However subrogation is organized, there are five essential steps to the recovery process, each of which is subject to its own types of pitfalls and is amenable to specific remedies.

Step One: Identifying the claims to pursue for recovery. This is the most crucial step in the entire process and itself consists of careful evaluation of three factors: the kind of accident, the state in which it occurred, and the location of the damage.

• Accident type. In descending order of frequency, CEI sees four main types of accidents: rear-end, intersection, sideswipe and head-on collisions. However, in terms of the percentage that has subrogation potential, we find the order reversed: head-on collisions more often have recovery potential, whereas rear-end collisions have the least. This order reflects the extent to which the fleet driver is responsible for the accident, which ranges from 0% responsible to 100%, and everywhere in between.

The critical skill here is to know how to interpret accident data accurately to determine the correct amount of responsibility for both the fleet driver and the non-fleet driver or drivers involved. In turn, this hinges on receiving an accurate and timely description of the accident. Police reports are one source, but the others are the fleet driver him-or herself and the other drivers. Two pitfalls, then, are inaccurate information from the fleet driver and delays in receiving police reports.

• Location by state. Standards for recovery are established by state law and fall into four general categories, depending on the degree to which a fleet driver’s negligence is responsible for the accident. Some states, like Colorado

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and Georgia, prevent a fleet from recovering any damages if the driver is 50% negligent or more; below that level, a fleet can recover. Others states, like Pennsylvania and Texas, bar recovery if your driver is 51% negligent or more.

Then there are states that bar a fleet from recovering if its driver is a little as 1% negligent; these include Virginia, Maryland, North Carolina, and Alabama. Finally, there are states like New York, Florida, and California that allow recovery under the principle of “pure comparative negligence.” This means that as long as a non-fleet driver bears some responsibility for the accident, the fleet may be able to recover damages.

Whichever negligence standard applies in the state where an accident occurred, preparing and sending a recovery demand that is ruled out by state law can and almost always results in frustration and wasted time, money, and effort.

• Damage location. A critical factor in determining whether and to what extent a fleet driver involved in an accident was negligent depends on where on his or her vehicle the damage occurs and comparing it to the accident description. For example, in an intersection collision where the fleet driver was attempting a left turn, damage on the front right quarter panel is more likely to mean the fleet driver was negligent, whereas damage on the rear right quarter panel points to the other driver’s negligence.

Step Two: Identifying the liable party. There are three possibilities: an insurance carrier, a self-insured company, or an uninsured driver. Normally, this step is relatively simple and straightforward, as long each driver obtains accurate driver and coverage information at the accident scene and it’s relayed on a timely basis to the subrogation team. Rather than leaving it to the fleet driver to remember and to be sure to have paper and pen, it’s helpful to provide a pre-printed accident data form for fleet drivers to keep in the glove compartment and to be sure drivers are instructed on how to fill it out. It should require fleet drivers to obtain the name, address, phone number of each driver, his or her insurance policy information or, in the case of drivers of self-insured fleets, the company’s name and appropriate contact information.

Having this information alone doesn’t mean there won’t be any challenges. There can be spelling errors, falsified information, or expired policies listed,

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which create an extra burden on subrogation personnel. Even when all the information is accurate and insurance companies are involved, it can be difficult to reach the proper claim office and personnel quickly. This is where experience on the part of the subrogation team can come into play, as knowledge of each carrier’s procedures and quirks can expedite the process of identifying exactly the right party to receive the recovery demand.

Here, it is also worth knowing that it is possible to collect from uninsured drivers, as long as they are employed and live in states that permit wage garnishment. In those cases, knowing which states they are and having the know-how and time to pursue it are rare among recovery nonprofessionals.

Step Three: Preparing and sending the recovery demand. Printed recovery demands run up to 26 pages or more. They include a claim letter that clearly states the amount being sought and the reasons, police reports, estimates and/or bills, and photographs. Accurate and complete documentation, along with a sound argument, is critical to recovering the optimal amount in a timely manner. How the documents are sent also makes a difference: electronic documents and use of the Internet to transmit the demand can eliminate the costs of paper and postage, significantly reduce labor costs, and shave as much as six weeks off the recovery cycle time.

Step Four: Negotiating the recovery amount. More often than not, there is initial disagreement over the demand. Typically, differences arise over the extent to which each driver was negligent and whether the cost of repairs is reasonable. Differences over repair costs can arise not only over whether the most cost-effective methods and parts were used, but also over regional differences in parts and labor. The more experienced and knowledgeable the subrogation agent is, both in the latest trends in repairs and in claims settlement by state, the more likely that his or her view will prevail.

Step Five: Collecting the settled amount. Even after a recovery amount has been agreed on, it can still take effort to receive the payment when it’s needed. Multiple follow-up communications are often necessary, and having a systematic way of tracking receipts is essential.

Fleet Choice: In-house or Outsource?

The basic decision that self-insured fleets must face is whether to handle recovery claims with their own internal resources or to outsource to a

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Fleet Driver Management™www.ceinetwork.com

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The CEI Group4850 East Street Road

Suite 200Trevose, PA 19053

(877) 234-0378

subrogation specialist. In 2011, the average subrogation specialist in the United States earned approximately $52,000 a year, according to CBsalary.com. If a fleet can improve its recovery by more than that amount, it may well be worth it to add those kinds of skills to the fleet’s administrative staff. It’s necessary to compare that kind of expense, and the additional overhead, to the cost of outsourcing to a subrogation specialist. Most such firms are paid on a contingency basis–they only get paid if they collect, and are paid as a percentage of the recovered amount.

In the current economy and business climate, companies and governments need all the help they can get to increase incoming cash flow to offset expenses. Recovering damages from third parties responsible for collisions with fleet vehicles should be a high priority for every fleet operator. The fact that so much money is left uncollected should be plenty of incentive for fleets to take another look at their recovery programs. The benchmark is recovery, over the long run, of 25 to 30% of total fleet accident physical damage expenses. If your fleet isn’t close to that, there is much to be gained by upgrading your recovery program.

Adding to your payroll with trained loss recovery is an expensive way to maximize your collision lost recoveries. But partnering with a specialist who is paid only if and when recoveries are made involves no up-front expense, and more than pays for itself. To find out just how much CEI can do for you, please call us, toll-free, at 1-877-234-0378.