Self-insured companies are increasing their use of inter-company arbitration to reduce insurance-related costs and increase subrogation recovery and are realizing some unique benefits, according to Arbitration Forums Inc. (AF).
In the first quarter of 2004, cases filed by self-insured membership in AF’s programs increased by more than 12 percent. Nevertheless, many self-insureds are not taking full advantage of the cost and time-savings offered by arbitration, AF reported.
One primary benefit that self-insureds are realizing by participating in arbitration is a reduction in the rate of “abandoned” subrogation claims. These low to medium dollar subrogation claims are abandoned when the other party denies the claim and the dollars involved in the loss do not justify the expense of litigation.
As signatories to AF’s programs, more than 3,500 self-insureds and insurance companies are required to arbitrate when a settlement cannot be reached. The result is a significant cut in the abandoned subrogation claim rate for self-insureds.
Another reported benefit of arbitration for self-insureds is protection from litigation. Once an agreement is signed, all participating companies must forego litigation and use AF’s arbitration process to resolve loss disputes related to each program. Simply, there are 3,500 other carriers and self-insured entities that cannot sue them for unresolved losses that fall under the jurisdiction of the arbitration program for which the agreement is signed.
In spite of this surge in interest, however, utilization of arbitration services among self-insureds still lags far behind traditional insurance carriers, said D. Kay Smith, CEO of AF.
“Unlike traditional insurance companies, many self-insureds do not have subrogation units dedicated to recover claims dollars who are well aware of the benefits of arbitration,” said Smith. She observed that more training and education of self-insureds on arbitration, and how easy the process works, would generate greater utilization.
AF will reportedly be working individually with its self-insured members to determine what type of training tools they need to help increase their participation in arbitration programs.
AF, a not-for-profit provider of inter-company insurance dispute resolution services, resolved $1.8 billion in inter-company subrogation claims last year. However, only a small portion of this dollar amount involved self-insured companies.
An AF study found that for every dollar a company spends on inter-company arbitration, the return on investment is $38.00. “Self-insureds can cut expenses, increase subrogation recovery, and improve their bottom line by capitalizing on the opportunities offered by arbitration,” added Smith.
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