How's the recovery? Salvage and subrogation in the property liability insurance industry

Abstract

Insurers have significant flexibility in the management of the claims process and the degree to which they prioritize the collection of salvage and subrogation. These decisions could materially impact the financial well-being of insurers as well as the prices paid by consumers. Given the potential implications that salvage and subrogation can have for insurers, consumers, and regulators, we investigate the relation between the speed at which U.S. property-liability insurers recover salvage and subrogation and insurer-specific financial and operational characteristics. The analysis is conducted for commercial and personal auto lines of business and studies both physical damage and liability coverages. The findings indicate that factors such as leverage, profitability, size, and accrual decisions are associated with the speed of recovery but that considerable differences exist across coverages.