How Subrogation Can Affect Insurance Premiums
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You may be familiar with certain factors that affect your insurance premium, things like your driving record and your age. However, these are not the only things that can affect how much you pay every month; subrogation processes can have significant influence on what you pay.
What is subrogation?
Let’s start with the basics: What does subrogation mean? The term just means stepping into someone else’s shoes. And when it comes to the insurance industry, it means your insurance company has the right to sue a third party in your name.
Let’s say you’re involved in a car accident that was not your fault. It caused you significant losses and damages to your car. Hence, you decide to file a claim with your insurance company because it was easier and faster than waiting for the at-fault party to cover your costs or have their insurance company cover them.
Your insurance company can go ahead and cover your expenses once you pay for your deductible. However, once that’s done, they can then pursue legal action against the at-fault party (usually their insurance company) in your name to recover these costs. If they manage to get the full amount back, they can even refund you for the deductible. This is not a process in which you would be involved directly; it would be something that your insurance company would do mostly on its own.
One thing to note is that, once you file a claim through your insurance company, you are not able to pursue legal action against the third-party yourself—you are delegating this right to your insurance company instead. You can also not contact the third-party, come to an agreement, settle, or do anything else that might hurt the insurer’s chance to get the money back.
These rules mainly protect the insurance company by ensuring you are not seeking double compensation by seeking reimbursement from both the insurance company and the at-fault party.
But what does that have to do with your rate?
Your premium rates are based on many things, such as your driving records and age, but they also depend on expected vs. actual losses.
Your insurance company has a set amount of expected losses for you—the amount of money that they expect you to need coverage for within a specific period of time. If your actual losses surpass the expected losses, this will negatively affect your rate and make your premiums increase. On the other hand, if the actual losses are less than the expected ones, it will positively impact your monthly rate.
Now, whenever insurance companies can recover some costs from a third party, this acts as a debit for your actual losses—meaning that it would lower them. This can significantly impact your premium because it might be the factor that makes you go from exceeding the expected losses to having it be under the expected level.
If the idea of your insurance company acting on your behalf makes you uncomfortable for some reason, you might be able to get out of it. If you find yourself in a car accident and the at-fault driver wants to settle with you directly by either paying you or having their insurance company pay you, they will ask you to sign a waiver of subrogation.
However, insurance companies don’t like it when people sign these waivers. In fact, many of them don’t allow it. So, before you do anything, make sure to check in with your insurance company so that you can better understand their policies and processes before you sign anything.