Subrogation – Do you know what it is?
When securing a new health insurance plan, or even renewing your existing one, it is important that you read the terms and conditions that come with that plan. The problem with these, however, is that there are often a number of terms included that, while important to how claims will be handled, are normally not fully understood by policyholders. One such term that you should be aware of is ‘subrogation‘.
What exactly is subrogation?
Subrogation is actually a legal term and right in many countries, including Hong Kong, that states that insurers can pursue a third party that caused the insured to submit a claim to try and recover some, or all, of the loss.
In Hong Kong and indeed many other countries, there are usually two ways subrogation will be applied on insurance claims. The first is where the insurer acts on behalf of the insured to recover a loss on a claim. For example, if you are hit by a car while walking down the street you can submit a claim to your insurer to cover your medical care. In this example, the driver of the car is the third party and is at fault. Through subrogation, your insurance company can then pursue legal action against the driver to recover the cost of the claim you submitted.
The second major use of subrogation comes when the insured has more than one form of insurance, for example, a health insurance plan and a travel insurance plan with health coverage. Because the insured can, in theory, submit a claim for coverage to both insurers, subrogation needs can be used to determine how much each insurer will pay, or if one insurer needs to pay at all.
This seeking to “split the costs” is commonly applied in almost every country, but insurers may treat it differently or have clauses attached to the policy which determine the order insurers will pay.
How will insurers in Hong Kong work with this term?
For the vast majority of global health insurance plans sold in Hong Kong, subrogation will be applied in a fair manner. What we mean by this is that, for the first example above, the insurer will seek legal action against a third party that is deemed to be at fault if they pay a claim.
In most cases this will begin with the insurer asking the insured if there were third parties involved that may have been at fault. If they deem this to be the case, the insurer will then take appropriate action to recover the amount paid on the claim.
For the second use of subrogation, many insurers in Hong Kong will split the cost of the claim. For example, if you have a travel insurance plan that covers health care and an international health insurance plan, the insurers will usually talk with one another to determine who pays what. The vast majority of the time you will see insurers split the claim, as many insurance plans, especially supplemental insurance, usually have a condition that states the percentage amount of the claim they will pay if the insured has other plans that cover the claim.
One important thing to be aware of
When it comes to the second use of subrogation there is an important thing that you need to be aware of, especially if you have an international health insurance plan and secure additional coverage like a travel insurance plan, and that is the “first-payer clause”.
The first-payer clause is found with some types of cheaper insurance, as well as supplemental insurance, and states when the insurer will pay on a claim. This is an incredibly important clause to pay attention to as it could have an impact on any claims you submit.
Imagine if you have a health insurance plan that provides regional coverage, in this case, Asia. You plan to travel to Thailand and take out the cheapest supplemental travel insurance plan you can find. This supplemental plan has a first-payer clause that actually states that the supplemental plan is a last-payer – all other insurance sources need to be exhausted before the travel insurance provider will pay out on a claim. If you are in an accident your main insurance will need to reach its claim limit first.
This is not a good thing, especially if your plan has a low cap or yearly claim limit. You will likely end up paying out of pocket for subsequent care which can get extremely expensive in Hong Kong, especially if you receive care from the private sector.
The good news is that not every supplemental insurance plan has this clause, which means that it is important to read the plan documentation and conditions before you purchase it. To avoid this situation completely, it is recommended that you secure a more robust health insurance plan that provides not only worldwide coverage but also high coverage limits. Contact the experts at Pacific Prime to learn about your coverage options today, and receive a free quote.