There is clear evidence that a robust commercial salvage program can improve the overall claims process, but it requires a strategic shift in thinking when it comes to this often ignored area. The benefits of a more systematic approach to salvage include: increasing transparencies for claims and streamlining the overall process, capturing real-time data for better measurement and the mitigation of risk, and improving recovery on salvage assets.

The Perception of Salvage

Salvage is typically thought of for personal lines, however, salvage covers more than just automobiles. Commercial property salvage — whether it is niche assembly equipment, a piece of heavy equipment, or a warehouse filled with merchandise — presents an often-missed opportunity and has historically been a complicated loss to manage. Rather than treating each of these unique salvage items as a distinctive solution deserving of a program to manage the process, it is common for insurance companies to perceive the salvage as a typical loss and assign it to a local adjuster. This results in a lack of sight lines as the salvage becomes another task on a professional's already overburdened plate.

Frequently, salvage is the last box to be checked when handling claims, and at the point that salvage is addressed in the process, the insurance company has already gone through settlement and paid off the insured. When salvage is declared a total loss, the insurance company owns the salvage and takes action to urgently remove it from the insured site. This expediency often leads to inefficiencies and missed steps in an effort to reduce the cycle time and the rush to get the file closed as quickly as possible.

Streamlining the Salvage Process

There is an enormous opportunity in salvage. Industry specialists have estimated that less than 10 percent of commercial salvage finds its way to the open market. However, the salvage process is often relegated to local adjusters who are motivated to sell salvage as quickly as possible and move on to the next loss. Rather than designing solutions that cater specifically to the salvage asset type, the salvage becomes a mundane transaction following the management of the claim to the insured.

Insurers need a strategic and comprehensive commercial salvage program to compete in today's world. This starts with transparency and a strategic process. All claims are different, and there are inherent inefficiencies in handling and managing them. Here are some suggestions to streamline the process:

• Begin the salvage process at the beginning of the claim. Waiting until the end of the claim rushes the salvage process and potential compliance issues are overlooked. Additional time to address salvage issues increases overall transparency. Prompt handling is critical to avoiding unnecessary costs, such as storage or spoiled goods.

• Understand the salvage market particular to the asset(s). There is a tendency to find the quickest way to dispose of salvage. By taking the time to understand the market for an asset, insurance companies can learn the value of the assets in that market and improve their results.

• Sell salvage via an established, online marketplace. Opening salvage up to a larger pool of buyers in a fair manner enhances oversight and provides a proven process for selling the asset. It also provides the insurer with validation for their claim adjustment activities when subrogation is an issue.

• Account for compliance. Include all relevant compliance needs within the internal checklist such as disposal timeframe, regulatory guidelines and environmental issues affecting disposal. Ensure proper handling of any hazardous materials.

• Seek an experienced partner: It's easy to overlook the necessary steps and to know the various markets for salvage when going it alone. Working with a company that has salvage expertise will improve results. Choose a national or local provider who offers onsite services to work with adjusters to assist in loss evaluation, provide service support and recommend a course of action.

Data to Drive Salvage Results

Setting key measurement points helps to account for compliance and risk issues, as well as improve the process and set goals around salvage projects. A technologically-enabled salvage company can provide the insurance carrier with actionable data and strong reporting capabilities, which can be valuable in measuring claims success. It can also be a powerful tool to help underwriting managers be market competitive. Suggested Key Performance Indicators (KPIs) might include:

• Cycle time

• Referral rates

• Number of referral users

• Monthly updates/reviews

• Program compliance

• Net recovery percentage vs. actual claim value

• Net recovery percentage by category

• Customer satisfaction

Once the insurance carrier has set its KPIs, it can understand its baseline numbers in the first year of the program and then set future goals to form a more strategic process.

Increasing Recovery for Salvage

Recovery proceeds from salvage are often the last task of a claims file. Salvage claims are frequently not tracked, and may be miscoded or buried in the claim with little visibility for future data usage. However, using a streamlined, data-driven process helps to improve overall results.

Since salvage is usually meeting a more rapid timeframe, it tends to be sold locally and significantly below market value. When salvers are used, they are typically local and only market to a pool of several salvage buyers, limiting recovery on the assets. These vendors also lack expertise in specific markets and are unable to support a comprehensive salvage program. Some best practices to improve recovery include:

• Tapping into an online, global marketplace to increase transparency in the process and enhance the sales value by leveraging more potential buyers.

• Utilizing salvage vendors with comprehensive onsite services and expertise in all commercial lines (energy, ocean, inland and property).

• Clearly communicating salvage guidelines to all internal and external salvage-related personnel.

• Avoiding the common practice of negotiating or settling salvage with the insured.

• Investigating and offering possible resolutions for brands and label issues.

• Test Control of Damaged Goods (CDG) with a responsibility to mitigate the loss and provide solutions.

Embracing best practices does more than create a better process; it generates results that drive value for an insurer's bottom line.

Regardless of the salvage situation, it is important to design a solution to deliver results that contribute to the larger strategy. Making salvage a strategic priority and rolling out a consistent, uniform process that encourages the development of specialized solutions for niche salvage assets, will enhance overall progress and provide measurable business results.

Salvage Case Studies

Industrial Salvage

Situation: Hurricane damaged industrial gas plant owned by a major oil company that was determined to be a total loss. If a salvage sale could not be completed, the estimated demolition and removal cost was over $1,000,000.

Business Challenge: The insured would only allow qualified bidders that had the appropriate safety requirements and financial capability to completed the transaction to bid on the plant.

Bid Format: Online Sealed Bid

Results: Using the expertise of a professional liquidator and searching an extensive database to pre-qualify buyers, six companies were approved to place bids on the salvage plant resulting in a successful sale with a final sale price of $405,000 resulting a net savings on the claim of $1.4m.

Construction Equipment

Situation: Salt water submerged 150 Ton Link-Belt LS238H crane located at a Fortune 50 company with strict safety and environmental requirements.

Business Challenge: Damaged at the insured's location due to a storm surge and the unit was deemed a total loss.

Bid Format: Online Auction

Results: The salvage was marketed to a global base of crane and salvage buyers resulting in buyers submitting 87 and a high salvage bid of $271,100. Liquidity Services assisted in managing the safety and loading requirements for the removal of the salvage from the loss location.

Titanium Salvage

Salvage: Metal Tubes, 99.478% Titanium, OD 50 x 0.7 T x 25120mm L, Approximately 18,747.25kg

Background: Cargo was damaged during shipping to final destination of Quang Ngai Province, Vietnam. The damage to the tubing included but was not limited to dents and scratches. Seller originally marketed the tubing unsuccessfully until Liquidity Services was assigned.

Bid Format: Online Sealed Bid

Results: The salvage was marketed to a global base of metals buyers resulting in 756 bidders viewing the lot and 13 buyers submitting bids. The professional liquidation firm assisted in managing the buyer inspection as well as the safety and loading requirements for the removal of the salvage from the loss location.

Bidder Locations: UAE, Australia, USA, Canada, Vietnam, Romania