There is clear evidence that a robust commercial salvage programcan improve the overall claims process, but it requires a strategicshift in thinking when it comes to this often ignored area. Thebenefits of a more systematic approach to salvage include:increasing transparencies for claims and streamlining the overallprocess, capturing real-time data for better measurement and themitigation 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 propertysalvage – whether it is niche assembly equipment, a piece of heavyequipment, or a warehouse filled with merchandise – presents anoften-missed opportunity and has historically been a complicatedloss to manage. Rather than treating each of these unique salvageitems as a distinctive solution deserving of a program to managethe process, it is common for insurance companies to perceive thesalvage as a typical loss and assign it to a local adjuster. Thisresults in a lack of sight lines as the salvage becomes anothertask on a professional's already overburdened plate.

Frequently, salvage is the last box to be checked when handlingclaims, and at the point that salvage is addressed in the process,the insurance company has already gone through settlement and paidoff the insured. When salvage is declared a total loss, theinsurance company owns the salvage and takes action to urgentlyremove it from the insured site. This expediency often leads toinefficiencies and missed steps in an effort to reduce the cycletime and the rush to get the file closed as quickly aspossible.

Streamlining the Salvage Process

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

Insurers need a strategic and comprehensive commercial salvageprogram to compete in today's world. This starts with transparencyand a strategic process. All claims are different, and there areinherent inefficiencies in handling and managing them. Here aresome suggestions to streamline the process:

• Begin the salvage process at the beginning of theclaim.

Waiting until the end of the claim rushes the salvage processand potential compliance issues are overlooked. Additional time toaddress salvage issues increases overall transparency. Prompthandling is critical to avoiding unnecessary costs, such as storageor spoiled goods.

• Understand the salvage market particular to theasset(s).

There is a tendency to find the quickest way to dispose ofsalvage. By taking the time to understand the market for an asset,insurance companies can learn the value of the assets in thatmarket and improve their results.

• Sell salvage via an established, onlinemarketplace.

Opening salvage up to a larger pool of buyers in a fair mannerenhances oversight and provides a proven process for selling theasset. It also provides the insurer with validation for their claimadjustment activities when subrogation is an issue.

• Account for compliance.

Include all relevant compliance needs within the internalchecklist such as disposal timeframe, regulatory guidelines andenvironmental issues affecting disposal. Ensure proper handling ofany hazardous materials.

• Seek an experienced partner: It's easy tooverlook the necessary steps and to know the various markets forsalvage when going it alone. Working with a company that hassalvage expertise will improve results.Choose a national or localprovider who offers onsite services to work with adjusters toassist in loss evaluation, provide service support and recommend acourse of action.

Data to Drive Salvage Results

Setting key measurement points helps to account for complianceand risk issues, as well as improve the process and set goalsaround salvage projects. A technologically-enabled salvage companycan provide the insurance carrier with actionable data and strongreporting capabilities, which can be valuable in measuring claimssuccess. It can also be a powerful tool to help underwritingmanagers be market competitive. Suggested Key PerformanceIndicators (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 understandits baseline numbers in the first year of the program and then setfuture goals to form a more strategic process.

Increasing Recovery for Salvage

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

Since salvage is usually meeting a more rapid timeframe, ittends to be sold locally and significantly below market value. Whensalvers are used, they are typically local and only market to apool of several salvage buyers, limiting recovery on the assets.These vendors also lack expertise in specific markets and areunable to support a comprehensive salvage program. Some bestpractices to improve recovery include:

• Tapping into an online, global marketplace to increasetransparency in the process and enhance the sales value byleveraging more potential buyers.
• Utilizing salvage vendors with comprehensive onsite servicesand expertise in all commercial lines (energy, ocean, inland andproperty).
• Clearly communicating salvage guidelines to all internal andexternal salvage-related personnel.
• Avoiding the common practice of negotiating or settling salvagewith the insured.
• Investigating and offering possible resolutions for brands andlabel issues.
• Test Control of Damaged Goods (CDG) with a responsibility tomitigate 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 bottomline.

Regardless of the salvage situation, it is important to design asolution 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 specializedsolutions for niche salvage assets, will enhance overall progressand provide measurable business results.