The current market for steel is tough worldwide, and insurance companies that deal with damage claims in this area are really feeling the pinch. Steel can be damaged easily in transportation — either by way of marine, train, or truck — or while in storage at a warehouse that experiences a catastrophe, such as a fire or flood. In addition to these vulnerabilities, the price of steel is in flux, and in order to be fiscally responsible, insurance companies need to find value in the damaged goods that they insure by reselling them.
The Old Way
When a steel shipment is rejected by a buyer, insurance companies typically are stuck with the bill. The insured must call in a surveyor to validate the claim, and, once the cause of damage has been established, the surveyor tries to obtain the highest dollar amount possible for the damaged goods for the benefit of the insured and the insurance company. More often than not, the insurance company is taken advantage of, largely due to the surveyor's inability to widely market the damaged goods.
As selling salvage is generally a small aspect of a surveyor's job, surveying companies usually do not have the means or the expertise to advertise and market damaged steel products efficiently. Most sales are limited to a few brokers and possibly some local distributors. In many instances, it is not completely clear that a fair and honest process took place in order to net the insurance company a decent return.
New Approach
The Internet spawned an innovative and disruptive approach to the sale of surplus and secondary steel: online auctions. This development brought two completely new elements to this large market. First, it brought technology to a process formerly done strictly through manual means. Second, and more importantly, it allowed efficient mass-marketing while providing a secure process that is easily audited.
Companies that use sites to sell excess and secondary steel have provided a viable and unique business model. Embraced by the low-technology industry because it offers a compelling application of the Internet, this business model also offers a completely fair process for buying and selling salvage steel products. In addition, it provides an unlimited, non-exclusive supply of steel in a fair and competitive environment that showcases an accurate representation of offerings.
SteelSalvor is one service that has developed an online auction site that caters directly to the insurance industry. The total average amount of steel auctioned each month is 5,000 to 6,000 tons. Working on behalf of insurance companies and their agents, sites such as this are able to minimize insured losses on steel inventory in all types of claims, including marine loss, bankruptcy, and property and casualty.
Case Study Makes Case
For example, in 2003, a large international insurance company faced multiple large marine insurance claims. The underwriters were dealing with damages that occurred aboard two separate vessels that had discharged imported steel in New Orleans earlier that year. The claims involved cold rolled steel coils that had been delivered to customers' facilities all over the Midwest region.
The insurance company appointed a risk management specialist who met with many companies to ascertain the best means of disposition. When asked what the deciding factors were in choosing a company to handle this, the insurance representative stated that market knowledge and a detailed plan to minimize losses were important consideration points. A reasonable fee and the ability to guarantee a high rate of return also were important aspects to consider when making a decision, according to the representative.
After breaking down the entire inventory list, SteelSalvor assembled multiple auctions, optimized by size and location, in a manner to encourage the most competition from the bidders for all of the material generating interest. The system worked, and SteelSalvor exceeded its original estimate to the insurance company by 10 percent, which resulted in an additional $237,000.
Looking Ahead
Online marketing companies that specialize in auctioning metals provide a simple and cost-effective way for insurance companies and their adjusters to realize better returns on claims. It allows them to increase market exposure therefore increased the return on a sale.
Market demand continues to fuel growth in this new technology. In addition, there has been interest from insurance companies to duplicate the service in Europe and in other regions. Currently, companies are in discussion with service centers and domestic mills in the United States to handle the sales of secondary inventory and claims. With companies such as SteelSalvor accumulating more than 6,000 contacts in their database, it is clear that the online marketplace is only getting bigger, and selling steel in the new millennium is getting easier by the minute.
Scott Dawson is President of SteelSalvor. He can be reached at [email protected].
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