The nature of total losses presents insurers with substantial challenges. According to recent surveys by J.D. Power and Associates, total loss claims tend to conjure more customer malcontent when compared to auto claims involving repairable rides. The Westlake Village, Calif.-based company, which has been charting customer satisfaction levels in the auto physical damage realm for more than 10 years, acknowledges that some dissatisfaction is largely unavoidable.

"Auto claims resulting in a total loss tend to be more complex, compared with vehicle repair claims, because in addition to filing a claim, claimants also have to purchase a replacement vehicle," said Jeremy Bowler, senior director of the insurance practice at J.D. Power and Associates, in reference to the 2011 survey.

Regardless, there are ways to ensure the policyholder/insurer rapport does not go the way of the wrecked vehicle. To speed processing, and thus the road to indemnity, insurers must take a long, hard look at the work flow, including supporting technologies. 

Salvaging Profits
"A huge amount of focus historically has been on what gets written into the estimate," says Paul Rosenstein, vice president of claims solutions for Mitchell International. "This includes whether the estimate reflects the loss severity accurately and if we are settling the total loss efficiently and fairly."

As such, Rosenstein says there historically wasn't a refined focus on other aspects of the workflow or other aspects of the loss payout, such as:

• Are we getting fair salvage returns?
• Are we controlling our rental and towing costs through workflow?

"As claims organizations have become more focused on efficiency and the insurance industry has become more competitive on the macro level, however, integration of salvage options has commanded attention," he says. 

This is where technology solutions and relationships with salvage vendors come into play, Rosenstein explains.

"Over the past 8 or 10 years, there has been a lot of consolidation where smaller yards are bought by several large players," he says. "This lends itself to more of a vendor management approach on claims department side, where they are making a more central decision as to which company to send salvage."

Vendor Relationship Management
As a result, insurers take into account a variety of factors before selecting a vendor with whom to partner. Common criteria in selecting salvage vendors include:

• The breadth of the salvage company's geographic coverage area 
• The strength of technology to bring more buyers in and thus get better salvage return for the insurer.
• Name brand recognition on the national level.

"Some insurers are bypassing salvage yards for specific types of salvage to basically work with a targeted set of buyers to bypass the middle man," Rosenstein adds. "Salvage yards charge fees for storage or titling or just to conduct auction different things. With lower value salvage, insurers can actually be "upside down," meaning they end up owing money to salvage yard. For instance, let's imagine that a 1998 Toyota Camry gets totaled. Although its market value could be $500 , the associated salvage fees could total $600. Companies such as Copart and IAA are aware of this conundrum and are actually trying to solve the problem."

Technology At Work
"Generally speaking, if an insurer has not fully considered the process and workflow, then it will prove difficult to optimize the claims handling," Rosenstein continues. "There can be a one- or two-day lag between declaring a total loss and handing that off to whoever coordinates salvage [at the company]. Without workload triggers, it is easy to lose two to three days in the process between totaling the car and getting it assigned to the salvage yard.  Our solution ensures that transactions don't get lost as they move from system "A" to system "B."

The "solution" Rosenstein refers to is Mitchell's WorkCenter system.

"One of our WorkCenter Solutions is helping facilitate the workflow of the transaction between the insurer and the salvage yard," he says. "The big salvage yards all have their own systems for doing that. From a technology perspective, however, an insurer may have to deal with multiple interfaces. For instance, if an insurer primarily does business with three different salvage vendors, chances are, it will be on three different systems. It is virtually impossible for the insurer to track and compare results between different salvage vendors because they all track things a little differently."

To remedy this, Mitchell provides an electronic connection between the insurer and the WorkCenter system. WorkCenter communicates with all of the major salvage vendors' systems. Also, if a salvage vendor doesn't have its own system, then it can use [ours] to track assignments.

Trimming Towing Fees
Another initiative from the insurer standpoint is reducing towing fees for wrecked vehicles. This is contingent upon the insurer identifying at FNOL that the covered vehicle is likely to total. Therefore, the insurer can opt to tow it to the salvage yard right away. 

"That way, they don't have to tow it twice," Rosenstein says. "The cycle time on that claim then goes down, accelerating payment to the claimant and allowing the insurer to recoup money faster with salvage profits." 

One benefit of optimizing the implementation and use of technology is that insurers can continually track claims in their own systems for reporting purposes. Rosenstein refers to this as the "Hawthorne Effect." 

"What this means basically is that you compare how well one vendor is doing versus another by how quickly it is turning salvage around," he says. "[Systems such as WorkCenter] create efficiency. This also means you are managing salvage across many geographies and different vendors in one system instead of four or five."

More On Salvage Strategy and Your Claims Department
I also spoke with John Kett, president and CFO at Insurance Auto Auctions, about how each claims organization can cultivate an efficient salvage strategy. Here is what he had to say.

Q: How can insurers integrate salvage in the overall claims process?
A: In today's competitive P&C insurance industry, integration is critical to improving efficiencies in the claims process. When you think of claims, you think of paying money out to repair or replace a vehicle. However, salvage and subrogation are the two areas where claim costs are recovered with a corresponding impact on claim severity. In fact with total loss claims, both cycle time and returns—that is, vehicle selling prices at auction—are key metrics to measure the overall salvage process. 

More so than ever, insurance companies are turning to IAA for further innovation in the total loss process and to find improved efficiencies. To that end, IAA leverages more than 30 years of experience and data to provide insurers with market value information that can be used in the total loss valuation process to potentially facilitate faster settlement. 

IAA has provided insurance companies additional efficiencies by streamlining the information and time it takes from assignment to vehicle sale. We have worked with insurance clients to hone in on the least systematic parts of that process, one in particular, title procurement. By offering solutions that ensure titles are secured faster, we can help accelerate the time a vehicle comes into our facility and can be sold. Using mobile technology is also essential in ensuring that insurance clients have anytime/anywhere visibility about their salvage assets. This means decisions on a particular vehicle can be made and completed all from a Web-enabled phone or mobile device. 

Q. What are some basic considerations when selecting a salvage company?
A: Our client feedback has indicated there are several factors that insurance companies look at when selecting a salvage provider, but three are universally focused on: returns, cycle time, and customer service. IAA's strong global buyer base representing in excess of 110 countries ensure a healthy, competitive bidding and buying market. Our returns were record-setting in 2011 and the IAA auction model combining both live and live on line auctions support our high selling prices.  Live auctioneers, ring men, and run and drive lanes at every IAA auction assist in driving prices higher than those of an online only sale.  

With speed in mind, our facility footprint ensures that we can secure vehicles quickly. In addition, we offer services to further reduce cycle time including our accelerated pick-up solutions, title procurement services, and I-Buy Fast,® which is IAA's 'buy now' purchasing option, all with the goal of securing and selling vehicles faster.

IAA sold nearly 1.4 million vehicles in 2011 and provides salvage auction services to 8 of the top 10 providers, including several exclusive contracts.  IAA is more than just a salvage auction and our dedication to our clients includes service level agreements, a strategic account management approach, and insight into the drivers of the salvage industry.

Q: How can insurers—and claims specifically—use this as an opportunity to boost the bottom line? What about as a means to enhance policyholder satisfaction?
A: Insurers can achieve meaningful results with IAA in terms of salvage returns, reduced claims cycle time and improved policyholder satisfaction.  IAA was the first salvage auto auction to publish a report, IAA's Salvage Report, which details the factors driving the salvage industry. This, we feel, demonstrates our commitment to the industry and our clients. This focus on drivers of salvage selling prices in conjunction with our auction model ensures that our sales remain highly competitive with the benefit to the insurance company. 

Innovation and technology are core to our goal of reducing cycle time and increasing policy holder satisfaction, which translates to vehicles being towed faster and claims being closed sooner. By surveying and understanding the needs of the insurance client community, IAA was able to develop a unique set of solutions and services, including expedited pick-up and title procurement that provide measurable results to our clients in terms of days and dollars.  

Q. What creative salvage solutions are you observing?
A: The salvage industry continues to be a dynamic market affected by many factors including the used car market, the U.S. dollar index, metal trading prices, gas prices, global buyer penetration, and many other factors. Monitoring these factors has truly become a mission at IAA. In fact, we have developed a core discipline on ensuring we truly understand the salvage market and the clients, both buyers and sellers, who utilize our services daily. 

In addition to viewing the industry's movements, we are working to innovate how business within the salvage industry transacts. Today, the salvage industry is a fast moving, global market place and technology has allowed new and different portals to the salvage buying and selling world. Our website is available in six languages: English, Spanish, French, German, Polish and Mandarin Chinese. In addition, IAA leads the industry in mobile technology that results in our clients being able to bid and buy at any time, in any place, and on any of our inventory. By embracing mobile technology, buyers can bid and buy more, and provided our sellers with additional transparency to the performance of their assets.