Navigating the damaged vehicle flood waters post-Florence

Flood-related catastrophic (CAT) events such as what happened in the Carolinas last month create significant challenges for managing the disposition of vehicles damaged by flood waters. For claims managers and the automobile industry more broadly, this can be a stressful process, full of unknows and unpredictable variables.

Fortunately, Hurricane Florence, despite all of its initial bluster, left a much smaller volume of vehicles in its wake compared to Hurricane Harvey, which hit a more densely populated area and behaved more unpredictably.

Still, it is estimated that some 20,000 to 40,000 vehicles will be seriously damaged or destroyed, putting pressure on claims processing organizations to handle claims and vehicle disposition as efficiently and smoothly as possible.

In over three decades of advising clients, facilitating the process, and managing flood inventory following major hurricanes, we’ve seen first-hand that companies’ financial outcomes and workloads can vary dramatically depending on how they approach the CAT.

Related: 10 states with the most reported flooded vehicles

Time is money

While you don’t want to rush into bad decisions or leave money on the table by jumping at the first vendor opportunity that comes your way, there are a number of reasons why speed is important in addressing flooded vehicles.

Most consumers assume that flooded vehicles are a total loss and many times they are correct. However, that doesn’t mean that all is lost, especially when it comes to more valuable later model vehicles. For potentially salvageable vehicles, the clock is ticking, and buyers simply will not pay top dollar as time goes by.

Mold worsens and fabrics and other vehicle components degrade the longer they’re wet, especially in this case where there is likely to be salt content and other pollutants in the flood water. Therefore, it’s critical that whoever is managing your inventory of flood vehicles begins water damage remediation as soon as possible in order to maximize the percentage of actual cash value (ACV) paid by buyers.

Related: Auto damage after a hurricane: comp or collision?

In this case, like any CAT, thousands of vehicles were affected in a very short period of time. This volume of vehicles quickly saturates the salvage buyer market. This means that claims organizations should work to get their flood-damaged vehicles to market as soon as possible before buyer budgets are spent. Moving quickly is almost certain to deliver the highest returns.

In our experience, salvage vehicles sold in the first 10-20 days after a CAT bring significantly higher returns. However, this is impossible to achieve using traditional methods alone.

Without question, CATs are a traumatic and emotional time for vehicle owners. Picking up vehicles and expediting inspection so that claims can be settled quickly will significantly reduce the call volume from anxious and upset policyholders and improve customer satisfaction. One proven approach is to quickly set up a ground zero control center and line up local storage to ensure that vehicles can be evaluated and processed quickly.

Manage scale

Another reason that CATs are so challenging has to do with the scale of logistics and quantity of affected vehicles. Most insurance carriers, as well as fleet managers and dealers, attempt to address vehicle disposition individually or through traditional methods. However, arranging a package deal and working with vendors that can process vehicles in large batches usually ends up being the most efficient approach and typically provides far greater financial returns on flood vehicles.

In such cases, insurance companies may be well-served by bringing in CAT recovery experts with experience in structuring flood vehicle packages and who can access networks of vetted buyers willing to buy large quantities of flood-damaged vehicles. This practice of “bulk selling” is usually done in segments by year and/or level of water within the vehicle. Direct purchases can also significantly reduce fees and expenses associated with salvage vehicle disposition when handled on a case by case basis.

Related:  How to avoid becoming a victim of ‘flood vehicle’ fraud

Avoid price gouging

Many insurance carriers and vehicle fleet managers have national contracts with salvage auction, towing, and other vendors. Unfortunately, many of these contracts exclude CATs in their pricing and service level agreements.

Once demand shoots up and the market of vendor services is overwhelmed, fees and prices always rise quickly. Be sure to check your contracts for qualifiers and exceptions related to CATs. Then do your research carefully and thoroughly to ensure you’re getting access to the best vendor services at fair prices.

Catastrophic flood events such as Hurricane Florence create major challenges and headaches. That’s why it’s critical to tap as many seasoned CAT veterans as possible, who can bring the CAT management experience, process understanding, technology tools, and industry relationships required to come through the event successfully.

Another factor to consider is the possibility that your vendors may become overwhelmed by the scale of challenges and volume of business involved. If you start seeing warning signs that your vendor may be unable to keep up, don’t hesitate to tap additional resources sooner rather than later.

Related: What is a water-logged car worth?

Doug Mellette is the chairman and CEO of Vemark. He can be reached at dmellette@vemark.com.

These opinions are the author’s own.