Salvaging the Bottom Line

The most recent financial crisis has left ripples in almost every industry, and insurance is certainly no exception. It has forced businesses and consumers alike to adopt a new way of thinking – one of frugality and financial responsibility. Even as the recovery progresses and purse strings are starting to be let out, the memory of the crises seems to be lingering, and fiscal awareness is staying at the top of everyone’s mind.

Insurers are not removed from this phenomenon, as demonstrated by their continued efforts to reduce claims costs and find effective sources of cost mitigation. One such area of cost mitigation and cost recovery that seems to be popping up in conversation more often these days is salvage.

Insurers are obviously well aware of the auto salvage industry and the financial benefits it has yielded, but property salvage has largely been overlooked for the last couple of decades. The paradigm shift towards frugality and cost recovery, however, is bringing property salvage back into vogue for not only the insurers, but for consumers as well.

Property salvage can take many different forms: Anything that has any intrinsic value in a property claim can potentially become salvage. This means that property salvage can range from the excruciatingly common to the exorbitantly obtuse. For example, property salvage can range from construction materials to haute couture dresses, from warehouses filled with 10-cent pens to ones filled with millions of dollars of powdered chemicals. Property salvage can be anything – there is no limit.

Cost recovery

The obvious benefit of identifying salvage in property claims for insurers is cost recovery. The recovery is actually two-fold: Not only do the insurers receive a cash settlement for the salvaged item(s), but they also avoid disposal fees for junking. Presently, this cost recovery is a largely unaccounted for benefit for most major insurers; there is very little accounting around any expected recovery on property claims. This is largely because on most property losses there is the expectation that there are no salvageable contents because of the extent of damage sustained. A significant portion of property claims, however, would (or could) yield some level of salvageable contents if salvors were engaged. Any recovery an insurer can receive is better than having to pay to dispose, and this one extra step has the potential of helping insurers recover millions of dollars.

It is not only major industry that is experiencing a shift in thinking in the wake of the financial crisis. Consumers are feeling the ripples and lingering effects as well and are reacting accordingly by adjusting spending habits. Consumers are not necessarily ceasing to spend entirely, but they are spending differently. In the wake of the financial contraction, they began looking for bargains – high quality items at discount prices. This allowed consumers to satiate their needs and desires to shop, while keeping costs down.

Purchasing behaviour

Consumers’ current purchasing behaviour is different than it ever has been – no longer do consumers only purchase items in brick and mortar retail stores, but rather they purchase through a combination of classic retail, online virtual stores and even online classifieds. The Pew Internet & America Life Project found that in 2005, only 22 per cent of Internet users had ever used an online classified site. By 2009, that number had more than doubled to 49 per cent. Consumers’ buying patterns are changing and consumers are looking to become more responsible with their purchases.

These recent behavioural changes are a perfect fit with property salvage. Property salvage is often clean (or cleaned) product, which can no longer be sold as new; perhaps the box has been damaged in some way or the item needed ozoning. The fact is, there is an enormous subset of the modern consumer who isn’t concerned with their purchases being factory fresh – especially if they are discounted. This is why there is such an appetite for property salvage on the consumer market – and why property salvors are often willing to purchase almost anything as salvage.

This altered consumer spending affects insurers because it means that property salvors are willing to pay more for property salvage. As the consumer demand increases for discounted products, the supply of such products comes at a premium. This allows insurers to maximize their recovery on property claims that yield salvage – and this phenomenon is only becoming more popular.

Thinking green

There are additional benefits to engaging property salvors above and beyond the cost recovery they can provide for insurers. Most salvors will likely have some sort of landfill avoidance policy in place, allowing their customers (and insurers) to learn how they work with items that are not saleable and how they dispose of items. Corporate responsibility projects and green policies are a popular business priorities, and working with property salvors can allow major insurers to direct large amounts of material away from disposal sites and landfills; all while avoiding costly disposal fees and potentially generating positive press for environmentally responsible practices.

Not just salvage

Property salvage companies these days are also no longer just salvage companies, but are typically beginning to vertically integrate additional services, such as:
• performing inventories of damaged stocks
• relocation of inventories
• temporary warehousing

All are services designed to encourage adjusters to engage salvors early in the claim process, and to keep the process of engaging a salvor as easy as possible.

This simplicity is the key to getting adjusters to use property salvors. Salvage companies realize how much adjusters have on their desk already and salvors are here to help, not hinder. So, property salvage companies are doing everything they can to help the adjusters who engage them, whether it be organizing removal and temporary warehousing of large inventories or taking responsibility for logistical problems that would otherwise be a thorn in the adjuster’s side.

Everyone is experiencing a paradigm shift as a result of the experiences over the last couple years, and frugality and fiscal responsibility is largely back in vogue. This has created a unique opportunity for the business of property salvage. Not only are insurers looking seriously at how they can recover more from property claims, but consumers are also trending towards buying more responsibly, and are looking for products that can be found in insurance salvage. Now it is the salvor’s responsibility to make sure they are easily engaged by adjusters and provide the assistance that is asked of them.

The ripples of the financial crisis have created an opportunity that insurers, adjusters and consumers can all take advantage of and has created a situation where everybody wins and everybody walks away happy.

David Allan is president & CEO of Modern Salvage Consultants.