The Value of SalvageMonday, March 8, 2010 16:06
Salvage comes in all shapes and sizes and whilst engineers will be confident offering salvage values for vehicles they inspect frequently, how comfortable are they when faced with a commercial vehicle that comes up once every few years?
Errors in salvage values can have far-reaching consequences, with major impacts on Insurance claims costs and the reputation of the Engineering community. Constructive total loss decisions are obviously affected by incorrect salvage values, leading to insurance companies spending too much money on a claim, or the insured not being indemnified correctly. Low valuations in salvage could also result in losses to the insurance company in areas of cash in lieu settlements and inaccurate valuations also create disputes where outlay is being recovered from third party insurers.
Unfortunately it’s not as easy as looking up values in a book; there are a number of factors that affect salvage values. Firstly, salvage is a global marketplace, with scrap metal prices determined by the various metal exchanges. There are also a number of foreign customers who operate in the UK and then export whole vehicles or parts back to their domestic market, causing rises in market prices. Additionally, the type of damage and UK salvage categorisation both impact the final value.
Offers for salvage made ‘in lieu of storage and recovery costs’ can seem an attractive option to settle a claim. However these offers are invariably below the true market value, losing money for the insurance companies. Experience has shown that many recovery and storage accounts can be negotiated and, when coupled with a larger salvage return, results in lower claims costs for the insurers.
Their own company or work provider will guide many engineers on salvage values, but there are cases where engineers will need to work on their own initiative to determine an accurate salvage value. In these cases it is important that the engineer demonstrates that they have completed their research into the salvage value as diligently as they would when assessing the pre-accident value of the vehicle.
Some examples of this have been highlighted by Bluecycle; they have seen commercial salvage prices far exceed expectations. In one case the holding agent offered £12,500 for a fire-damaged excavator stating that was the market price yet in the auction his final bid was £20,975. The excavator actually achieved £24,698, over £12,000 more than the insurer would have received if the initial offer had been accepted.
This is not a one-off occurrence either; and this pattern has been repeated due to the demand for commercial vehicle salvage within the market.