A 'Claim' by an Insured is the ultimate reality for any Insurer and when a disaster befalls their client there's only so much they can do to help. In any claim settlement activity, be it fire, earthquake or a flood, there is always some property that is saved either in sound condition or partially damaged condition. This saved property is called 'Salvage'. As per dictionary, one of the meanings of the term 'Salvage' is 'something saved from destruction or waste and put to further use'. Salvage goods typically result from circumstances of accident, distress, or theft and may be heavily discounted according to their condition. Nevertheless, they are goods that retain some market value-usually from 25% to 35% of the insurance claim value or 40-60% in the case of theft recoveries. Salvage can take form of, say, water affected paper, fire affected rubber, air-contaminated chemical, damaged steel generated from a collapsed building and so on. Therefore, although there is no exhaustive list, but salvage may include various industrial or household goods (including motor vehicles) that have incurred some kind of damage / depreciation in their market value due to operation of some peril that was insured for under the subject insurance policy.
Salvage, however, can practically be correlated to cash! It is hard cash lying there at the site of loss that needs attention. Not only attention, but also care. Just like we care for our cash, our investment, bank balance, we need to take care of salvage, which eventually is to get converted into cash one day. Its optimal disposal can meet part of management expenses like salaries, can repay loans, improve claims ratio and all other things that cash can take care of. In the words of a learned person from our Indian General Insurance Industry, ''salvage is considered by an insurer as a Credit' against what is owed under the policy to an insured. No matter how you look at it, if the surviving property has some salvage that value will directly apply to the claims loss adjustment". Over ages the topic of salvage has not been able to get much attention from the General Insurance Industry. It is merely considered one of the parts of loss assessment and most of the people who actually love their organizations and veterans of General Insurance Industry unknowingly ignore the subject.
Today the General Insurance Industry is losing millions each year just due to lack of proper salvage management system. Right from the word go, when a loss takes place, Insurers start losing money, sometimes by the way of salvage deterioration, sometimes by the way of salvage misappropriation and most of the times off course due to salvage disposal / retention by Insureds at low prices. Many Insurers believe that the potential for better salvage realization is minimal. However, the estimate is that less than 10 percent of commercial salvage finds its way to the open market to fetch optimum value.
To negate the effect of today's volatile market and economic recession on our business, we need to improve our operations on a continuous basis. To stay competitive, we need to employ innovative methods and processes so as to cut costs and maximize profits.
What exactly is 'Salvage Management' and how it can be implemented in the general insurance claims process? This is the question I had been asking myself during my tenure as an independent surveyor and around a year back in October 2007 when I decided to become a salvage manager and approached various Insurers with the thought of managing salvage professionally and scientifically. With my experience from various salvage disposals assigned by Insurers, I have been able to understand the basics of salvage management to start with. To actually know the subject inside out might take many more years to come, especially given the paucity of research done on the subject not only in India where the concept has been totally missing but also all over the world. But when in the very first assignment as salvage manager, we (SalvageSettlers-my organization) were able to facilitate an increment of around 1 million rupees over and above the salvage realization proposed by Adjusters, I was overwhelmed by the results and decided to launch the concept commercially. In its very first year of operation the organization facilitated an increment of around 20 million rupees for the General Insurance Industry of India over and above the proposed salvage realization. That was what showed the potential of professional salvage management to provide that much needed cash inflow and commercial viability of the project.
The sole purpose of writing this book is to record my thoughts and deeds as a salvage manager and share my experience not only with the present Insurance Industry as a whole but also the present and future generations of insurance professionals ranging from surveyors to claims executives at various levels and propagate the concept of Salvage Management as a tool to reduce claims ratio. The interest taken by insurance industry in the subject of salvage management in itself shows the need for salvage management. Within a few months of introduction of concept of non-motor Salvage Management in India, all the operational private General insurers have started adopting salvage management program.
Convinced by the sanctity and power of the concept, the public sector companies as well have started adopting salvage management and in February 2009 the India's largest Public Sector Insurance Company trusted the concept and actually adopted the same as a tool to create genuine competition and maximize salvage realization. No wonder they were proved right in due course.
In my opinion, Salvage Management should be chosen as a profession by young insurance professionals. It needs to be understood that managing salvage is a full time job and it cannot be merely a part of so many things that an adjuster needs to do as regards an insurance claim. For decades, the Indian General Insurance Industry has not witnessed much innovation as compared to other industries such as banking or telecommunication. I believe we need to scrap old practices and methods of dealing salvage. We cannot continue to term salvage as 'a sensitive issue' and at the same time lose money due to its mismanagement.
'Salvage Management' as a concept has become sacred to me over the small period of time that I have spent trying injecting it into myself, my work-family and the General Insurance Industry. But still there is a lot more to do and as the title of this book suggests, this is just a beginning! Beginning of a radical innovation in the Indian Insurance Industry. I wish 'Salvage Management' is preached as a concept by all general insurance professionals in the times to come, for its power to control and minimize losses.
I am a student of the subject of salvage management and do not have many teachers to guide me as regards this subject in particular. So, it would be my sincere request to all the readers to give their valuable comments and suggestions on the subject and help propagate this much needed concept.
