1

INTRODUCTION

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
 2

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.
 3

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.

With Regards,

Anshul Gupta
email:anshulmail@ymail.com
 4

Chapter 1

What is Salvage Management?

Locking the spirit and concept of Salvage Management in form of

an exhaustive definition in my opinion would not be a good idea.
So, as per practice and experience, Salvage Management may be
known on an inclusive basis, as the process of taking an account
of salvage after a loss has taken place by the way of salvage
identification, quantitative and qualitative inventorization &
segregation, salvage protection and salvage valuation with an
intent to get an optimum salvage realization through disposal in
open market or through retention by the Insured / owner of
salvage.

Let us examine all the components of salvage management as

under:

1. Salvage identification: When a loss takes place, the

salvage manager visits the site of loss and inspects the
damaged material. Let us understand the concept with an
example. Suppose a fire takes place in a godown storing
cotton. Now, after fire, the salvage manager during his
visit shall have to identify the cotton that is actually
salvageable. Cotton that has already got converted into
ash might not have any practical salvage value, so it would
not be salvageable. On the other hand, cotton that has
suffered 20% burns might have a good salvage value. In
another example, suppose a building collapses and salvage
manager visits the site of loss. While inspecting the debris,
she would determine and pay attention towards the
salvageable parts of building such as steel, wood, etc. On
the other hand, remains of cement, plaster etc. might not
be having any practical salvage value. So, as a first step,
the salvage manager would identify the salvageable
merchandise at the site of loss.

2. Quantitative and Qualitative Inventorization &

Segregation:

A loss may be due to one or more of various perils and the

degree and extent of loss suffered by the material may
vary. For example, taking an example of water damage to
1000 bags of cement, 10% of material (i.e, 100 bags) may
be suffering minor damages like packing damaged, 30%
(300 bags) may be partially set, 20% (200 bags) may be
fully set and rest 40% may have suffered no damages at
 5

all. So, the salvage manager’s duty shall be to take an

account and distinguish between various categories of loss
as per nature and extent of damage suffered by the
salvaged merchandise, which may range between 0% to
100% loss. This accounting for salvage on the basis of
degree and nature of damage suffered is called
‘Segregation’.

Segregation of salvageable goods may be done as per

quantity and/or quality. Suppose, there is a flood in a
chemist shop, in that case, the salvage manager shall
prepare inventory both quantity wise and quality wise,
mentioning the nature of medicine, its make,
manufacturing and expiry date etc. and at the same time
taking into account the quantity of each type of medicine.

This activity is usually done jointly by the salvage manager

in the presence of Insured / owner of goods.

3. Salvage Protection:

Once the salvage manager identifies the salvageable

material and takes an account of salvaged merchandise,
next step is to ensure proper protection of that salvage.
This protection can be of various types. For example,
saving water affected fabric by getting it dried or saving
chemical from getting contaminated or evaporated by
exposure to air. Sometimes, getting a salvage disposed of
as early as possible in itself becomes salvage protection
like in the case of perishable goods. Making the salvage
presentable for prospective buyers is also a part of salvage
protection.

4. Salvage Valuation:

After the salvage is protected and / or made presentable,

next step is to determine its possible market value through
a series of calculations. This exercise gives an approximate
idea as to what should be the market value of the salvage.
Various factors that may determine the market value of
salvage are the demand of salvaged commodity in market,
nature and extent of damage suffered by the material,
local market for salvaged merchandise and so on.

5. Salvage Value Optimization:

Salvage Value Optimization is a part of salvage

management process and refers to the effort of salvage
 6

manager to ensure maximization of salvage disposal

proceeds through salvage marketing, creation of
competition among buyers and so on. This can be
implemented through various techniques of competition
generation and marketing such as publicly or privately
auctioning the salvaged merchandise, calling for tenders,
giving newspaper advertisement and so on. Any method
that may increase the demand of particular salvage
merchandise in the market and at the same time is fair
and transparent to all the parties involved may be used for
optimizing the salvage realization.

Conclusion:

1. A Salvage Manager has broadly got two roles to play:

(i) As Salvors (salvage identification, quantitative and

qualitative inventorization & segregation, salvage
protection); and

(ii) Salvage Valuation and Optimization of sale proceeds

(Salvage marketing, creation of competition among
buyers and ensuring smooth disposal of salvage).

2. Salvage Management is not just about maximizing salvage

realization but salvage value optimization is only a small
part of salvage management.

Notes:
 7

Chapter 2

Present System of Salvage Handling and its

Shortcomings

An overview of present salvage handling system being followed by

Insurers in Indian General Insurance Industry

1. Occurrence of Loss;
2. Adjuster appointed and she visits the site of loss where
she apart from doing various activities related to loss
verification and loss assessment, also handles salvage
by salvage identification, segregation, inventorize the
goods and so on.
3. Adjuster requests the Insured to retain the salvage till
further instruction and protect the salvage.
4. Salvage Assessed by the Adjusters based on their
experience and, if required, quotations called from
open market by the Adjuster and/or Insurers.
5. Salvage is assessed based on the highest quotation so
received. Tenders called and newspaper advertisement
published in case of large salvages.
6. In case insured offers more, Generally they are allowed to
retain the salvage, else disposed to the proposed buyer
under Adjuster’s supervision.

Shortcomings noted in the above salvage handling system, which

may be divided into three categories:

I. Shortcomings relating to Management of Salvage

II. Shortcomings relating to Valuation of Salvage
III. Shortcomings relating to Methodology of
Salvage
Settlement/Disposal.

I. Shortcomings relating to Management of Salvage:

Following five shortcomings may be noted in the present
system of managing salvage:

a. Insensitivity of Insured towards salvage: The salvage

remains in the custody of the Insured and the
responsibility to manage and maintain it remains with the
Insured who Generally tend to be insensitive towards the
salvage. When a proposed buyer inspects the salvage it is
not at all in presentable state and there itself the expected
value of salvage goes down. Almost all the insurance
policies now-a-days are on RIV basis. In such
 8

circumstances, Insured has got a tendency to expect new

for old and in the process tend to ignore salvage. Proper
management of salvage is Generally not a priority for the
Insured.

b. Possible Misappropriation of Salvage: Over a period of

time, before the claim gets settled, Insured sometimes
tend to utilize or sell the unaffected or less affected items
out of the salvaged merchandise. In such case, if later on
Insured retains the salvage, Insurers end up paying full
value to the Insured in respect of such utilized items and
get a nominal amount reduced from the claim amount as
salvage offer from Insured. There is no system of re
inventory of salvage where Insured retains the same.

c. As an Adjuster, it is not feasible to keep day-to-day

supervision of the salvage vis-à-vis inventory prepared by
them.

d. Delayed salvage settlement: Where the claim settlement

takes long, the salvage value normally deflates over a
period of time. Now, since salvage is normally disposed at
last stages after loss ascertainment / settlement, the
quotes are considerably lower than its potential value at
the time of loss. It may be pointed here that loss is
indemnified as on date of loss but salvage value is
considered at a point of time much later than that in such
cases.

Even if in some cases the salvage value inflates as

compared to the date of loss, the Insured may not agree
to the same. In some cases, the value of salvage inflated
so much that the actual value of loss as per rates as on
date of loss appeared negligible. Insurers, in such cases,
have to face a lot of hurdles in convincing the Insured, if
at all.

e. Deterioration in salvage value, if any, normally remains

unaccounted.

II. Shortcomings relating to Valuation / Optimization

of Salvage realization:

Presently the onus of handling the salvage and disposing it

lies with the surveyors and loss adjusters. To comment on
the present system of salvage handling by loss adjusters
relating to valuation would become a lot easier with the
help of following imaginary story:
 9

One day, a Paper consignment and a Rubber consignment

(both a recent subject matter of their respective
insurance claims) met at a marketplace and had the
following friendly conversation:

Rubber to Paper: Hey! How are you doing?

Paper to Rubber: I am great, how about you?

Rubber to Paper: I am not feeling that good!

Paper to Rubber: Why baby? You look to me in quite a

reasonable shape despite facing
fire damages recently. Look at me, I
am old, out of my shape after that
flood incident, and yet I am
so happy!

Rubber to Paper: You know, I was sold off by the

Insurance Adjuster for a paltry 20% of
my original value to a commission
agent who shall now find an end
consumer for me or may be I could
face further trading. I was treated like
an unwanted thing in everyone’s life
and they just wanted to get rid of me
ASAP. I feel ashamed. This buyer was
the same old guy out of Adjuster’s
books whom she sells Paper, rubber,
sugar, cotton, rice, wheat, candies, or
may be airplanes!

Paper to Rubber: Oh My God! 20%?! for you? That’s

pathetic. You know I was sold off to
an end consumer for a handsome 40%
despite facing severe water damages.

Rubber to Paper: 40%?!! How come?

Paper to Rubber: Thanks to my Insurers who handed me

over to a professional salvage
manager who took care of me,
marketed me, found an end consumer
for me and got me sold off within 10
days. She already had around 100
potential buyers for me, in addition to
locating fresh buyers, whom she called
 10

up, generated interest, competition,

facilitated my several inspections and
so on. She sort of loved me you know,
and took full interest in me, I must
say.

Rubber to Paper: Wow! I hope many more such

professionals come to Indian General
Insurance Industry, who TAKE CARE!

The above imaginary story, though light heartedly, points out a

very crucial shortcoming of salvage handling system in Indian
General Insurance Industry that is the lack of potential market
creation by Loss Adjusters and Insurers for disposing the salvage,
due to various limitations.

In our Indian General Insurance Industry, underwriters and

adjusters manage the salvage process, relying on a local market
and the two or three bidders in their area. There has been a
limited opportunity to build a broader market and limited expertise
in the material involved. However, given the size of the potential
salvage market, a concentrated effort to tap the same can create
a tremendous opportunity. The use of Internet-based salvage
marketing technology can be one of the ways to achieve that.

If the salvage is churned by its proper marketing, research and

advertisement through various channels like internet, word of
mouth marketing, and newspaper etc., loss can be mitigated by
having got realized the Optimum Realization Value of the salvage.
In most of the traditional salvage disposal efforts, available
proposed buyers usually are limited to two or three. Using the
online and other marketing techniques we can attract a dramatic
increase in competition on an international level and the resulting
proceeds.

Today, so much time is being invested by Insurers and Adjusters

in word of mouth negotiations with no satisfaction of optimizing
salvage realization at the end of day. This is just like when one
purchases something from a shop that allows bargaining, she is
never satisfied with the bargain unlike in case of a fixed price
shop. We need to determine the price through law of economics
and not through word of mouth. Let the market competition and
law of economics decide the price, otherwise we would never
know whether we have negotiated the maximum value or not,
irrespective of the extent to which we have perspired for that.
 11

Time that Insurers and Adjusters invest in negotiations may be

utilized in developing innovative methods of cost avoidance and
improving operations.

Following five shortcomings may specifically be noted in the

present system of salvage valuation / optimization:

a. Insurers and the Adjusters rely on a limited market, limited

experience relating to the salvage merchandise in
question, and a few proposed buyers showing interest in
the salvaged merchandise resulting in total lack of
competition.

b. Not much education or interest is created for the buyer to

generate real interest. Most of the times, Adjusters send
proposed buyers to inspect salvage without properly
informing them about nature and extent of damages.
Sometimes, the visit itself is unplanned and unsolicited.
Information provided beforehand to the proposed buyers
in the form of photographs, online catalogue, nature and
extent of damages with quantitative and qualitative
inventory, can help buyers take informed and quick
decision. A salvage manager or her representative, should,
as far as possible, accompany proposed buyer during
inspection so as to provide proper guidance relating to
salvage identification, nature of damages etc. and
coordination with the owner of goods.

c. Adjusters find limited time and have limited facilities to

concentrate on salvage management. They normally do
not market and advertise the salvage, tap the potential
market, and hence do not optimize salvage realization.
Also, as an Adjuster they are expected to only opine about
the probable assessment of salvage and not actually
optimize the salvage realization. Another drawback is the
lack of reporting capabilities as regards salvage in majority
of cases, which often leaves the analysis of salvage to
anecdotal verification instead of thorough and quantifiable
facts.

d. Insured are the best buyers of the salvaged merchandise,

always. But, it needs competition and marketing to get
their hidden margin out.

e. Insured mostly either reject the salvaged material or quote

very less, primarily because of two reasons:
 12

-Mostly the insurance policies are on NRV basis and since,

Insured get new for old; they Generally do not show much
concern about minimizing the loss by offering reasonable
salvage value.

-Since the salvage remains their property and lies in their

custody, they wait for the Adjuster to get a better quote
and then accordingly increase their quotation using the
Adjuster’s quote.

III. Shortcomings relating to Salvage Settlement /

Disposal:

The methodology being adopted by Insurers for settlement

/ disposal of salvage needs alteration. It is to be
understood that when a claim arises, the property in
salvage remains with the Insured until the claim is paid.
But since Insurers are the ones who are concerned with
the recovery out of salvage, they themselves or through
Adjusters go on to offer the said salvage to open markets
without subrogation of rights in their favor.

To cater to this problem, a salvage manager is advised to

act only on the behalf of Insured, Insurers being
facilitators of salvage sale. An agreement needs to be
entered between the Insured and salvage manager
agreeing to all the terms and conditions of salvage sale.
This way, since the Insured also gets involved in salvage
sale, there is minimal resistance as regards salvage
settlement and disposal.

Conclusion:

There is an urgent need to understand the various shortcomings

in our present system of handling salvage. We need to scrap the
old methodology and consider the need of the hour and adopt
salvage management religiously.

Salvage Management is a full time job. It cannot be a small part

of so many things that a loss adjuster is supposed to do. If at all
we expect an adjuster to spend so much time on salvage
handling, then the loss assessment activity itself may get
hampered and we would lose in that respect. Perhaps that is why
an adjuster as per rule and custom, is expected to just opine on
the probable salvage realization based on his General market
inquiries and not actually perspire to get some good results in that
respect.
 13

Salvage management needs to be made a regular part of the

claims activity. Just like we appoint an adjuster after a loss takes
place, similarly we need to call for salvage management
immediately. We should not rely on adjusters anymore for our
salvage handling or disposal needs, just like we would not rely on
a dentist to cure head ache!

Notes:
 14

Chapter 3

Purpose of Salvage Management

In Chapter 1, we identified the components of Salvage

Management and in Chapter 2, we discussed the way in which
salvage is being handled and also identified the shortcomings
therein. Now, keeping in mind the discussion in earlier chapters,
let us discuss as to what actually is, or should be, the purpose of
Salvage Management.

Purpose of Salvage Management is manifold. Basic purpose of

salvage management, however, remains to maximize the
realization through salvage disposal. Although the purpose of
salvage management may be derived from the shortcomings of
present salvage handling system itself, to make it further easier to
understand, let us discuss the purpose point wise. Nine major
purposes of salvage management may be identified as under:

1. Educating the Insured about the importance of

salvage:

An insured need to be educated about the importance of

salvage and that it means hard cash for both the Insurer
and the Insured. As salvage managers, it is our prime duty
to communicate the same to the Insured and request
them to appreciate the concern over salvage. In fact,
appointment of a salvage manager or a person dealing
professionally in salvage by Insurers, in itself should be a
message to the Insured that we care about the salvage.

2. Accounting for and Protection of Salvage:

As pointed out in Chapter 2, there is a possibility of

salvage misappropriation either intentionally or
unintentionally while it is kept at the Insured’s place during
the claim settlement period. A Salvage manager is required
to keep in touch with the salvage merchandise, keep a
day-to-day account to the extent possible, specially in case
of bulk salvages and re inventorize the salvage before
actual lifting or even if the same is retained by the
Insured. Also, help protect the salvage from further
deterioration and try and make the salvage presentable to
the proposed buyers during inspections are important
duties of a salvage manager.

3. Speedy Salvage Settlement:

 15

It has to be understood as a salvage manager that more

the salvage settlement is delayed, lower the realization of
salvage, except in exceptional cases where the market of
salvage inflates like in case of ,say, jewelry, gold etc.

4. Marketing the Salvage:

Once the salvage merchandise is identified and accounted

for, next step is to identify the market for that salvage, a
limitless market. Proper salvage marketing without any
boundaries is of utmost importance so as to ensure quality
buyer response and cut short the chain of intermediaries
who are the only ones taking benefit out of salvage
realization. We will discuss in details in Chapter 4 the
possible methods of marketing salvage.

5. Creating competition among buyers:

After having identified the proper market for salvage and

approached interested proposed buyers from the market a
salvage manager needs to create some sort of competition
among those buyers, as the buyer’s intention will naturally
always be to earn the maximum out of deal. There are
various methods of creating competition among proposed
salvage buyers which a salvage manager uses. The
methods shall be discussed in Chapter 4.

6. Ensure buyer genuinety and quality:

It may be possible to find many buyers for salvage but a

salvage manager should always be confident about the
genuinety of a buyer before entering into a transaction
with him. Genuinety here not only means the financial
capacity of the buyer to transact, but also the genuinety as
a business citizen of the country. For example, the
manager should check the PAN No., TIN No., Telephone
No., Email id, Postal address and so on.

Apart from being genuine, a salvage manager needs to

ensure that the buyer is of quality. It should ideally not be
like the buyer is buying everything from a pin to airplane.
The Manager should concentrate more on the end
consumers or at the least try to cut the chain of
intermediaries as short as possible.
 16

7. Formulate terms of sale, supervising disposal and

payments:

A salvage manager, in coordination with the Insured and

the Insurers and depending on the nature of deal should
formulate and suggest various terms and conditions which
are necessary to facilitate a smooth and legitimate
transaction. For example, fixing the period within which
buyer would lift the material, or fixing the period or
schedule of payment, or the terms relating to the
transportation and so on. As already pointed out earlier, a
salvage manager is advised to act only on the behalf of
Insured, Insurers being facilitators of salvage sale. An
agreement may be entered between the Insured and
salvage manager agreeing to all the terms and conditions
of salvage sale. This should be the most legitimate way of
selling salvage.

8. Inventorise/ Re inventorise the salvage:

While the salvage is being lifted by the buyer, or even if

retained by the Insured, salvage manager should
Inventorise/ Re inventorise the salvage before settling
salvage.

9. Fairness and Transparency:

Maintaining overall transparency and fairness among

buyers, Insurers, Insured and Surveyors should be
considered as a religion of a salvage manager. Creating
buyers’ trust in the system of salvage sale is of utmost
importance, which has been missing till date in the
insurance industry.

Conclusion:

The ultimate purpose of Salvage Management is to maximize the

salvage sale proceeds. But to achieve that, there is a series of
steps that needs to be taken into consideration and adopted.
Maintenance of trust and fairness is of utmost importance.

Notes:
 17

Chapter 4

Methodology of Salvage Management

Until now we have been discussing the ‘whats’ of salvage

management and now let us get down in the field and learn the
‘hows’ of salvage management, i.e., the methodology of salvage
management. As we have discussed earlier that the overall
purpose of salvage management is to maximize the salvage
realization and, therefore, the whole methodology of managing
the salvage should be directed towards optimization /
maximization of salvage value. Accordingly, the methodology may
be discussed under the following heads:

1. At the site of loss;

2. At the office of salvage manager.

A. At the site of loss:

At the site of loss, the aim of salvage manager, as

discussed earlier, is to identify, segregate, protect the
salvage and so on. A salvage manager should ideally visit
the site of loss immediately after the occurrence of loss
alongwith his team and should attend and facilitate the
activities like salvage identification, process of segregation,
protection of salvage and so on. Special care needs to be
taken in case of perishable and precious items. Detailed
photography is a must explaining the nature and extent of
loss. Strategy as to how to protect the salvage from
further deterioration and what can be the best possible
way to get the salvage disposed of may be formulated in
coordination with the Insured and the Adjusters.

B. At the office of salvage manager:

Back at the office, salvage manager has to ensure that the

salvage on the basis of photographs and other details is
being marketed in relevant areas, a fair and genuine
competition is generated between interested buyers and
finally salvage disposed of smoothly. Various methods of
salvage marketing may be as under:

1. Marketing the salvage:

a. Push Marketing: Communicating with market

through telecalling, emailing, physically through
post, with reference from internet, directories,
 18

journals, etc. and informing them about the

availability of salvage;

b. Pull Marketing: Using a website portal: This is a

very good method of salvage marketing but
requires a lot of time for the manager to develop a
portal and then popularize the same because once
the salvage is uploaded on the manager’s website
then the response of buyers depends on the
popularity of the portal itself. For example: when
an interested salvage buyer searches for the word
‘salvage’ on a search engine say google, then she
should be able to visit the manager’s website and
reach the salvage of his interest. If achieved, this is
the best way to market salvage because of two
reasons, first being that the buyer is approaching
the manager with an interest created beforehand
instead of the manager going to the buyer and the
second is that the portal itself acts as a catalogue
for the various salvages that manager may be
marketing at a given point of time. It becomes very
easy for proposed buyers to understand the
salvage, its nature and extent of damage and other
required information ;

2. Creating competition among interested

proposed buyers:

This is the essence of selling salvage that may be

achieved through various methods such as calling
for tenders, calling for sealed quotes, openly
negotiating with buyers and so on. All these
methods of creating competition have been in use
by the Insurers and surveyors ever since the
concept of insurance came into existence.
However, all these methods are not scientific and
Generally prove incapable of creating a genuine
and fair competition and as a result
buyers/intermediaries have been able to really suck
money out of Insurers’ funds by earning margins in
the range of 10% to even 300%.

As a salvage manager, I have witnessed the power

of selling through online-auction. There is an old
Chinese proverb which says ‘May you live in
interesting times’. We all are indeed witnessing
interesting times. In the last decade, the
marketplace has interestingly transitioned from
 19

place to space and this process shall continue in

the times to come. Today we can buy/sell almost
anything anywhere at our desktops or for that
matter at palmtops. Most interesting of all is the
fact that how this transition has transformed the
real physical world to virtual for the benefit of all.

In traditional physical markets, the sellers could

only sell their products to a limited number of
available buyers and had to depend upon their
needs, tastes and preferences. In current virtual
markets, they, however, are free to sell their
products to anyone anywhere taking full benefit out
of competition so created. Similarly, buyers take
benefit of infinite supply and choice and at the
same time the satisfaction of procuring the
commodity at a value nearest to their desired value
for the same.

Following two important points may be noted:

a. Use of online auction for creating competition

and selling salvage by forming an online
marketplace: This is the best method to create
competition among various interested buyers in
a safe and transparent environment. Buyers
can visit the website and participate in online
auction from various parts of the same country
or even from foreign countries. Even Insured
can also participate in the auction if she is
interested in retaining the salvage. Therefore,
the geographical limitation which undermine
the salvage realization would no more be able
to play its part and maximization of salvage
realization shall be taken care of by market
dynamics;

b. Facilitating a fair, clean and transparent

environment for the buyers to transact: Buyers,
in our present system of salvage handling, are
not being given much attention. They are
normally not treated well either by Adjuster or
by the Insurers. An average buyer gets
frustrated while dealing in insurance salvage.
However, if at all we want to get succeeded in
selling our product at optimum rates, creating a
good environment for the buyers is very
 20

important. (This subject is dealt with in detail in

the next chapter).

Various online marketplaces such as Ebay, Amazon

etc. have already proved to the world what an
online auction platform can do in case of retail sale.
Then why not General Insurance / Industrial
Salvage?

The best method till date being adopted by Indian

General Insurers to maximize the competition as
regards salvage disposal is the calling of sealed
bids through open tender system in a newspaper.
But, this system in itself suffers from a lot of
shortcomings such as cartelling, pooling and so on.
Insurers believe that they do negotiate with highest
bidders even after opening of tenders but it needs
to be appreciated that the moment we let two
bidders meet in person, they form a cartel. Its
business tendency! Therefore, its time to switch to
more scientific methods to create competition such
as online auction.

3. Accepting payments from buyers and

facilitating lifting / disposal of salvage:

The last but the most important step in the whole

process of salvage management is to accept
payment from the buyer and facilitate salvage
disposal as per the terms and conditions settled
before sale.

Conclusion:

In this world where at every step we can find technology and

advancement, then why let the process of salvage disposal be left
alone. We need to implement all the scientific methods that we
can think of to manage salvage and maximize salvage realization
and at the same time creating and maintaining a fair and
transparent environment to all concerned.
 21

Chapter 5

Treating Salvage Buyers

As I have always believed, a salvage buyer is one of the most

important components of the salvage disposal activity; I continue
to believe so while acting as a salvage manager as well. During
last one year, I had met more than 100 buyers and tried to
understand their mentality, their problems and as to why can’t
they get any recognition in the Insurance market. The reasons
were many.

A salvage buyer, in our present system of salvage handling is

considered to be the least important person, considering that they
are available in plenty, anywhere and everywhere. But in my
opinion, the moment we start thinking like that, we start losing
money. It should be appreciated that Junk dealers may be
available in plenty but not a salvage buyer, a buyer who is
interested in buying salvage because she needs that commodity,
is hard to find. Only because of the treatment that a salvage
buyer gets from Insurance Industry, genuine traders are not
interested in trading Insurance salvage. They are ready to deal in
goods lying with customs, railways etc. but not with Insurance
companies. Most of the Adjusters use salvage buyers just with an
intention to negotiate with Insured in the end and Insurers also
support them without recognizing the fact that without these
buyers its not possible to bridge the gap between Insured’s quote
and fair market value of salvage.

Let us examine the situation more closely.

1. Communication of buyer’s status to the Insured:

The importance of salvage buyer is never communicated

to the Insured in our present system. In case the buyer is
visiting the Insured’s place for inspecting the material
without an adjuster accompanying him, then the situation
is not very friendly.

As a salvage manager, one should try to accompany the

buyer during his visit to inspect the goods, at a particular
date and time and ensure smooth inspection.

2. Retention by the Insured:

As per feedback I got during my conversations with

salvage buyers, an average salvage buyer travels not less
 22

than 4000 to 5000 kms per annum for salvages that she
never gets without any particular reason being assigned.
As salvage manager, one must understand that the cost
that she incurs in such cases is ultimately being recovered
from the pockets of Insurers only. The buyer just waits for
one assignment to click and then its party time for him.

As a salvage manager one needs to ensure that a level

playing field is created for all the parties who are
interested in the salvage. Even if Insured is interested in
retaining the salvage, they should be made a part of
common platform and participate alongwith other buyers
in bidding for material. In no circumstances, should any
buyer feel discouraged or cheated, because otherwise one
day she would like to recover that lost money in some way
or the other, as explained earlier and also the Insurers
would have to surrender to the Insured due to lack of
interested buyers.

3. Lack of transparency and fairness:

Almost all the buyers complained of lack of transparency

and fairness in salvage disposal. Especially due to the
General method of random negotiations that an
adjuster/insurer follows to maximize the salvage
realization, buyers do not trust the Insurance Industry as a
whole. Because of lack of transparency and scientific
system of salvage disposal, buyers develop a sense of
cheating and overall community is affected.

As salvage manager one should ensure as far as possible

to scrap with old methods of salvage negotiations and
adopt a scientific approach through online auction or the
next available fair and transparent mode such as calling of
sealed tenders etc.

4. Problems faced during lifting of material:

It is of importance that a salvage manager is present

during salvage lifting operation and manages the show.

Conclusion:

If we give good treatment to a salvage buyer and try to earn his

trust by providing for a fair and transparent system of salvage
disposal, we will be bettered of as an Adjuster, as an Insurer and
as a society. Although a buyer being a businessman will always be
interested in earning profit, but she will think twice before robbing
 23

Insurers by earning say 100% profit out of the deal and instead
might feel good by earning say 20%. Insured, we all know is the
best buyer for salvage, but at the same time Insured needs to be
treated as a normal buyer for that commodity and needs to
participate in the common bidding platform and win the salvage
transparently.

I personally feel that creating a good environment for salvage

traders is one of the social responsibilities of General Insurance
Companies. This might take some time, but atleast we need to
make a start.
 24

Chapter 6

Salvage as a Risk Management and Claims Management

Tool in Developed Countries

The connection between the insurance industry and salvage isn't

new. In developed countries, salvors and salvage professionals
have been working with Underwriters and Adjusters on a regular
basis. Underwriters have been able to lower down their claims
ratio to a great extent by getting the salvage managed, marketed
and advertised through these professionals.

Salvage Management is not only being used as a Claims

Management tool but also as a much needed Risk Management
tool in developed nations such as the U.S.A. and the U.K. Let us
examine as to how Salvage Management can manage both risk
and the claims.

I. Salvage as a Risk Management Tool:

As per a U.S. magazine, Insurance Agents and Brokers can save

money for their clients by properly managing and using the
salvage after a loss. By being proactive with a salvage plan in
anticipation of losses and responding quickly after a loss with
effective salvage of damaged goods or disrupted shipments,
clients can reduce their net loss from a mishap and the total claim
against their insurance policies. Clients can keep large losses
within their self-insured retentions or deductibles and completely
eliminate extra charges against their loss ratio. In this time of high
rates and hard markets, salvage can be turned into real premium
savings. Agents and brokers are usually the first to hear when a
disaster befalls their clients, but when they get that fateful call,
there’s only so much they can do to help. They alert insurers,
contact an adjuster if an underwriter asks them to, and try to
provide as much personal support as they can until claims
compensation is ready. But a loss is a loss and that’s the way it is.
Various global brokers such as Aon are working with salvage
managers, to incorporate salvage into client risk management
programs and use the salvage process to reduce claims and, as a
result, property/casualty insurance rates. In our country,
insurance brokers do not pay much attention to the salvage
process. It is pretty much a local activity and considered incidental
to the risk management and claims process.

II. Salvage as a Claims Management Tool:

 25

Facing severe competition from the market, we are looking to

improve operations so as to drive the bottom line. It is imperative
to employ innovative strategies for loss minimization and cost
avoidance. To stay competitive, we must improve all elements of
the claims settlement process such as total claim turn around
time, salvage proceeds, and cost avoidance.

Underwriters/Insurers maintain data relating to premia collection,

claims reimbursement, profit/loss etc. but seldom the attention is
given to the proceeds collected from sale of salvage, the
compromise made due to limited availability of salvage buyers,
product knowledge, product marketability etc.

By adopting salvage management, following benefits would

accrue to the Insurers to start with:

a. Maximizing realization from sale of salvage over a period

of time leads to much needed ‘lower claim ratio’ for the
Insurers;
b. Shorter Claims Turn Around Time (TAT);
c. Complete salvage management solution saves time and
manpower of Insurers, which can be invested in
developing some more innovative ideas for claims handling
and management;
d. Insurers are able to have complete control over the
salvage settlement/disposal activity with our transparent
salvage management system.

One of the hidden and most beneficial result of salvage

management as per my experience, is that is acts as a check on
loss assessment activity itself and parties involved in loss
assessment, apart from assisting them. Salvage is interlinked to
so many aspects in relation to a claim. A re inventory of salvage
when salvage is retained by Insured can unearth misappropriation
of salvage (Refer Chapter 7, Case Study I), proper and dedicated
inventory and segregation can make an Insured to reduce the
claim estimate itself by more than 50% (Refer Chapter 7, Case
Study II) and so on.

Conclusion:

Innovation is the need of every industry. In insurance industry

there has been a lack of innovation, especially in the way we
process our claims. By adoption of salvage management, a much
needed break may be given to the Industry and the claims
processing might improve.
 26

Chapter 7

Case Studies

Let us discuss two Case Studies based on actual assignments

accomplished as a Salvage Manager by my Company:

Case Study I (Salvage Optimization): Fabric Damaged due

to Inundation at a warehouse in Faridabad under
Standard Fire and Special Perils Policy.

Facts of the case:

• As reported to us, 52000 meter fabric and packing material

of the Insured got water damaged due to Inundation in
their warehouse at Faridabad (Haryana)

• Adjusters had procured quotation from one proposed

buyer over a period of around 3 months

• Insurers chose to avail our salvage valuation optimization

service

• Quotations already with Insurers through Adjusters were

submitted to us

• Claim Value was around INR 30 Lacs

Our Response:

Step 1:The salvage market maker immediately, based on details

furnished by the Insurers and Adjusters, displayed
the salvage on our website that in turn is being
marketed on the net through Google.com,
Tradeindia.com, Tendercircle.com, Bimabazaar.com
etc.

Step 2:It was planned as to in which areas the said material

would find market and those areas were specifically
targeted throughout NCR, Haryana, Punjab and
U.P.

Step 3:Proper thought was given to the season in which the said
material could find best market and where. It was
ultimately decided that since Deepawali was
 27

nearby, the material would be marketed and sold in

the festive season of Deepawali as the sales of
fabric and packing material shoot up during that
period.

Step 4:Our team started marketing it in and around NCR region

through door-to-door marketing based on samples
collected.

The Result:

• It took us around one week to get the salvage settled for

INR 8.68 Lacs against the highest quotation of the
Insurers of INR 7.63 Lacs, a Net Gain of INR 1.05 Lacs

• The buyer was procured from Panipat (Haryana) through

our website

• We further negotiated the amount with the buyers already

on record as per quotation submitted by the Adjusters

• The same buyer who earlier quoted INR 7.63 Lacs now
quoted INR 8.00 Lacs, but still lower than our buyer

• We also negotiated with the Insured and gave chance to

them to accept the material at a value higher than INR
8.68 Lacs, but no interest was shown

FINAL RESULT:

• The salvage was sold to the buyer procured by us

• During our supervision of actual lifting of the fabric

salvage, total 4000 meter fabric was found short and
actual lifting was effected for only 48000 meter as against
52000 meter shown in Adjuster’s inventory

Conclusions:

Case Study I- Monetary benefit to the Insurers:

• Salvage value increased by INR 1.05 Lacs

• Apart from decrease in Loss Assessed by salvage amount,

it further got decreased by the value of 4000 meter fabric
that was found short, valuing around INR 2.00 Lacs

Case Study I- Benefit in terms of Claims Management

 28

• We took care of salvage settlement, disposal, lifting and

final payment to the Insured saving much precious time of
the Insurers

• Based on our final lifting report, Insurers adjusted the loss

• Got regular feedback from our side regarding the status of

salvage settlement and disposal

• Satisfaction of having the salvage disposed of at the

optimum value

• Insured gets educated about the matter of salvage

• Adjusters get an extended hand to improve their efficiency

as regards salvage management
 29

Case Study II (Salvage manager acting as a Salvor):

Salvage of Fire affected electrical items lying at a
construction project of five star hotel in Hyderabad under
CAR policy.

Facts of the case:

• As reported to us, various electrical items such as MCCB’s,

Copper cables, Pipes, etc. got burnt due to an extensive
fire at a project site of a five star hotel in Hyderabad
valuing around Rs. 2.52 crore.

• Insurers chose to avail our Salvor service.

• Reported Claim Value was around INR 2.52 crore.

Our Response:

Step 1:Our team immediately, based on details furnished by the

Insurers and Adjusters, visited the site of loss and
coordinated with Insured and electrical contractors.

Step 2:It was planned to conduct complete qualitative and

quantitative inventory of salvage lying at the site
vis-a-vis the Value at Risk provided by the Insured
to the Adjusters, which they claimed to have totally
lost in fire and worth Rs. 2.52 crore.

Step 3:Each and every identifiable item was measured / counted

and complete inventory was prepared. It was found
that around 10% items were completely gutted in
fire and rest was identifiable and measurable.

The Result:

• It took us around 15 days to take complete qualitative and

quantitative inventory.

• The inventory when got compared with Insured’s item

wise Value at Risk, it was revealed that the items claimed
by the Insured were actually not the Value at Risk but
more than 50% items claimed to have been lost in the
incident were actually already got installed in the rooms of
the hotel. The Insured / electrical contractors were
claiming for all the items that had been brought on the
 30

project ever since date of commencement, instead of

claiming the Value at Risk.

• The claim that was earlier estimated at Rs. 2.52 crore, got
reduced to around Rs. 1 crore.

• Apart from that, due to proper segregation of burnt items

into various categories such as copper, M.S. scrap etc., we
were able to realize a salvage value of around Rs. 16 Lacs.

FINAL RESULT:

• The claim that would have been paid as per Insured’s

estimate of Rs. 2.52 crore, was paid as per revised
estimate of Rs. 1 crore less salvage and other
adjustments.

Conclusions:

Benefit to the Insurers:

• Claim value got decreased by around INR 1.50 crore

• Apart from decrease in reported claim value, salvage value

of Rs. 16 Lacs approx. was realized from burnt scrap.
 31

Case Study III (Salvage Optimization- The power of

competition): Sugar damaged due to Inundation at a
warehouse under Standard Fire and Special Perils Policy
and declared as total loss by Adjusters.

Facts of the case:

• As reported to us, 28000 bags of 100 kg each got water

damaged due to Inundation in warehouse.

• Adjusters had pronounced the material as total loss as the

two lower most rows kept submerged in water for more
than two weeks.

• Insurers chose to avail our salvage valuation optimization

service.

• Adjusters suggested around 10% to 15% recovery

• Claim Value was around INR 4.25 Crore

Our Response:

Step 1:The salvage market maker immediately, based on details

furnished by the Insurers and Adjusters, displayed
the salvage on our website.

Step 2:It was planned as to in which areas the said material

would find market and those areas were specifically
targeted throughout U.P. and Haryana.

Step 3:Our team visited the site of loss.

The Result:

• Based on our market feedback, we suggested 63%

recovery for sugar that was declared as ‘Total Loss’;

• The buyer was procured from Panipat (Haryana) through

viral marketing technique;

• When the news of 63% salvage realization reached

Adjusters, they inquired from the buyer already with them
who earlier suggested 10% to 15% recovery.
 32

• The same buyer who earlier suggested 10% to 15%

recovery now showed the audacity to suggest 65%
recovery.

• We suggested online auction to Insurers and got

permission.

• Both the buyers came on the auction platform without

knowing each other and within 20 minutes the recovery
further shot up to 87%!

FINAL RESULT:

• The salvage was sold to the buyer procured by us and

partly to the other buyer.

• During our supervision of actual lifting of the sugar

salvage, total 4000 bags were found short and actual
lifting was effected for only around 24000 bags as against
28000 bags originally intimated.

The above case study gives a classic example of how an

environment of competition can get the price shoot up in seller’s
favor. Although everyone including us was very happy after
having achieved 63% recovery, but we never knew that still there
was so much hidden margin in the deal, which came out only
when we let the market dynamics play their role and let them
determine the price as per law of economics without human
interference.
 33

Chapter 8

Role of Salvors- The Ultimate Tool

As discussed earlier in Chapter 1, a Salvage Manager has broadly

got two roles to play, one as a ‘Salvor’ and the other as a ‘Salvage
Value Optimizer’.

As a salvage value optimizer, a salvage manager sells salvage at

the fair market value by creating competition in the market
through various online and offline techniques. However, before
that she needs to make sure that the first step of acting as a
salvor has been accomplished perfectly. Infact, selling the salvage
is the easier part. The scope of a salvage manager goes beyond
just selling salvage. Proper inventory and subsequent valuation of
salvage is the utmost important part as witnessed in Case Study II
in Chapter 7. Although the amount of money saved due to the
efforts put in as a salvor would not show as a direct benefit
through the salvage sale proceeds but that should not undermine
the benefits of acting as a salvor and should also not deter a
salvage manager from concentrating heavily on the salvor activity.

As salvage manager I have witnessed various cases where the

subject matter of insurance, especially in marine cases, is left in
the same damaged condition (be it affected by water, smoke or
any other peril) in which the consignee received it. Over a period
of say minimum 7 to 10 days (an average time an adjuster takes
to settle claim), the affected item actually becomes damaged and
its market value starts deteriorating day by day. In one instance,
a consignment of imported water affected CRGO sheets got not
only rusted but also pitted due to the rust as the same was left
packed in wet condition in wooden boxes for more than 2 months
without even caring about opening the boxes and let the sheets
get dried and save them from rusting and subsequent pitting. This
carelessness, though did not reflect anywhere, but cost Insurers
handsomely. A salvor would not let that happen. It’s his prime
duty to apply mind on salvaging rather than only collecting and
verifying various records and documents in the process of which
the salvage gets ignored to a great extent.

For an adjuster, it’s always better to involve a salvage manager at

an early stage after loss. The manager can point out the best way
to handle the salvaged material. She can point out the potential
problems that the adjuster may face at later stages. It may be
noted here that all the shortcomings at the initial stages though
are not reflected anywhere, salvage proceeds being the only
judgment criteria, but it is here that the Insurers can start saving
 34

money by paying attention. It is very easy to forego one or two

steps of segregation or inventory and let the Insured do it for us
and later tallying with the list so prepared by Insured, but, with
due respect, it is to be borne in mind that Insured is a
businessman and a claim is the perfect occasion for her to get rid
of various obsolete items, damaged items, and sales returns— at
full value!

An adjuster is a very busy person. It cannot be expected from her

that she would first be handling the salvage with intent to get a
good value and then perspire to get the same sold in the market
at an optimum value. A salvor, on the other hand, after having
gone through various dedicated activities of salvage management,
gives her very best and applies all her experience, or appoints
some expert for that matter, during the salvaging process.

Conclusion:

There is no point further skirting the issue,

 35

Chapter 9

Implementing the Salvage Management Process

Salvage Management needs to be made a procedure rather than a

subject of choice or will. It needs to be injected into the claims
procedure so as to reap true benefits of the process, as has been
done in developed countries. Leaders of the industry need to
support and be a part of this change and facilitate its
implementation into the system. To increase impact and
receptivity, all the people involved in the claims process need to
be communicated and demonstrated the benefits of new system.
The salvage management program needs not be complicated. To
start with, we need to review our claims process. Inconsistencies,
control points, and lost opportunities, if any, should be identified.
Established salvage guidelines need review and testing against
best practices and technologies. The program should also fit into
Adjusters’ working module.

It is to be appreciated that Salvage Management benefits not only

the Insurers but also the Insured. It creates a win-win situation
for both the parties. For example, the brisk salvaging operation
after a loss can help minimize the time required for revival of
Insured’s business after the loss. Similarly, Insured may get
discount on standard insurance premium rate provided they agree
beforehand to deal the salvage, if required, in the most
professional way. Alternatively, Insurers may also offer lower
premium rates on property that would result in better salvage
realization. Improved customer loyalty is another benefit for
Insurers as a streamlined and consistent claim process means that
insured gets faster and better service. Therefore, optimization of
salvage recovery benefits not only the Insurers but also the
Insured. The only thing required is the change of approach.

Another important issue experienced by me as a salvage manager

is that salvages, very often are destroyed due to brands & labels
and other clauses or retained by the insured at minimal prices. It
is mostly believed that salvage cannot be sold in such cases.
However, this is not true. For example, a stock of cameras of a
reputed company can be sold after removing or destroying the
brands and labels on cameras despite the insurance policy being
subject to Brand & Labels clause. Some items like pharmaceuticals
and medicines etc. are exceptions where there might be a
 36

restriction on sale of such items from the Government or it might

be injurious to General public.

Investing in salvage can lead to much higher returns, but due to

strict cost cutting norms, there is a resistance to this effect. There
are ample examples where an electronic item after being claimed
as fire or water affected is tested and then sold. Similarly, as a
salvage manager, I personally suggested an Insurer to invest
around Rs. 1.50 Lacs in drying a water affected fabric lying in
Mumbai, resulting into a salvage recovery 2 times than that was
expected out of salvage. The claim, being large, took 2 months to
get settled and had the Insurers left the fabric in wet condition,
they would have ended up paying for lifting of salvage by junk-
dealers. Insurers saved around Rs. 5 Lacs in this case.

Conclusion:

To improve claims procedure, one thing is for sure that change is

required in the system. We need to make a shift from traditional
approach to the modern and scientific practices. Also we need to
realize that this change is not going to be entirely painless. As
already pointed out, we, especially the industry leaders, need to
come together and do this for the Indian Insurance Industry and I
strongly believe in my decision of adopting Salvage Management
as a career for the rest of my life.