Commercial property carriers process thousands of claimsinvolving various electronic inventories every year. When dealingwith computer, medical, telecommunication, and manufacturingequipment losses, two questions arise: Are major commercialcarriers maximizing their opportunities to lower the loss ratiolimit? Should salvage recovery efforts be the last thought insettling electronic equipment losses?

The answer to both questions is, "No." Upon settling claims,adjusters often overlook the most potentially redeeming item: lossinventory salvage recovery value. Over the years, insurancecarriers have been groomed by general salvors to believe that 10percent loss inventory recovery is an industry standard.

Adjusters often let expensive loss inventories rot in storagefacilities until claim settlements have been etched in stone.Allowing high technology loss inventories to remain in warehousesfor indefinite periods of time exposes insurance carriers tounnecessary and expensive monthly storage fees, potential theft,and lower recovery values because the inventory is now a generationolder or has deteriorated due to untreated water or smokecontamination.

Most commercial property claims involving electronics areprocessed in a traditional, systematic manner with recovery effortsbeing an afterthought. Once an adjuster establishes that a claimpayment or settlement is imminent, disposition of the lossinventory should be explored. By exploring salvage or recoveryoptions before closing files, carriers can better predict requiredreserves, save costly storage fees, and maximize recovery values byreselling loss inventory sooner rather than later.

What if more than one carrier is involved in the claim andsubrogation is probable? Quite commonly, multiple carriers orparties can be involved in the same claim without any clearidentification of who will bear responsibility for the claimpayment. When these situations arise and the loss inventory isavailable for disposition, every effort should be made to get theinvolved parties to agree that it is mutually beneficial that theloss inventory salvage proceedings occur immediately, regardlesswhether liability has been determined. I have seen seven-figurerecovery values dwindle to five figures because those involvedwaited to address recovery options until after the claimsettlement.

Choosing the right vendor and marketing format are critical toachieving maximum recovery values. General salvors are the mostcommon vendors called upon to process high-value, high-technologyloss inventories. Unfortunately, general salvors often deal witheverything from consumer goods to heavy equipment vehicles, and maylack the knowledge and necessary expertise in handling highlytechnical inventories. Multi-discipline (engineering, salvage, andrestoration) firms might be a better choice, as they typically aremore astute in managing technical losses.

The best option, however, is to find a salvage firm thatspecializes in the evaluation and liquidation of compromisedelectronics. Adjusters often will research and retain expertengineering firms to assist in mitigating an electronic equipmentloss inventories but rarely will seek the same expertise whendisposing of the equipment.

Online Auction vs. Negotiated Sale

The format in which compromised electronics are re-marketed isthe single most determining factor in yielding a maximum recovery.Many general salvors have gravitated to the online auction format,which involves posting on a web site generic photos of a lossinventory in unknown operational condition. Although generalsalvors will tout phenomenal results with thousands of offersreceived, does this really reap maximum value for compromised,high-technology electronics?

The first question prompts a second. Imagine yourself as abuyer, bidding on an inventory of damaged electronics that has beendeemed a total loss by an insurance company. Are you going tosubmit an aggressive offer or submit a low offer to minimize yourrisk?

Attempting to liquidate compromised electronics in a broadcastor auction format often creates the illusion that more equipment isavailable in the marketplace than really is. Conversely, quietlyintroducing a compromised loss inventory of known operationalcondition to a select group of buyers of that type of commoditywill create the urgency to act aggressively on a limited supply andkeep equipment brokers out of the sale equation, ultimatelyyielding higher recovery values.

Every effort should be made to maintain loss inventories insecured, environment-controlled facilities with limited access. Ihave experienced unsecured loss inventories that were stripped ofall valuable components and, in some instances, that completelydisappeared. To insure maximum salvage or recovery returns,compromised high-value, high-technology inventories should besubject to formal equipment evaluations, consisting of astage-and-testing process, to determine an exact inventory ofmarketable components.

The stage-and-testing process should be coordinated with theoriginal manufacturer or subcontracted to an unbiased, authorizedtesting service. In some circumstances, the insured will offer tostage and test the loss inventory. Although this is somewhat of acommon occurrence, it is strongly recommended that an insured notperform stage and testing of a loss inventory, due to potentialcomplications and integrity issues.

Depending on the outcome of the stage-and-testing process, Ioften recommend performing nominal repairs and restoration toenhance the value of a loss inventory. Extensive cost analysis of aproposed repair or restoration needs to be performed prior torecommendation to a carrier or client. I often have encounteredinstances in which a $2,000 replacement component is the differencebetween a $500,000 device's working and not working. Again,depending on the nature of the loss and the extent of damage, Ifrequently will recommend that an inventory undergo at leastsuperficial decontamination or restoration in an effort to make itmore presentable.

Although the stage-and-testing process does require time andexpense, the long-term benefits always outweigh the negatives.Being able to present a loss inventory to prospective buyers,complete with a formal equipment audit and operational statusreport, will streamline the liquidation process, yield maximumrecovery values, and provide buyers with a feeling of inventoryintegrity. Once an inventory of presentable components has beenestablished, the salvor can market the inventory accurately topotential buyers. A little extra effort prior to introducing theinventory to the used marketplace will realize big rewards uponconclusion of the sale.

Should insurance carriers negotiate their own salvage sales?Many property adjusters are uncomfortable negotiating salvagevalues, purely due to lack of product knowledge and market value.If the adjuster and carrier are comfortable with their abilities toestablish salvage values, I think that it is fine for them tonegotiate their own salvage sales on loss inventories up to $20,000claimed value. Because of the complex variables that exist whendealing with technical losses greater than $20,000,claim-processing personnel should research and retain qualifiedevaluation and salvage services.

Time is not kind to loss inventories when resolving electronicequipment losses. Seeking the assistance of a qualified electronicexpert who can properly evaluate and select an appropriatemarketing format in a timely fashion will greatly enhance recoveryvalues, lowering loss ratio limits and cash reserves.

Locating Qualified Expert Salvage Service Vendors

The following web sites and publications have listings and linkto expert insurance service vendors:

oA.M. Best Company

oClaims

oClaims-portal.com

oThe Loss Executive Association

oProperty Loss Research Bureau (PLRB-Claims Pages)

John Brezinski is president of Electronic Salvage Resources.Contact him at www.esrincorporated.com.