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Today's soft market, and resulting tighter margins, means it's time to place renewed focus on improving claim efficiencies and implementing new processes that reduce costs and increase recoveries. However, finding time and resources to design and implement these can be difficult for insurers faced with competing initiatives and goals.

Many insurers have found that focusing on cost controls and efficiencies often creates issues elsewhere, as critical success factors like quality or customer service suffer from over-emphasis on metrics like claim expenses and cycle times. Alternatively, if too much attention is spent on individual losses, cycle times can skyrocket, reducing the ability to effectively service clients. Managing the claim process with one eye on servicing the insured and another on the bottom line requires a delicate balance and active management.

Looking for Improvements

The insurance industry is deeply rooted in traditional methods for resolving claims, disposing of salvage, and securing recoveries. Decades of tradition are not necessarily wrong, but many improvements are available and can be easily implemented with management support, resources, planning, and execution. Insurers of all sizes and business lines have spent countless hours trying to find ways to handle claims more efficiently, cut costs, and improve recoveries -- with varying results. Legacy systems have been slow to keep up with the business needs of their claim users, resulting in individualized work-around solutions and inconsistencies.

The key is to know where to look for process improvement, commit to the change, plan well, and manage the claim staff through the change process. In the current soft market, if an insurer is to meet business performance objectives, it is simply not an option to ignore opportunities for improvement.

Where does one look to make near-term claim improvements that can counterbalance the soft market and improve performance? There are opportunities throughout the claim process for incremental improvements, but few allow claim organizations to be more efficient, improve loss ratios, generate higher recoveries, and immediately impact company financial performance with limited-to-no upfront cost. A strategic and comprehensive commercial salvage program is one such opportunity.

Some insurers have limited formal salvage processes and rely on adjusters, insureds, and others to handle salvage. These companies have an enormous opportunity to improve salvage performance. Others have some salvage procedures for adjusters, possibly with dedicated salvage coordinators, and even a list of approved salvage vendors. Many of these companies believe their potential for better salvage performance is minimal. In both cases, however, there is enormous opportunity for recoveries, as experts have estimated less than 10 percent of commercial salvage finds its way to the open market.

In cases where there is no coordinated salvage program, salvage is often destroyed due to brands and labels or control of damaged-goods clauses or left with the insured at a negotiated rate well below fair market value. Leaving salvage with the insured or negotiating a retention bid rarely maximizes the recovery and opens the claim to mitigation challenges. Brands-and-labels protection clauses, while important for protecting a company's reputation, often result in the assets being destroyed because many believe that there are no solutions available to protect brands and achieve salvage recoveries. A salvor partner can work with the insurer, adjuster, and insured to create a plan that protects brands and recovers salvage value. For example, branded packaging and labels can be marked, removed, or destroyed, and salvage can be sold to buyers thousands of miles outside the insured's market area if necessary, ensuring the insured's brand is not degraded and the insured is not exposed to liability. The right salvage partner can help insurers navigate these sensitive issues, satisfy the insured, and maximize recovery

Key to Starting

Implementing a salvage program may require a re-think of how the claim process is managed. Reducing vendors and partnering with those who can streamline processes and utilize technology can create insurer-salvor teams capable of bringing about the kind of change essential to producing easy and effective programs

Standardizing the process is key. This alone is innovative as many insurers have minimal standardization in the salvage process -- a costly reality that leaves huge recoverable dollars lost in the claim process. Another drawback is the lack of reporting capabilities, which often leaves the analysis of salvage to anecdotal verification instead of thorough and quantifiable facts.

Creating an effective salvage program does not need to be complicated. To get started, a claim process review is required. Inconsistencies, control points, and lost opportunities should be identified. Any established salvage guidelines must be reviewed and tested against best practices and technologies. A program that seamlessly fits into the adjusters' daily routines is more likely to be followed and become successful.

In a soft market, claim departments are often squeezed on expenses and resources, yet are still asked to process as much or more than they did prior to the reductions. Integrated salvage programs will free adjusters to concentrate on their core claim adjustment activities while maximizing recoveries and reducing severity of losses.

Utilizing technology to integrate with salvage partner systems is an effective way to reduce costs and optimize salvage recoveries. Claim managers who have begun the journey of process improvement often find an overwhelming lack of salvage data within the insurer's systems. A technology-enabled salvage company provides insurers with valuable data and robust reporting capabilities, providing powerful information for measuring success while helping underwriters make good coverage decisions and determine appropriate premiums.

Pressure to reduce claim expenses has created resistance to the idea that investing in salvage can lead to much higher returns. Many examples demonstrate that by taking a small extra step to test food products, certify a technology item is in good working order, or invest in taking more illustrative photographs, as much as a 10-fold increase in salvage recovery is realized.

Partners in Action

The right partner can make all the difference and should be selected based upon expertise and proven results. An experienced salvage partner can be a tremendous resource as the insurer begins to design an easy-to-use salvage program.

Sophisticated salvor service companies open claims to a global pool of bidders through online marketplaces that bring salvage buyers and sellers together in a transparent and auditable environment. Using the power of the Internet, buyers determine fair market value -- often improving returns by as much as 50-100 percent over traditional salvage disposition methods. A secondary benefit to utilizing a global marketplace is that the insurer can prove the claim adjustment included best efforts to mitigate the loss.

One example of how a salvor services partner assisted in mitigating losses involved a new Link-Belt hydraulic excavator, which had been damaged as it was being offloaded at its port of entry. A salvor service professional worked closely with a marine surveyor to thoroughly document the damages and prepare an auction listing. The damaged excavator was electronically marketed to tens of thousands of potential bidders via a trusted online auction marketplace. The effort produced more than 1,600 bidder inquiries, ultimately leading to almost 800 bids. The winning bid gave the insurer a 69 percent recovery -- more than 300 percent above the insured's offer to retain the salvage. The buyer payment was confirmed in less than two days, the excavator was picked up, and the salvage proceeds were forwarded to the insurer within seven days after the close of the auction.

Even site security and transportation issues can be effectively coordinated by experienced salvors. A warehouse full of health and beauty aids and over-the-counter medications suffered smoke and water damage. The site was not secured after the fire. The salvor not only disposed of the soggy packaging, but verified product expiration dates, thoroughly understood the strict regulatory resale regulations, re-palletized and shrink-wrapped the stock, and coordinated transportation, delivery, and storage of the inventory to a secure location.

Both scenarios demonstrate the complexities, challenges, and results that can be achieved with a strategic salvage program. In managing assignments, salvor partners become helpful advisors to insurance professionals. Merging salvor service expertise with global online auction technology creates a noticeable increase in claim efficiency and reduces loss severity.

Beyond the obvious financial benefits of improved recoveries and reduced loss ratios are the indirect benefits that come from these initiatives, like improved customer loyalty. A streamlined and consistent claim process means insureds get faster and better service. Using a proven salvage partner also reduces the insurer's risk because transactions are contractually documented with the buyer and all purchase conditions are fully disclosed up front.

In for the Long Haul

Insurers that are serious about increasing claim efficiency must realize that evolving from the established ways to a best-practices approach will not be entirely painless. Leaders in the field will have to commit to supporting the initiative and facilitating real change within their respective companies. In order to maximize program adherence, communication with all participants in the process is very important, as is the need to demonstrate the benefits of the new process. In a soft insurance market, increasing claim recoveries is a clear way to add dollars back to the bottom line, increase margins, and enhance customer loyalty. When claim-handling processes are actively managed in a systematic, controlled way, both insurers and insureds win.

Jim Reilly is president and COO of SalvageSale, a salvor services provider for commercial insurance and corporate asset disposition needs. He may be reached at www.salvagesale.com.

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