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Salvage: Is this the next big ‘insurance’ scandal?

Transit Van
Many dismantlers are concerned that the ease of buying over the internet and miscategorisation are damaging the industry.
Buying insurance salvage over the internet is now commonplace and quite straight-forward. Anyone can see what is on offer, and buy if they want to. When it comes to Cat C and D vehicles there are no restrictions so absolutely anyone can buy.

This is one of the big problems the way we see it. Take the vehicle above. This was sold by internet auction a couple of weeks ago. It’s a 2007 Ford Transit High-Top Long Wheel Base. The insurers paid out the owner £6700. At first glance the natural reaction is: ‘surely this vehicle isn’t worth more than scrap value?’ So why, when last viewed (the day before the auction finished), was it making more than £525+VAT? Well, it was being offered for sale as a ‘repairable category C’. Surely the justification for this category is that it doesn’t appear to have any structural damage, it looks like most of the parts are freely available in the market-place, both new OE and non-OE, and second hand. So what’s the problem?

We put in calls to a number of salvage experts and showed them the photos. All of them agreed that it should quite clearly be a category B. One of them also provided an estimated repair cost using new (£17476) and second hand (£4930) parts. All those we talked to also acknowledged that this type of problem was widespread in the industry, but then went on to say that they wouldn’t go on record as saying this because it put them in a very awkward position with their clients and could jeopardise contracts.

The cost of repairing this vehicle far exceeds its value. At present, most insurers don’t use or have access to second hand parts for pricing repairs, so the cost of repair would have been calculated using new (OE or non-OE) parts. From the list we were supplied showing the most obvious parts needed to affect this repair, we come to the our opinion that the cost of repairing this vehicle should, under the insurance industry’s own Code of Practice, make it a cat B, even on the basis of using only secondhand parts (and that excludes labour, paint & materials). When priced using new parts the part bill alone exceeds £26,000. While insurers would get a substantial discount on these prices, not even a vehicle manufacturers’ write-off avoidance programme could have saved this one! So why was it cat C?

We are concerned that the insurance industry appears to ‘bend the rules’ when it is to their advantage to do so. We must point out that the Code of Practice is voluntary so it’s virtually impossible to enforce and secondly, not all insurers sign up to it. And with the vehicle above, it is quite clearly repairable. So what’s the big deal?

Well, the category applied does affect the financial return for the insurer. In those cases where a salvage agent is contractually committed to buying the salvage, as a category B, we reckon this vehicle would have cost the salvage agent in the region of £335. On top of this, they would have needed to collect and store it. On the basis of what’s missing, it would be surprising if there was more than £150 of scrap metal in this. There might be some (very) limited parts sales (the rear axle etc), but it’s likely that the salvage agent would be looking at a loss on this vehicle, as would the insurer, who paid out £6700. But as a cat C this might have cost the salvage agent £1350, meaning they would have been looking at a much bigger loss, while perversely the insurer would have saved £1000. The same principle applies if ownership of the salvage stays with the insurer. But here they are unable to use the salvage agent to mitigate their losses.

Insurers are naturally keen to ensure that what they return on their salvage is maximised, and it appears that this is being achieved by pushing salvage vehicles into cat C and D as proportions of these have been rising, while cat A and B have been falling. Also, being a cat C as opposed to B, removes some of those other niggling problems which get in the way of making the most money. Category B sales are much more restrictive, because the vehicles are waste (in fact hazardous waste). This means that not just any old ‘Joe Bloggs’ can buy them, and so restricts competition and depresses prices.

But here’s the real problem. Take another look at the image above. Why is this Transit is in its current state? It is quite possible that this vehicle was stolen for spare parts, either for sale or to be used to repair another damaged vehicle. A damaged vehicle requiring this extent of repair and parts should have been subject to an insurance claim itself. So perhaps this vehicle was stolen to supply parts to repair another salvage vehicle? The table above suggests that the cost of repair, even using second hand parts, is so high as to make repair unlikely. So where is the money to be made in this case? For those not too bothered about the law, the easiest way is to ‘nick’ another Transit and either use the stolen parts for the repair or use the identity of the salvage vehicle to ‘ring’ the stolen vehicle. Ah, but I hear you say, it would be caught by the VIC scheme, wouldn’t it? No, it wouldn’t! It’s a commercial vehicle and not subject to VIC and anyway, it might avoid VIC by being exported.

So because the insurance industry appears to be focused, to the exclusion of all else on short-term returns, it’s propagating the problem. We hope they haven’t forgotten the ‘risks’ of selling this type of vehicle. Yes, it can be repaired, but should it?

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