Blog: Total loss vehicle claims - why are claims directors taking more interest?

Declaring a vehicle a total loss, for example a write off, because it is not safe not economically viable to repair, would fall primarily under the remit of the team of motor engineering experts. Naturally, claims directors, would be focused on customer service and claim costs, so making the process as smooth as possible for the policyholder and ensuring that the maximum return possible from the salvage vehicle was obtained, would be priorities.   

Today, claim directors are taking more interest in vehicle salvage as the opportunities for maximising returns and having a profound influence on a number of business areas have become significant. Total loss vehicles are no longer simply a source of scrap but now represent a goldmine of reclaimable parts whose efficient exploitation can have positive influences on insurer results.

Modern day salvage and recycling agents with licensed authorised treatment facilities run professional, ordered, clean and efficient sites, staffed with highly skilled technicians equipped with the relevant training to dismantle vehicles and harvest high quality, rigorously tested original parts selected for their suitability and condition. Banks of these parts now exist, catalogued, warranty assured and with impeccable provenance and ready to be rapidly deployed to forward thinking bodyshops partnered with innovative insurers.

The benefits case for reclaimed parts has been well rehearsed elsewhere. Of course, there are a number of cost reductions for both insurer and repairer. For the insurer the item part cost is reduced. Original equipment manufacturer reclaimed parts can cost 60% to 70% less than the retail price of the equivalent part. As an example, a new bonnet at retail price for a Ford Focus is circa £250; the equivalent OEM reclaimed part is circa £100. 

For the repairer the cost and time associated with the fitting of reclaimed parts is often less than for the out of the box new part. The use of reclaimed parts can make it economical to repair a vehicle rather than total loss it. This means more work and repair revenue for the repairer rather than the circa £75 handling fee for a total loss vehicle. The strategic use of reclaimed parts can positively influence other factors such as the speed of repair and the all-important key to key time. The speed at which the part can be sourced further reduces the potential total loss bolt on costs of storage and credit hire for insurers and boosts speed of vehicle turnover and productivity in the body shop.

And let’s not forget the opportunity to boost reputation by giving the customer a choice and the potential to retain them. A total loss claim by its nature sees the end of the insurance contract. And when that customer replaces the vehicle there is every probability that they will insure it elsewhere. This could be because their next vehicle comes with a dealer led insurance offer or they use an aggregator site to get the most competitive price. 

Customer retention

Motor insurers already struggle with customer retention in a price-led market and the cost of acquiring a customer is always higher than that of retaining a customer. In deploying a reclaimed parts strategy a forward thinking insurer can give the customer the option of repairing the vehicle with re-used parts, thereby avoiding a total loss by making it economically viable to repair. Today’s customer wants to be treated like an individual and will value the ability to choose and in avoiding a total loss, the insurer can avoid customer churn. 

Unsurprisingly then, demand for reclaimed parts is growing. Recently, there has been discussion over the reliance of the auto industry on sourcing parts from all over the world, especially China. Supply chains have been shown as vulnerable to political change like Brexit and to disruptions such as the coronavirus emergency. We have seen companies resort to shipping keys from China in suitcases to maintain production. Insurance companies are all about managing risk. Claims directors will have no doubt added parts supply chain disruption to their risk register and they have the opportunity to seek mitigation of the risk by adopting and embracing a reclaimed parts strategy.

Risk registers are mandated in the regulated insurance market. To be effective the management of risk has to be embedded in the day-to-day operations of the business. Each new or reimagined risk can be considered as an opportunity or a threat. A threat if risk management isn’t fully embedded, as it could have the effect of adding costly demand into a process. Alternatively, an opportunity to improve processes if done in conjunction with the application of lateral thinking. So reclaimed parts represent a sensible mitigation against supply chain disruption.

And what of the environment? The unsustainability of much of today’s way of life makes the reuse of valuable resources an absolute priority. Insurers that embrace reclaimed parts have at their disposal a fantastic story for staff and customers. A reclaimed parts strategy deployed via the claims team can provide greater satisfaction and brand pride than any ‘bring your own cup to work’ initiatives. If in caring for the customer following an unfortunate accident there is also the upside of returning valuable assets into use, now that’s a story claims teams will enjoy telling and customers hearing.