Salvage

Salvage is a fundamental concept in Indian commercial insurance that directly impacts claim economics for both insurers and policyholders. When an insurer settles a total loss or constructive total loss claim, it acquires the right to take possession of the damaged property and recover whatever residual value remains. This principle is rooted in the doctrine of indemnity -- the insured cannot profit from a loss by receiving full compensation and also retaining the damaged goods.

In Indian practice, salvage plays a particularly significant role in marine insurance, motor insurance, and property insurance. Under the Marine Insurance Act, 1963, when a marine cargo claim is settled on a total loss basis, the insurer is entitled to take over the damaged cargo. For example, if a consignment of steel coils shipped from JNPT to Chennai is partially damaged by seawater ingress, the insurer may settle the full claim and then sell the salvageable coils to recover a portion of the payout.

The IRDAI-licensed surveyors play a crucial role in assessing salvage value during the claims process. Their reports must include an estimate of the salvage value, which influences the net claim amount. In motor insurance, when a vehicle is declared a total loss, the insurer typically deducts the salvage value (determined through auction or agreed valuation) from the claim settlement. Indian insurers frequently use online auction platforms to dispose of motor salvage, ensuring transparency and maximising recovery. Effective salvage management is a key profitability lever for Indian general insurers, with some companies recovering 15-25% of gross incurred claims through systematic salvage and subrogation programmes.