Category: Claims handling · Reviewed by Taylor Watts, Broker · New Business · Last reviewed 2026-06-11
Salvage is the value recovered by an insurer (or for its account) from damaged property that has been paid for under the indemnity — typically through sale of the damaged items in their as-is condition or to a specialist salvor.
When an insurer pays a property claim in full, the doctrine of indemnity gives it the right to take ownership of the damaged property. The remaining value of that property — fire-damaged stock that can be processed and resold, water-damaged equipment that retains some component value, a written-off vehicle that can be sold at auction — belongs to the insurer. Realising that value is the practice of salvage.
Salvage recovery is an important component of claim economics. A property loss with a gross indemnity of £5m and a salvage recovery of £700,000 has a net loss of £4.3m. Aggregated across a portfolio, salvage recoveries materially affect the combined ratio.
The principles include:
For motor insurance, the ABI Code of Practice for Vehicle Salvage governs the categorisation of damaged vehicles (currently Categories A, B, S and N) and the disposal of salvage. Category A vehicles cannot be reused or sold for repair; Category B vehicles have salvageable parts but cannot be repaired; Category S vehicles have structural damage but can be repaired with proper engineering; Category N vehicles have non-structural damage and can be repaired more straightforwardly.
For property, common practice is for the loss adjuster to engage a specialist salvor (Lambert Smith Hampton’s salvage division, OWL Salvage, Sedgwick’s salvage services and a range of independent specialists) to handle the asset disposal. The salvor takes a fee and remits net proceeds to the insurer.
Salvage analysis begins with the loss adjuster’s site visit. The adjuster identifies what property has been damaged, what has been destroyed and what is salvageable. The salvable items are typically secured at the site or moved to a salvage storage facility.
For commercial property, the salvor’s role includes:
For motor, salvage runs through dedicated motor salvage processing. The vehicle is categorised under the ABI Code, valued by a vehicle engineer, and disposed of through online salvage auctions (Copart, IAA) or to motor recyclers.
For specialty losses (specie, art, aviation, marine), salvage is highly specialised. Art salvage may involve conservation works to recover damaged paintings or sculptures. Aviation salvage involves dismantling and reselling components from written-off aircraft. Marine salvage operates under a separate body of law (the International Convention on Salvage 1989, given effect in English law through the Merchant Shipping Act 1995) with distinct commercial mechanics.
For business interruption claims, salvage is more conceptual — the value of business assets that survive the disruption (customer relationships maintained, inventory unaffected) is implicitly credited against the BI claim through the mitigation analysis rather than through formal salvage.
Salvage proceeds are credited against gross loss. For internal reporting, the salvage rate (salvage / gross loss) is tracked by line; persistent low salvage rates may indicate handler under-utilisation of salvage opportunities.
“Direct sale” salvage — the salvor sells the damaged property to a buyer at agreed price.
“Auction” salvage — the property is sold through public or private auction.
“Restoration” salvage — the salvor restores the property to a saleable condition before sale.
“Component” salvage — the property is dismantled and components sold separately (common for vehicles, machinery, aircraft).
“Insurer-retained” salvage — the insurer retains the property for its own use (rare but possible).
“Insured-retained” salvage — the insured retains the property in exchange for a credit against the claim payment.
A retailer suffers a fire loss with £2.8m of damaged stock (footwear). The loss adjuster’s salvage assessment: approximately 30% of stock has minor smoke damage but is otherwise saleable; approximately 40% has water damage requiring cleaning before resale; approximately 30% is unsalvageable.
The insurer engages a specialist salvor. The salvor’s approach: the 30% lightly-damaged stock is sold to a discount retailer at 35% of original cost; the 40% water-damaged stock is processed (cleaned, repackaged) at 12% recovery cost and sold at 18% of original cost; the 30% unsalvageable stock is sold as scrap to a recycler at 4% of original cost.
Salvage proceeds (net of salvor fees and processing costs): - Lightly damaged: £2.8m × 30% × 35% = £294,000. - Water damaged: £2.8m × 40% × 18% = £201,600, less processing cost £2.8m × 40% × 12% = £134,400; net £67,200. - Scrap: £2.8m × 30% × 4% = £33,600. - Total salvage: £394,800.
The insurer’s gross loss is £2.8m; salvage credit is £394,800; net loss is £2.4m. The salvage recovery improves the line’s combined ratio by 0.4 percentage points across the quarter.
By Matt Bartlett, Director, on 2026-06-11. Next review: 2026-12-11.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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