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There are a set of rules that govern vehicle salvage in the UK, with regulations that you must follow if your motor trade business involves auto salvage.
These strict processes are an indication of the risks relating to salvaging vehicles. If your business activities lead to an accident that results in someone getting injured or another vehicle getting written off, you could be liable to pay a hefty compensation fee.
For example, selling a salvaged car that is faulty and causes a serious accident that injures your customer, or transporting a salvaged car from one location to another and being involved in a crash.
However, with the right insurance cover in place, your business will be protected financially. Salvage insurance is a type of motor trade insurance that is suitable for businesses that specialise in vehicle salvage.
There are different levels of risk associated with different categories of vehicles that are salvaged or scrapped. This inevitably has an impact on the type of insurance that is needed, and the associated costs of securing sufficient cover.
These categories are defined in the Vehicle Salvage Code, created by the Association of British Insurers (ABI) with contributions from various stakeholders including insurers, police, manufacturers, and professionals who work within the vehicle salvage industry itself.
The four categories of the Vehicle Salvage Code are:
A car in Category A is beyond repair, none of the car parts can be salvaged and the car should be crushed.
Some parts from a car in Category B can be salvaged, but the shell of the vehicle should be crushed.
There is structural damage to a vehicle in Category S that can be fixed but this may not be cost-effective from an insurance perspective. The car can be repaired and, as long as it is made roadworthy, can be resold and driven.
A vehicle in Category N is structurally sound and could be safe to drive. There may be problems with braking or steering, or damage may be cosmetic or related to electrical faults. The car can be fixed but this may not be cost-effective from an insurance perspective. If it is made roadworthy, it can be resold and driven again.
Category N replaced what was formerly Category D, which stated that a car could be fixed but the cost to do this would be more than its value.
Similarly, Category S replaced what was formerly Category C, which stated that a car could be fixed for less than its value but the likelihood was that transportation and admin fees would bring the cost up beyond the car's value.
Specifically created for businesses that work with salvaged vehicles, salvage insurance can help cover costs such as vehicle repair work after an incident, or the cost of legal fees and compensation if there is an accident that your business is responsible for.
Having the right type of cover in place ensures your business has support if there is an unforeseen problem or something goes wrong. In some scenarios, cases might be so serious that a member of the public or an employee could bring a claim to court.
Without insurance, you would be asked to cover these costs. Some compensation fees can run into the millions, but even smaller sums could financially ruin many businesses. Insurance protects against these financial risks.
A salvage business insurance policy is not one-size-fits-all. Rather, you'll be able to tailor the features you want to include in your policy by creating an insurance bundle.
You can include all the cover you need, and the type of insurance you take out should match your business activities. For example, if one of your team members dismantles cars as part of daily business operations, you need to reflect this by taking out cover for working with dangerous materials.
Features you might want to write into your salvage policy include:
You can pick exactly which insurance features you require, which means your final policy might look very different from that of another vehicle salvage company.
However, some aspects of your insurance policy may be required by law, such as employers' liability and road risk cover:
All other features of motor trade insurance are optional. You should match these to your business activities, and consider that additional cover can protect your financial losses.
The value of insurance you take out should balance with your indemnity level, which is the maximum amount of money your insurance firm would be willing to pay if you were to make a claim.
Your indemnity level is also called the sum insured, and it reflects the worth of the total items you are insuring, including your business premises and stock. Some insurance providers will have set limits and standard offerings, and requesting an increase could cause your premiums to rise.
Salvage can be a risky business, not only in practical terms but also in financial terms.
Working with salvaged cars can pose a physical danger to the employees interacting with the vehicles, salvaged parts and scrap metal. Insecure premises could attract criminal activity such as theft.
Salvage businesses also take risks by working with vehicles that have been written off by insurance firms. Parts may be faulty and cars may not be fixed up or sold on easily.
Generally, a greater number of risks causes the price of insurance to rise. However, there are some simple ways to reduce your premiums.