salvage and subrogation

After an insurer pays a claim, the story is not always over — sometimes money flows back. If your car is written off and the insurer pays you its full value, the wrecked car is now theirs; selling it for scrap or parts brings cash back. And if someone else caused the loss, the insurer can chase that person to recover what it paid. These two ways of clawing money back are salvage and subrogation.

Salvage is the recovery from selling the damaged property the insurer took over after paying a total loss — the scrap value of the totaled car, the undamaged stock from a fire-hit warehouse. Subrogation is the insurer stepping into your legal shoes: having paid your claim, it inherits your right to sue whoever was at fault and recover from them or their insurer. If your parked car is paid out at 20,000 and the at-fault driver's insurer later reimburses 18,000 via subrogation, the insurer's net cost was only 2,000. Both reduce the insurer's ultimate loss, and they are often handled together as 'recoveries'.

Actuaries account for salvage and subrogation 'net' of recoveries when measuring losses, because the true cost of a claim is what is paid minus what comes back. Recoveries can be material — in auto especially — and they arrive with their own delay, so they must be projected and reserved, not just booked when they happen. The caveat: recoveries are uncertain (the at-fault party may be uninsured or broke, salvage prices fluctuate), so netting them down too aggressively can understate reserves; conventions on gross-versus-net reporting must be applied consistently.