Salvage titles exist because it is obviously profitable for someone to buy totaled cars and rebuild them. But this even existing would imply that in some cases, an insurance company paid out more than the actual cost to repair the vehicle, because otherwise it couldn’t possibly be profitable.
For example, let’s say a car has a value of $30k and gets totaled. The insurance pays the owner $30k and sells the wrecked car to a rebuilder for $1k, so they are out $29k. If the rebuilder then spends $15k repairing the car and sells it for $20k due to its reduced value, they will make a $4k profit.
Thus, why wouldn’t it be better for the insurance company to just spend the $15k themselves to repair the car, write the owner a check for $10k for diminished value, and pocket the $4k while also avoiding whatever overhead it takes to do the transaction to sell the wreck? In addition, one would imagine that insurance companies could achieve much better scale and/or vertical integration by moving this operation in-house vs. small rebuilders.
In: Economics
The economics just don’t work for the insurance company, primarily because they have plenty of money because every driver needs to pay them. The overhead of trying to manage the repair and resell process is just, frankly, not worth it.
Sometimes it is worth it, but for far more valuable things. A couple of pilots pulled off an amazing landing on a frozen lake in Alaska, at night, dead stick on a Pilatus PC-12. They were wise and landed it belly because they reasoned the damage is better than risking having those wheels go straight through the ice. The result was the wings were fractured. I kid you not, insurance paid for a helicopter to go out and pick up the hull and they repaired it. The average PC-12 sells new for about $4.8 million and there is at least a year wait for one. They probably spent in order of $600,000 to fix it, more if they had to replace the turbine. That is still worth it over scrapping it and giving the TIV to the customer. Now, bear in mind airplane insurance is super-expensive, it can be anywhere between $18,000 to $45,000 a year depending on the experience and qualifications of the operator. In the 30+ years they have been built they have sold 2,000 units. Ford would have to close factories if they only sold 2000 of anything over that time frame. That should demonstrate the scale of the difference between commodity insurance for cars and insurance for more expensive items.
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