From Canstar: Car insurance market value is a recognised industry term for what your car would fetch on the open market, as is. It is not, say, the trade-in value, nor what an unusual purchaser, such as a collector, would pay for your car. It’s not the cost of replacing your existing car with a brand new one.
So if you insure your car for market value, the price you will receive from the insurer in the event that your car is written off will be the price that your insurer estimates your car was worth just before the accident.
From experience it could be so high as close to the average of what you see cars in similar condition advertised for, and could be as low as what a dealer would buy it from you outright in the case of low volume cars where not many if any are often sold.
In general allowing an assessment does not abrogate your rights to negotiate. Since you are concerned about that you might ask Zurich for that in writing. Having their position in writing is a better position than any advice from any other source because they might not agree with that advice even if it comes from a government agency - think angst getting through the process where even if you ‘win’ you ‘lose’ in other ways.
Regardless, if your vehicle is worth (say) $6,000 in your opinion, and they offer you $5,000, and you take the $5,000 less the $400 salvage value ($4,600 in pocket) and get it repaired, what are the odds it will be fixed to your satisfaction vs have some latent problems (hidden damages and so on) you would have to personally wear in the near future? Sometimes reflecting on realities helps advise decisions.
Good luck with it. We recently had a no-win experience where our choices were to write off a 20 year old car or hire a solicitor because the circumstances were such the at-fault party guessed we would not take a $1,500 damage claim to court, noting accidents are often exceptions to consumer affairs and tribunal assistance.