PCI: Aftermarket Parts, Repairs Key Insurance Issues Next Year

The importance of aftermarket parts in auto repairs is an increasingly important issue facing insurers and legislators that will stretch into next year, according to a group representing the nation’s largest collection of coverage providers.

Bob Passmore, a senior director with the Property Casualty Insurers Association of America (PCI), reviewed the topic at the International Autobody Congress and Exposition (NACE) last week and spoke to Online Auto Insurance News about the issue, which he predicts will carry over into next year.

Vehicle parts damaged in crashes are often cosmetic sheet metal parts, including bumpers and door panels. When these are replaced, auto shops use parts from either original equipment manufacturers (OEMs) or generic aftermarket suppliers (non-OEMs), which basically produce generic versions of the original parts.

Aftermarket parts cost about 26 to 50 percent less than OEM parts, according to the Insurance Information Institute (III).

Insurance carriers back the use of aftermarket parts because of the cost factor, which has kept the average claim size down. According to the PCI, aftermarket parts saved more than $2.2 billion in insurance costs in 2010.

However, critics proposing heavier regulations have questioned the use of aftermarket parts because of safety issues.

As a result, many states have put in place regulations requiring auto body shops and insurers to let consumers know when aftermarket parts are being used in repairs.

These regulations vary in extensiveness. In most states, the use of aftermarket parts at least needs to be indicated in a disclosure statement, and they must be identified on the repair estimate. In a minority of states, the owner must actually give prior consent before the repairs can be made with aftermarket parts.

Legislation stepping up or scaling back the regulations on disclosure regularly get introduced at the state level. And at the federal level, legislators are trying to make it easier for third-party companies to produce aftermarket parts for newer vehicles.

At Question Are Costs, Quality, Public Safety

The dependability of aftermarket parts has been a strong point of debate.

Aftermarket standards created by the Certified Automotive Parts Association (CAPA) and subsequently tested by the Insurance Institute for Highway Safety showed that CAPA-certified bumpers preformed as well in crash tests as OEM parts.

Some legislators, however, still hold reservations.

Passmore said California is the main stage for debate over aftermarket parts, with the state imposing relatively heavy regulations on the use of generic component parts in repairs.

According to the III, California is one of five states enforcing all four regulatory provisions of aftermarket parts, requiring manufacturers’ identification, identification of generic parts during the estimate process, a statement disclosing use of those parts and prior consent from the driver to use aftermarket parts. California is only one of 12 states to require prior consent.

A legislative attempt by insurance carriers to loosen those restrictions, embodied by SB 1460, has drawn fire from critics, including insurance commissioner Dave Jones. The bill would allow insurers to insert language into coverage policies empowering them to use non-OEM parts in repairs as long as the repairer discloses “in writing what type of crash part will be used to repair the vehicle.”

The bill’s opponents say it will hurt consumers.

“Non-OEM parts are generally less expensive than OEM parts, because they are generally inferior products,” Skip Hatch, a spokesman for the Automotive Machinists Union, said in a statement.

Supporters of the legislation, which include Allstate, say a provision that shifts the warranty of aftermarket parts from insurers to suppliers of those parts will also significantly reduce repair costs.

With cheaper repair costs in general for insurers, cheap California coverage may in theory become more widely available.

“Cost control benefits insurers and consumers. Insurers aren’t in the position to physically warranty every part they call for an estimate,” said Passmore. “The equivalent example is that insurers insure people’s homes, but requiring that insurers guarantee and warranty the lumber and materials is well beyond the scope of their role.”

SB 1460 is currently set for a hearing in a Senate committee.

Insurers Want to Connect to the Consumer

One of the biggest hurdles for insurance carriers wanting to increase use of aftermarket parts is highlighting its impact on the consumer. Even with prior consent and disclosure provisions in place, consumers are likely disinterested in the cost of aftermarket parts, according to Michael Barry, spokesman for the III.

“The auto repair operator says it’s going to cost X number of dollars,” Barry said in an interview. “Unless the policyholder is paying for it out of pocket, they just see it as a number that’s going to be dropped into the claim.”

What may pique consumers’ attention, however, is the quality of aftermarket parts. A public image snafu was sparked last week when federal officials distributed advisories about counterfeit post-crash air bags installed in vehicles by “organized criminals.”

Passmore and Barry said insurance carriers are working to disconnect those counterfeit parts, which the National Highway Traffic Safety Administration (NHTSA) said expelled metal shrapnel when deployed, from other aftermarket parts.

“This is criminality and these are instances in which somebody is really endangering the life and safety of people to save a few bucks,” said Barry. “And it’s a whole different thing because these are auto body shops that don’t play by the rules.”

Passmore echoed the sentiment, saying that distancing the recent news from insurers’ legislative efforts will be crucial in best representing their interests to the public.

“This was simply counterfeiting of parts that we don’t want people to perceive as relevant to the discussion,” he said. “It’s always possible that somebody will link the two together, but we’re working on getting our message out there so that isn’t happening.”

Insurers Also Advocating Aftermarket Parts on Federal Level

PCI is also a main arm of federal lobbying efforts behind the Promoting Automotive Repair, Trade and Sales (PARTS) Act, which was introduced this past year in the U.S. House of Representatives.

The legislation would cut the number of years that auto manufacturers could “enforce their design patents on collision repair parts,” which expands opportunities for use of aftermarket parts. The Quality Parts Coalition, which counts insurance providers such as Nationwide among its members, pushed for PARTS approval at last week’s NACE conference.

“This industry has been well established for my entire life,” the bill’s sponsor, Rep. Darrell Issa (R-Calif.), said at a Congressional PARTS hearing in August about the automotive industry. “We are talking about a narrow bill to prevent a new expansion that endangers the consumer’s ability to afford repair parts.”

Issa said PARTS couldn’t damage an industry that has been so well established.

Passmore called that August hearing “successful” and added that the bill’s “slow progress” is likely due to other major issues in the U.S.

“It’s probably not high on the priority list, given the other things going on in Washington, but we’re looking forward to seeing it introduced in the Senate,” Passmore said.

According to Passmore, greater availability of aftermarket parts will also benefit consumers who have to get repairs without financial aid from insurers.

A study from automotive research firm Polk released earlier this year showed that the average age of vehicles in the U.S. hit a record high of 10.8 years.

“People like to keep their cars these days,” Passmore said in an interview. “The average new car costs well over $25,000 these days, and it usually involves financing. In these economic conditions, consumers don’t want to finance their vehicle when they don’t have to, so they’ve started keeping their current vehicle longer.”

The economic conditions also push policyholders toward lower amounts of coverage, increasing the role that aftermarket parts play in repairs, according to Passmore.

“A lot of people now don’t carry collision or comprehensive coverage so if their car is damaged, having an economical source of quality parts is even more critical,” he said. “And just the availability of them brings down the cost because competition is good for everyone.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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