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Matt Brady

Matt Brady
Public Affairs Director
Federal Affairs

Telephone: 202.580.6742
mbrady@namic.org

Lisa Floreancig

Lisa Floreancig
Public Affairs Director
State Affairs

Telephone: 317.876.4246
lfloreancig@namic.org

Insurers’ Use of Aftermarket Cosmetic Crash Parts, Auto Repair Networks Yields Benefits for Consumers, NAMIC Paper Finds

SAN DIEGO (September 21, 2010) – Banning the use of aftermarket cosmetic crash parts would increase auto insurance premiums for each automobile by as much as $109 a year, according to a new public policy paper released today by the National Association of Mutual Insurance Companies.

The paper, “Consumer Choice in Automobile Repair: The Politics and Economics of Automobile Repair Practices,” was written by Lawrence Powell, a professor of insurance and risk management at the University of Arkansas-Little Rock, and Cassandra Cole, Patrick Maroney and Kathleen McCullough, professors of insurance and risk management at Florida State University.

The authors note that until the late 1970s, original equipment manufacturers held a firm monopoly on the market for cosmetic crash parts, but as body style changes became less frequent, other manufacturers were lured into the crash parts market so that today, these manufacturers represent approximately 20 percent of the market.

“Aftermarket cosmetic crash parts provide a lower cost alternative to OEM parts for consumers who must repair damaged vehicles,” the authors wrote. “Clearly, the cost of limiting competition in the aftermarket crash parts market is large and, given observed levels of competition in insurance markets, it would inevitably be passed on to consumers in the form of higher insurance premiums. Public policymakers would be wise to consider these costs as they consider proposals to ban or limit the use of aftermarket crash parts.”

The paper also examines direct repair programs, in which insurers contract with selected body shops to repair insured damage to their policyholders’ vehicles. While DRPs have existed since the 1970s, the authors observe that body shop owners in some states have lobbied aggressively for the enactment of so-called anti-steering laws to prevent or restrict insurers from recommending certain body shops to their policyholders.

“In addition to lowering the price of insurance, DRPs benefit policyholders in several other ways,” the authors wrote. “First, repair facilities are screened by insures before they are included in DRP agreements. The insurer may require that the shop meet standards related to equipment, training, service and pricing. Therefore, DRP shops are likely to provide higher quality repairs and better service than a randomly chosen shop.”

The authors also examine legal challenges to laws that restrict the ability of insurers to communicate with claimants about DRPs, as well as court cases involving attempts by OEMs to use patent law to drive aftermarket crash parts from the marketplace.

“Even as anti-steering laws have been introduced in more states, courts have increasingly indicated that these laws are likely to be found unconstitutional,” the authors wrote. “They [the courts] have rejected the arguments of those who claim that restrictions on the ability of insurers to communicate to insureds the availability of recommended body shops through the enactment of anti-steering laws are a valid means of ‘protecting consumers.’ To the contrary, these governmental restrictions are counterproductive in that they prohibit consumers from receiving information from insurers about the most reputable shops that perform services at a high level of quality.”

Contact: Lisa Floreancig
Director of Communications
State & Policy Affairs
lfloreancig@namic.org
317-876-4246

Posted: Tuesday, September 21, 2010 10:21:04 AM. Modified: Monday, November 01, 2010 10:21:03 AM.

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