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NCOIL Rejects Proposed Model Law Addressing Aftermarket Auto Parts

Source: A.M. Best

Posted on 08 Mar 2011

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A proposed model act that would have outlined the conditions under which insurers could repair cars with aftermarket parts was rejected by the National Conference of Insurance Legislators' Property-Casualty Insurance Committee.

The committee's March 6 decision at NCOIL's spring meeting effectively ended discussion of an issue that had become a perennial topic of conversation at the organization's meetings. The proposed model law would have required disclosure and consent before a crash part is repaired or replaced, set rules for insurers to specify aftermarket parts and required labels on crash parts.

Property/casualty insurers have long questioned the need for the new model. Industry representatives have said that 39 states have laws governing the use of aftermarket parts and 46 have laws or regulations to protect the right of policyholders to choose where to have their vehicles repaired.

During Sunday's spirited, hour-long debate over aftermarket, recycled or remanufactured auto parts for vehicles involved in a collision, representatives from the automotive industry as well as insurers offered differing views on how those parts affect a vehicle's pre-loss condition.

Under an amendment proposed by Rhode Island Rep. Brian Kennedy, a Democrat, the model law would require that aftermarket parts be certified by their manufacturer or distributor to meet or exceed the car company's warranty for a similar part made by the vehicle's manufacturer. The amendment also stated that certified aftermarket crash parts would be "presumed to be capable of restoring a vehicle to its pre-loss condition."

While the committee voted to approve Kennedy's amendment, several representatives from the automotive industry spoke out against it.
Eric Henning, regional director of government relations for General Motors, said that if the proposed model law were to pass, it could result in a number of negative consequences for consumers.

Henning said that just because the model law would presume that aftermarket crash parts would restore a vehicle to its pre-loss condition, "it doesn't make it so."

"If a consumer finds a bad part on their car or finds that it hasn't been restored to its pre-loss condition, they'll have to hire a lawyer and then hire an expert, which could cost thousands of dollars," he said. "They're not going to do that because it's too expensive."

Jack Gillis, executive director of the Certified Automotive Parts Association, countered that the reason aftermarket auto parts has been a topic of conversation at NCOIL meetings for over a decade is because of the staunch opposition auto manufacturers have lodged against model laws that would be beneficial to aftermarket part manufacturers.

Comparing aftermarket parts to generic drugs, Gillis said, "There's nothing wrong with generic products. In fact they're the best thing for consumers because they put downward pressure on the cost of those products."

John Ashenfelter, associate general counsel for State Farm Mutual Automobile Insurance Co., said that despite being originally opposed to the proposed model law, the company could support it with the Kennedy amendment because "testing and certifying a part is a good thing." The certification requirement was the "linchpin" of the model law, Ashenfelter said.

"It's important to realize clearly car companies have monopolistic power over replacement of parts," he said. "But consumers are going to continue using aftermarket parts, so it would be beneficial to them if they could have up-front certification of these parts going forward."
State Farm currently has a Best's Financial Strength Rating of A++ (Superior).

Ultimately, the proposed model law, including the Kennedy amendment, was voted down by the committee after several members raised concerns about whether the use of aftermarket parts could diminish the value of a vehicle, despite the provision that would have prohibited such devaluation.