Third Party Parts and Car Insurance Claims

A client called me last month to discuss an accident he’d had and filing a car insurance claim. He’d backed into an object visiting a family member on a trip and damaged the bumper and one of the brake light kits on his car. I provided him with the information he needed to initiate the claim and transferred him to the claims department with his car insurance company.

One of the things I point out with each client is that Texas insurance law stipulates policy holders may take their car to any repair shop of their choosing. Since he wasn’t sure the cost of the repair would be more than his deductible, I suggested he get two estimates. He ended up getting three, one from the dealership where he purchased his car (Sewell Lexus), and then two more from different body shops. It turned out, each one came back with a different cost estimate to repair his car, and the differences were significant.

There are two reasons for the pricing differences – the parts each shop will use and the hourly rate. In an effort to reduce the cost to repair vehicles which have been in an accident car insurance companies have built relationships with preferred repair shops. In exchange for being a preferred vendor, the repair shops agree to cap the hourly rate for their technicians, usually around $44 an hour, and to use third party parts.

Third party parts are replacement bumpers, light kits, fenders, hoods, doors, etc. made by a company other than the company who built the car or truck. They are not genuine original equipment manufacturer (OEM) parts from GM, Lexus, Ford, Honda, etc. The reason insurance companies prefer these parts is they cost between 20% and 50% less than OEM parts which keeps the cost of repairs, and our car insurance rates, lower than if the manufacturer’s parts are used.

There are two broad perspectives on whether to use third party or OEM parts. Most dealer based repair facilities insist on using OEM parts. Their reasoning is these parts are designed by the manufacturer to precise standards of fit, finish, and safety. The benefits of OEM parts, they contend, are no modifications are needed to make the part “fit” what’s being repaired, they operate as designed, are the same quality as what was on the vehicle originally, and don’t lessen the value of the vehicle once it’s repaired.

The other perspective, is there is a cost savings to the consumer on what they pay for their car insurance, as well as to the insurance company paying for the repair. Keep in mind, most OEM parts are bought from the dealerships. In addition, many, not all, of the parts used are made by the same companies that make them for the car manufacturer using the manufacturer’s own specifications. In many cases, the companies that make the replacement parts must license the designs for the parts from the manufacturers themselves (Google Ford Motor settlement with LKQ Corporation).

Assuming third party parts fit as well as their OEM counterparts, the question of their safety and crashworthiness is a big consideration. Do they perform as well as OEM parts in an accident? Honda crash tested a car with third party parts and found it didn’t hold up as well. In addition, the parts affected the timing of the air bag’s deployment due to weight differences. In a different test performed by the Certified Auto Parts Association, two Camry’s (one with OEM parts, the other with CAPA certified parts) performed with distinction in a frontal offset crash test.

Unless insurance companies begin to automatically cover OEM parts in their preferred repair shops, I believe consumers are faced with two decisions if they want OEM parts used. They can pay the difference between the repair bill authorized by the car insurance company and the cost for OEM replacement parts If they are involved in an accident, or they can elect to add OEM parts coverage to their car insurance policy before being in an accident (see Which choice will you make? Share your thoughts, questions, and experiences with me on our Google +, Facebook, and LinkedIn pages. I’d love to hear from you!

Evie Wise
Evie Wise


Evie Wise
Evie Wise

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