Insurance Companies and OEM Car Parts in 2024

Welcome to our in-depth look at how insurance companies are likely to handle original equipment manufacturer (OEM) car parts in 2024 claims. Over the past decade, there has been ongoing debate around the use of OEM versus non-OEM (“aftermarket”) parts in auto repairs covered by insurance. With growing technology and quality improvements in aftermarket parts, as well as cost pressures on insurers, it’s an issue that remains top of mind in the industry.

What are OEM car parts?

To understand the debate, we must first define some key terms. Original equipment manufacturer, or OEM, refers to any manufacturer that supplies components or parts to be used in another company’s product. In the automotive context, OEM parts are those designed, tested, and manufactured specifically by or for the automaker that originally produced the vehicle. They are often considered the “genuine” or brand-name parts by car owners.

A common misconception is that OEM parts must be made at the automaker’s own factories. In reality, many OEM parts are sourced through supply contracts to outside manufacturers – who must still meet the automaker’s exact specifications and undergo its certification process before being deemed “original equipment.” 

The current state of play

Currently in the US, insurance policies generally allow for the use of either OEM or non-OEM (“aftermarket”) replacement parts in auto repairs covered by a claim, at the insurer’s discretion. However, many insurers strongly prefer OEM parts due to perceptions around quality, safety, and minimization of potential liability issues down the road.

On the other hand, aftermarket parts have grown substantially in quality, durability, and warranty support over the past 10-15 years according to various studies. They also offer savings of 20-40% or more versus identical OEM components. With rising costs pressuring insurers, more are open to higher aftermarket part usage where appropriate to lower expenses per claim.

State laws also come into play. Around a dozen states have passed “parts equivalence” laws since the late 1980s, requiring insurers to disclose if a non-OEM part will be used and allowing policyholders to choose OEM at no extra cost. However, such legislation has not slowed the broader insurance industry preference for original branded components on the whole.

Key trends impacting 2024 policies

So how might the debate evolve further by 2024, and what do major insurers’ likely stances look like a year from now? Here are several notable trends that offer important clues:

Growing acceptance of aftermarket quality

Studies continue finding aftermarket parts, especially from top suppliers, meet or exceed OEM specs the vast majority of the time. Improved manufacturing methods and sourcing of core components mean quality gaps have nearly closed in many categories like shocks, brake pads, and other wear items. As familiarity with such data grows industry-wide, insurers will feel more at ease approving suitable generic alternatives.

OEM supply chain issues continue

The global chip shortage and other pandemic-related disruptions have strained automakers’ ability to consistently deliver certain parts even for new vehicles. coupled with inflationary cost pressures, this gives aftermarket producers an opening to fill gaps and build stronger relationships with insurers. It also shows OEM dependencies that may concern some companies.

Younger customers prioritize cost and convenience

Newer drivers entering their auto insurance buying years (ages 18-25) place higher importance on affordable premiums and simple, one-stop repairs. They have far less brand loyalty to the original automaker when choosing replacement parts. Insurers want to meet evolving customer preferences that now favor pragmatic considerations over intangible manufacturer allegiances of the past.

Technology enhances quality oversight

Aftermarket suppliers rapidly adopting new technologies like telematics, artificial intelligence, and blockchain solutions allow for unprecedented real-time tracking and auditing of part properties, sourcing, and distribution channel integrity. Insurers gain powerful new ways to dynamically assess quality risks down to the individual repair shop or even part number. This added oversight helps address one of the largest remaining concerns around generics.

Pressure on costs intensifies

Inflation, supply chain expenses, increasing severe weather events, and other macro factors continually pressure insurers’ bottom lines industry-wide. Using higher ratios of suitable generic parts serves as an obvious lever to offset rising claims costs without premium increases, when backed by appropriate safeguards and disclosures. Few companies will ignore this pragmatism if able to make such programs actuarially and legally sound.

Projecting 2024 insurer policies

Given these influences, here is how several top auto insurers may update their collision repair part policies between now and January 2024:

State Farm

As the nation’s largest auto and home insurer, State Farm already encourages approved shops to offer policyholders an OEM or aftermarket replacement part quote option. Expect them to continue expanding approved generic part usage where quality standards are met, with a “Choice” disclosure program enacted in additional states.

GEICO

GEICO takes a data-driven approach and may implement a pilot program in select regions dynamically adjusting preferred part types based on continuous monitoring factors like individual part suppliers, repair locations, driver risk profiles, and claim frequencies. Over time, quality aftermarket options grow.

Progressive

Progressive will remain open to aftermarket alternatives case-by-case, and develop an easy online portal for customers to view repair estimates, approved suppliers, track records and agree to replacement part preferences on a per-claim basis for maximum simplicity and transparency.

Liberty Mutual

Liberty Mutual may introduce a proprietary “qualified parts” program leveraging affiliate diagnostic technologies to pre-approve select aftermarket SKUs meeting stringent durability, safety and emissions testing. The first-of-its-kind program expands approved options while ensuring strict controls.

Allstate

Allstate takes a more gradual stance, updating disclosures and slowly expanding accepted non-OEM suppliers where independent research and assurances from parts manufacturers alleviate lingering legacy concerns. But customer choice remains a priority.

FAQ

This complex issue understandably leads to many questions from all angles. Here are answers to some frequently asked ones:

Are aftermarket parts really as good as OEM?

The vast majority of independent studies conclude top-tier aftermarket parts, especially for wear items, meet or exceed OEM specs and quality levels when manufactured by major suppliers. However, not all generics are equal – repair shops and customers should always verify the supplier, warranty, and crash test certifications before accepting alternatives to branded components. Quality and safety must come before any cost savings.

What if an aftermarket part fails – who is liable?

If the part was recommended by the insurer and met established industry standards, then liability typically would not transfer to them. However, if it was found to be defective or improperly installed, the repair shop, part manufacturer, or technician could potentially be held liable depending on the specifics of the failure. Comprehensive warranties from reputable aftermarket producers help mitigate these risks.

Will premiums decrease if insurers use more generics?

Not directly or necessarily. Any savings from broader approved generic part use would likely go towards offsetting rising claims costs from inflation and other expenses pressuring insurers – helping to minimize future premium increases rather than triggering immediate cuts. Cost efficiencies may instead be re-invested into other customer value areas like enhanced policy options, services, and repair quality assurance programs.

What can policyholders do to ensure high-quality repairs?

Customers should research any repair shop thoroughly, ask about part supplier qualifications and warranties upfront, and request an estimate listing all planned components. Inspect completed work carefully and report any issues promptly. Choosing shops in insurer networks helps validate their vetting and standards compliance. Being an informed consumer is key regardless of part brands utilized.

Do state legislation differences still impact part approval?

Yes, the small number of states with “parts equivalence” or similar laws requiring disclosure and customer choice will likely continue influencing insurer stances in those regions differently than national policies. Regulations and industry best practices also vary slightly by state and locale, so repair experiences may not be identical everywhere. Overall permissibility of aftermarket parts continues expanding broadly, though.

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