Auto Insurance Industry Wants New "OEM" Policy
Tempe, AZ (02/19/01) - The Insurance Consumer Advocate Network, an InterNet based Consumer Advocacy Effort, has been monitoring the legislative lobbying activity of the Auto Insurance Industry in All 50 States. An interesting new "Wrinkle" has been developing in legislatures around the country.
SAME COVERAGE / MORE MONEY ! ! !
Auto Insurance Companies are now pushing for approval of a new "OEM Only" auto policy that would protect consumers against the past predatory efforts of auto insurance companies mandating the use of "Aftermarket" Auto Body Parts. Like most auto insurance "Spin" efforts, this seems to make sense. That is, until one looks more closely at their proposal.
The Insurance Consumer Advocate Network would not challenge a two-tier auto policy market ONLY IF it were beneficial (and fully disclosed) to Consumers. However, the auto insurance industry's current approach is to charge More for these "New" consumer option policies. That is completely inappropriate and unjustified !
Consider the following . . .
POINT # 1 - Current auto policy verbiage already affords consumers the same protection that is now being marketed as "New" in the "OEM Only" auto policies. That protection is embedded within the current auto policy's "L.K.Q." (Like, Kind & Quality) clause.
Here-to-fore auto insurance companies have pointed to the "L.K.Q." clause to justify their use of Aftermarket Body Parts, claiming that such parts are of "Like, Kind and Quality." However, recent civil cases have determined that Aftermarket Body Parts are NOT of "Like, Kind & Quality." In fact, the "discovery" process of these civil cases have uncovered volumes of insurance company internal documents showing that defendant insurance companies have known for years that Aftermarket Body Parts are "Not Like, Kind & Quality."
Probably the most notable of these recent cases was Snyder v State Farm. That case resulted in a combined Civil / Criminal Penalty in excess of $1.1 Billion being levied State Farm. The above quote of "Not Like, Kind & Quality" came directly from State Farm's own internal documents.
Interestingly enough, that case also disclosed that State Farm had been charging their policyholders for "OEM" coverage all-along. State Farm's practice of mandating Aftermarket Body Parts had contributed to State Farm being 30% Over Reserved. When you convert that to actual dollars, State Farm had $12.6 Billion more of their policyholders' money (stashed away in off-shore "Jack" accounts) than was necessary to cover the most dramatic succession of catastrophes. (The Insurance Consumer Advocate Network issued a press release on this subject back on 11/15/99).
POINT # 2 - Immediately following the Judge-Jury Conviction-Penalty in the above referenced case, State Farm abandoned their practice of using Aftermarket Body Parts. That was in October 1999.
In July 2000, nine months after they had ceased using Aftermarket Body Parts, knowing they would not be using Aftermarket Body Parts anytime in the near future, State Farm declared their "Biggest Dividend in History." State Farm returned over $1 Billion in premium overcharges to their auto insurance policyholders.
CONCLUSION - Judicial examination of existing auto policy verbiage, and review of auto insurance company financial records, have already determined that . . .  "OEM" coverage already exists in current policies, and . . .  Premiums being charged for this existing coverage are higher than necessary.
SUGGESTION - Legislators considering a two-tier "OEM Only" and "Aftermarket Permissible" auto insurance policy marketing structure should . . .  Tweak the verbiage of existing policies specifically excluding the use of Aftermarket Body Parts as an "OEM Only" model . . .  Make Aftermarket Body Parts "Permissible" (not mandatory) on the alternate policies ONLY if such parts are readily available . . .  If Aftermarket Body Parts are Not readily available, insurance company is required to utilize "L.K.Q." or "OEM" as may be available to avoid repair delays . . .  Alternate policies must be made available at a REDUCED premium charge relative to "OEM Only" (standard) auto policies and, Most Important . . .  Insureds MUST SIGN an endorsement document acknowledging they understand their auto insurance company has the right to resolve any auto damage repair claims based upon the Parts & Labor charges inherent with the use of Aftermarket Body Parts !
FINAL NOTE - If you think the above referenced State Farm situation to be isolated, read our press release of 02/12/2001. Country Companies paid $6.3 Million to avoid going to court on the same Aftermarket Body Parts issue and avoid having their internal documents being made public. Additionally, Country Companies agreed to abandon the use of Aftermarket Body Parts and withdrew their support of CAPA (an insurance industry funded pro-Aftermarket Body Parts effort).