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Motor Insurance
Wednesday, July 1, 2009
Controlling costs

The Office of the Ombudsman for Short-Term Insurance frequently receives complaints from consumers concerning the use of so-called ‘pirate parts’ by insurers when repairing motor vehicles, as well as second hand components.

Observes Ombudsman Brian Martin: “There is a perception on the part of the public that an insurer is obliged to use new original factory supplied parts.
“The cost of repairing damaged motor vehicles has risen significantly over time and is a major factor in the high cost of motor vehicle insurance. If premiums are to be kept at reasonable levels and increases in premiums within similar bounds, it is imperative that everything possible be done to keep repair costs down; but at the same time without compromising safety or quality standards.”
The low incidence of comprehensive motor vehicle insurance is an area of major concern to the Ombudsman and the less affordable insurance products are the greater the temptation on the part of consumers to self-insure, which can have far-reaching consequences not only for the motorist himself, but society at large.
The Ombudsman points out that in the modern world very few motor manufacturers actually make the components incorporated into their motor vehicles and a high percentage of them components are sourced from specialist manufacturers.
Components may be common to more than one make of motor vehicle. A distinction is to be drawn between components made by reputable manufacturers that conform to recognised safety or quality standards and those that may be classified as fake or unauthorised copies made by unspecified manufacturers, often in China.
Original factory supplied equipment must be fitted whenever a critical component of the motor vehicle is damaged or where the warranty or maintenance plan of a vehicle would be adversely affected by the fitment of non-approved components. Depending upon the circumstance of each case and in particular the age and condition of a car, there is however no reason why components made by outside manufacturers should not be used where this can result in cost savings, provided that issues of safety or reliability are not compromised.
Martin says, “The use of second hand parts, where appropriate, is also to be encouraged as a cost saving measure.”
He stresses that there is no hard and fast rule that can be laid down, but that each case must be assessed on its own individual merit. However, he appeals to members of the public to be reasonable and practical in their approach to the repair of accident damage. “The underlying purpose of insurance is one of indemnification, not enrichment,” he points out.
He also draws attention to the fact that ‘betterment’ is not applied in relation to individual components of a motor vehicle, but only where the overall value of an insured article has been increased through a process of repair or reinstatement. Should the insurer be able to show this through independent evidence, then the Ombudsman would allow a deduction from the claim to the extent of the betterment.
 

Copyright © Insurance Times and Investments® Vol:22.7 1st July, 2009
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