Good As New? - State Farm loses auto parts legal case

Kiplinger's Personal Finance Magazine, Jan, 2000 by Kimberly Lankford

More changes may be on the way because several other large insurers--including Geico, Nationwide, Progressive and USAA--are being sued for their generic-parts practices.

Your pocketbook. State Farm predicts the policy change could result in higher premiums. A generic part may cost only a few hundred dollars less than an OEM part, but the difference adds up. Using non-OEM parts saved the company an estimated $245 million in 1997, says State Farm actuary Gary Grant.

Others don't expect rate hikes. When Chubb switched to covering OEM parts about four years ago, "it did not have a big impact on our price," says Christoph Ritterson, Chubb's marketing and sales manager. "Liability is a much bigger piece of the insurance premium and is not affected by parts prices," he says. "And this is just the difference between OEM and non-OEM parts. It's the net difference for a fraction of a fraction of your policy," adds Ritterson. Still, most companies agree that the competition from generic parts has helped lower OEM prices.

What can you do to protect yourself?

* Know what your policy covers. Some companies, such as Progressive, generally still don't pay for manufacturer's parts if a generic is available. All-state gives you OEM parts if you ask for them (80% of policyholders do).

* Get help from your insurance agent and body shop. Bill Preston, an independent agent in Warwick, R.I., went to bat for a client whose body shop discovered generic parts wouldn't fit. After Preston explained the problem, Progressive agreed to pay for the OEM parts.

* If your insurer won't pay for OEM parts, consider covering the difference yourself. Generic parts could drive down the value of your car. "If you opened the hood and saw nonoriginal parts and the fenders didn't line up or parts didn't fit, you'd pay less for the car," says Larry Batton, an auto-appraisal specialist who testified at the State Farm case. A dealer will notice the difference, he says, even if you don't. If you lease, the contract may require original replacement parts.