After market versus OEM parts: The issue is choice

Rough Notes, Dec 1999 by Zinkewicz, Phil

The point that Ritterson is making is that the insured should have the "choice" of what is desired or needed in an auto insurance policy. Chubb is well known for insuring up-scale, expensive vehicles, which could have a significant resale value. In that situation, an insured is very likely to be willing to pay a higher premium for the certainty that OEM parts will be used in repairs.

The owner of a less expensive vehicle might opt for a lower premium and care little whether OEM parts or after market parts are used in repair situations. But an argument can be made that the choice must be there--or at the very least, informed consent.

The legal ramifications of the State Farm decision have yet to be hammered out. Many questions remain unanswered, not the least important of which is whether a local court can hand down a decision that affects the auto insurance scene nationally. State Farm, following the setback, announced that it would no longer require the use of after market parts, at least until the legal issues are resolved.

However, one thing should be considered. Both the court and the judge hearing the case believed that State Farm did not fully inform its policyholders that after market parts would be used for repairs following a crash, and that it did not give policyholders a choice of OEM parts vs. after market parts. Whether the court was correct or not, with the size of this award, insurers now may be more likely to consider offering that choice.