Bit part players

The Thatcham accreditation scheme, launched last year to improve the quality control of aftermarket parts and inject competition, has failed to gain widespread support from motor insurers. Veronica Cowan asks why

The majority of UK vehicles between three and 10 years old are serviced by using the manufacturers' original parts but, in line with general costs containment, some motor insurers specify that their repairers use alternative parts - parts not made by the original manufacturers. To date, the biggest issue to be overcome has been the perception that alternative - or aftermarket - components are of a dubious standard.

"There was a real quality issue in the early days," observes Allianz Cornhill motor damage supplier manager Philip Brailey. He adds: "In the eyes of repairers, the early experience tainted the parts. The repairers did not want to fit them; they would tell the policyholders who would ring the insurer to complain."

But the quality of these parts has since improved, and Mr Brailey explains that his company has taken steps to ensure that repairers do not lose out from their use. "Insurers used to retain all the benefits in lower priced parts. This reduced the margin for the repairer but we now have a deal with repairers to give them more of a margin than before. They used to get a percentage on the value of the part so repairers did not want to fit cheaper alternatives. Now we give them more of a cut to encourage them."

Aftermarket parts

To help the quality control process Thatcham, the motor insurance repair research centre, launched a parts accreditation scheme last year so repairers and insurers could use aftermarket parts ordered from an accredited producer or distributor. Thatcham has produced a database of accredited component manufacturers and logistics specialists authorised to distribute a range of accredited non-structured components for three- to 10-year-old vehicles.

These parts are identified by a Thatcham product label or Kitemark, designed to encourage competition and prompt vehicle manufacturers to reduce the price of their own parts.

In addition, insurers identify separate changes that are affecting the parts procurement market. For example, the end of the Block Exemption loosened the stranglehold major manufacturers had over their parts being made generally available to the motor trade. Jack Brownhill, Groupama's director of motor, says: "This has introduced a considerable degree of fluidity into the parts market and will have an impact on the approach individual insurers adopt, both in the sourcing of replacement parts and their financial relationships with repairer panels."

However, according to Duncan Bowker, spokesman for the Co-operative Insurance Society, this change has actually had the effect of putting up costs for insurers because they used to receive discounts on replacement parts.

As huge manufacturers like Ford have reduced the level of such discounts, the price paid by insurers for manufacturers' original parts has risen further. This is echoed by Mr Brailey, who comments: "It is likely that the cost of insuring Ford vehicles will increase."

However, this will have a much lower impact if insurers use alternative parts. So has the Thatcham scheme had the desired effect in terms of widespread take-up of accredited parts and greater competition? Unfortunately, there would appear to be several obstacles still to overcome.

Alternative options

If insurers want to encourage repairers to use alternative parts they will have to give them greater financial incentives, argues Brian Spratt, chief executive of the Automotive Distribution Federation, the UK trade association that represents manufacturers, importers and independent wholesale distributors. "Repairers have no incentive to do it unless insurers tell them to, but insurers have to pass on some of the savings to the body shops that are struggling."

The other issue is one of economies of scale: "Until a lot of insurers adopt the scheme, the price of manufacturers' parts probably won't fall much," says Mr Spratt. "Not many insurers have taken it on - only two or three have told their appointed repairers that it is alright to use Thatcham accredited parts."

It is true that only a few of the top-10 motor insurers have taken the plunge, and some insurers are reluctant to discuss their parts procurement strategies. Norwich Union, which launched its Unity project last year, declines to comment, as does Royal & Sun Alliance.

Gavin Hill-Smith, spokesman for broker AA Insurance, is unsurprised by the failure of large numbers of insurers to sign up to the accreditation scheme, observing that they "won't step out of line unless others follow suit". He says: "It is about the marketing message, and some would promote that they use original parts. From a marketing perspective, they stand to lose more than they gain."

Brokers seem to be unconcerned about whether original or alternative parts are used - providing it does not impact on customer satisfaction.

Swinton's insurance development director Chris Collings explains: "Our understanding and expectation is that the repair would be with original parts, unless advised to the contrary. But we have not had any complaints from customers about this."

Likewise Mr Hill-Smith says: "If it is not economic to use original parts then, with customers' consent, alternatives can be used. With a valuable car it might be different but if it was an issue for customers we would be aware of it."

Original ideas

However, John Sims, personal lines manager for Chubb Europe, is adamant that customers prefer manufacturers' originals. He says: "Not all policyholders would be happy" about the use of alternatives, pointing to research carried out by Chubb before launching its high net worth motor policy, Master Piece, last year. This research found that policyholders wanted to choose their own repairer and have cars repaired with original parts. He believes that using alternatives is likely to cause customer dissatisfaction. Of course, HNW policyholders tend to have newer and more upmarket cars. Perhaps the owners of older cars are less concerned about it, provided neither safety nor indemnity are compromised.

However, there are suggestions that manufacturers' guarantees can be impacted. Direct Line is quite clear about the fact that it doesn't use alternative parts. Spokeswoman Emma Holyer says: "We only fit original parts as manufacturers have said fitting alternatives will affect the guarantee. Some new cars have lengthy warranties, and the used car warranty extends this." She adds that the insurer also wants to give a "strong consumer message" about quality, remarking that Direct Line could not be assured of quality if it used alternative parts.

Different packaging

Using alternative parts is different to using parts identical to the originals. The latter are simply in different packaging, which avoids paying for the manufacturer's logo. Mr Bowker explains CIS' position: "At present CIS has taken the decision to continue to fit manufacturers' original branded parts as we feel this is the only way in which we can ensure our customers receive the levels of service they have come to expect." He adds that if CIS did change its mind, it would still go for originals but without the branding, so there would still be no need for Thatcham accreditation.

Allianz Cornhill stands out among motor insurers by being upfront about the fact it specifies the use of Thatcham-accredited parts for vehicles between three and 10 years old. Churchill confirms that it also uses alternative parts, both those accredited by Thatcham and others. It believes alternative parts are of comparable quality to the originals, says spokeswoman Frances Browning.

Other motor insurers adopt a flexible approach. "Esure does not differentiate between cars on the basis of age, and does not insist that repairers use original or non-original parts," explains Gordon Hannah, head of claims.

"If non-original parts don't fit, repairers won't use them. Esure's guarantees of workmanship are the same."

Groupama supports the Thatcham scheme. Mr Brownhill explains that his company tends to insure cars over three years old, and points repairers towards alternatives if they can source them.

Few insurers appear to have done deals direct with parts producers to maximise costs reduction. Mr Brownhill says Groupama has not done a deal direct with manufacturers as it has agreements with repairers for them to get discounts. "We recognise that insurers need a reliable network of repairers, and need them to be financially stable. The insurance industry would not benefit by squeezing their margins to the point that they cannot continue," he states.

The accreditation scheme was also intended to reduce the level of write-offs. But Jason Moseley, director of quality at Thatcham, says it is too soon to say if reduced write-offs are linked to the scheme. "While there are more opportunities to repair vehicles, it cannot easily be quantified," adds Mr Brailey. Moreover, as Mr Brownhill notes: "The cost of parts is only one piece of what is becoming an increasingly complex jigsaw. Other issues, such as waste and salvage disposal, environmental protection, anti-fraud initiatives, and the end-of-life directive all now play a part in any decision about whether a vehicle can be repaired or categorised as a total loss."

Scheme limitations

One of the limitations of the Thatcham scheme is that the range and number of accredited parts is relatively small. Mr Moseley explains: "A total of 50 parts have been accredited, including cosmetic parts like body panels, wings, bumpers and bonnets." He says the scheme is most useful for parts that are regularly replaced.

"We are not looking beyond body parts for accreditation. That is all we were asked to look at and would not want to extend it to structural parts, as I do not think our testing can add value to what has been done by the producer.

"We are only looking at external crash repair parts. Insurers are nervous of using copied structural parts because they are safety critical." He notes that although only 50 out of 120 parts put forward have been accredited, this does not mean the others were inferior in quality, stating they had failed the test because they took too long to fit compared with the original.

Thatcham's confidence that the top-10 insurers would sign up once administrative problems, like policy alterations, had been overcome has not been fulfilled.

And it is also difficult to persuade alternative manufacturers to improve parts if insurers do not use them. Mr Spratt explains that while accreditation has acted as a Kitemark and helped in terms of confidence in quality, his members have spent a lot of money getting accreditation but have not yet seen a good return. He is advising them to stick with it, but the resistance of insurers makes this difficult.

To date, the Thatcham scheme has focused on Europe, with its accredited suppliers located in Spain, Italy and Denmark. But the scheme is going East, Mr Moseley reports, and will be looking at Taiwan in March.

THATCHAM PARTS ACCREDITATION

High-quality, low-cost parts from the independent sector already exist but can be difficult to identify among the variety available. Therefore, Thatcham was asked by the General Insurance Council at the Association of British Insurers to set up a parts accreditation scheme.

The scheme's objective is to deliver a high level of product quality, identified by a unique Thatcham marking on each component. The procedures for the accreditation process are based on an assessment of the component manufacturer's processes, using recognised 'best practice' techniques as well as component verification, utilising Thatcham's engineering expertise and facilities. Distribution services are key to maintaining the quality integrity of components through correct handling and storage. Distributors and warehousing are, therefore, included as part of the supply chain approval.

Ongoing verification of Thatcham approved sites and parts will be conducted periodically to check for continued compliance. Thatcham has produced a DVD showing the stringent accreditation process that every business and every part must undergo to gain accreditation and the right to use 'the label you can trust'.

Source: Thatcham.

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