Recycled parts - Waste not, want not

David Attenborough is raising the plight of polar bears threatened by extinction; David Cameron is cycling to work in a bid to win the keys to number 10 Downing Street - for whatever reason, suddenly it seems right to take action before humankind's wasteful ways lead to global destruction. So, are insurers sitting on the sidelines and doing nothing? Fear not, Allianz Cornhill has just announced a high-profile three-month pilot to test the use of recycled parts in repairing vehicles but some people may be experiencing a feeling of deja vu.

In the past year, the national and trade press has published numerous articles about the industry using more second-hand parts obtained from salvage companies. The insurers, Admiral, Co-operative Insurance Service, Fortis, Highway, MMA, Allianz Cornhill and Provident formed the Recycled Parts Group and undertook a six-month pilot in Poole, Doncaster and Gloucester.

Big hitters Direct Line and Norwich Union were involved to a lesser extent and the whole project has since fizzled out. It is understood that talks about restarting the project are ongoing but Allianz Cornhill has decided to do its own thing while CIS has a defined green policy.

According to Dane Loosley, Allianz Cornhill's motor damage claims manager: "The group of insurers pulling together just did not work. So, we decided to take the plunge and set up our own pilot in the West Midlands."

However, rumblings in the motor trade press appear to suggest that the customer response to being offered recycled parts has not been good. Clearly, there are many vested interests in the motor trade - for example, repairers fear they will be paid less for fitting the parts, but also there are other concerns over safety and supply chain issues.

Mr Loosley is adamant objections will be overcome. "Attitudes are changing - if you'd asked a customer 10 or even five years ago if they'd consider a recycled part, they'd have refused. Now, there is far more interest in environmental matters - we feel it is wrong not to offer this."

Cooling-off period

Allianz Cornhill is making it clear that so-called green parts will only be offered for older vehicles of five years or more, as newer cars are covered by warranties. The green parts will not be used where there is a safety issue; new parts will continue to be used for brake and steering components, for example. The insurer emphasises customers will have a 24-hour cooling off period if they change their mind about using the recycled part. Salvage company Car Transplants will then distribute parts to the 10 approved repairers taking part in the pilot.

Some insurers are sceptical about whether there is any customer demand for green parts. There have also been jibes that this is just another way for insurers to reduce their parts bill, which has left repairers feeling disgruntled.

As Adrian Webb, head of corporate communications for Esure, says: "There are many questions surrounding the viability of recycling parts. Pilots are under way to test the reaction of policyholders and the logistics of supplying parts to repairers quickly enough for customer service to not be hindered. Whether recycling parts is cost effective or a genuine environmentally friendly solution remains to be seen."

Mr Loosley says Allianz Cornhill will analyse cost implications as part of their pilot but this is far from being the sole rationale: "More customers want green parts and this is going to be a positive experience. We understand that some repairers are also uncertain but they will not be losing income. One of our key reasons for doing this is to find out what drivers think about it, which ones it appeals to - and if we feel there is a business model for it, then we'll extend it."

Given its green credentials, it is unsurprising CIS is strongly in favour of more recycled parts being used. It has recently launched Eco Motor Insurance, which includes "an environmental-based claims service".

CIS has linked up with Universal Vehicle Services to provide the parts, with some of the labour being handled by First Step Trust - a charity that provides work experience and employment opportunities for people with mental health problems and other disadvantages.

The product is aimed at all motorists, although those that fall into the A tax band for being greener benefit from a 10% discount. All policyholders have access to the claims service.

According to CIS spokesman Duncan Bowker: "We pay our appointed repairer network to ensure that they recycle materials, like used oil and old bumpers, and this will eventually include the environmentally friendly disposal of end-of-life vehicles, which will have their pollutants removed, then be dismantled and parts recycled. We will also agree to offset the CO2 emissions of each vehicle insured for the lifetime of the policy, irrespective of the type of vehicle. Later this year we will be looking at extending the discount bandings when we move from the existing group rating of 1 to 20 to 1 to 50."

Mr Bowker adds: "By its very nature, ethical consumerism can often mean the products themselves aren't necessarily the cheapest but the signs are that consumers are no longer being driven by price alone and the choice of product is being dictated by their conscience. That said, we feel that our proposition can be sustained and we anticipate that demand will be high."

Repair v replacement

CIS was using recycled parts as early as 2002, when it launched an initiative to encourage the repair, rather than the replacement, of damaged vehicle parts, with a particular focus on plastic bumpers. A financial incentive was introduced to improve take-up among CIS's appointed repairers. When a part that would otherwise have been replaced is repaired, CIS pays the repairer half the retail price of the equivalent new part. In 2005, parts with a replacement value of £109 000 were repaired, realising cost savings of approximately £54 000.

In a separate initiative, if the car is at least three years old and so badly damaged it would not be economically viable to repair using new parts, the customer is given the option of having the vehicle repaired using recycled parts. As a financial incentive, CIS will waive any policy excess - typically £150. As with Allianz Cornhill, CIS only uses recycled parts for cosmetic repairs and not for those that may have an effect on safety.

Anne Bermingham, marketing manager for Universal Car Services, says the increase in calls for recycled parts is undeniably good news for salvage companies.

However, she adds that few could deny the ethics driving CIS's project: "We are delighted to be a key partner. The work First Steps is doing in setting up body shops is incredibly worthwhile and more people need to know about it. Using recycled parts is nothing new but there have been false starts before. We'd like to see more education about the benefits and more incentives for policyholders - perhaps offering discounts - and making sure they are aware work is guaranteed."

However, she says she is sceptical about savings for insurers. It is suggested that prices for recycled parts from salvage companies can cost as little as 30% of new. "Of course this could be good news but I don't think these savings will be substantial. In the case of a recycled panel, there may be higher labour costs because more preparation will be required."

Meanwhile, Peter Goodright, head of accidental damage claims at Highway, comments: "Policyholder preference is important. We also have to make sure the repairers are satisfied. Overall, we are very interested in the concept of more recycled parts being used and will be keeping a close eye on what's going on. It's wrong that landfill is being taken up with parts that could be used. We are talking to our repairers and looking at how we can do more. We may well look at doing our own pilot in a few months."

Phil Gledhill, Norwich Union's motor claims technical manager stresses the importance of taking a balanced view: "Environmentally, there is no doubt that this is advantageous and response from policyholders has been lukewarm so far. We already use a lot of recycled parts - one of the main areas is where it's a classic car or, in particular, where there has been serious damage and it should be a write-off but the owner does not want to part with it for sentimental reasons. We will try and find replacement parts in these cases."

Mr Gledhill believes insurers may well find that new parts could be cheaper in some cases. "You have to take into account the discounts that insurers may be able to obtain and build through distribution and labour costs."

Mike Monaghan, chief executive officer of repairer trade body MVRA, empathises that many of his members are in favour of using green parts because they often look as good as new. "There are too many cars being written off with useable parts but we need to look at improving the supply and get a proper infrastructure. There are too many unwanted parts and too few of those which are needed," he explains.

And, Mr Monaghan echoes the view that insurers should not hold out too much hope of making costs savings. "The work may well be more labour intensive and even if parts cost less, labour could cost more."

The repairer industry is undergoing considerable change, as result of new legislation and a demand for higher standards in some cases. This is partly due to the new European Union Paint and Products Directive, which starting from 2007 will require bodyshops to use only compliant water-based paint products, and the effect of the proposed Publicly Available Specification 125 quality standard for the crash repair sector. Both will require bodyshops to significantly increase investment.

Falling repairs

This is a sector facing "structural decline" according to a report by the analysts Trend Tracker. It stated that the number of repairs is falling and the value of the 2006 market is back to the 1996 level of £4.7bn. The results suggest more drivers want to sort out small claims themselves and that increasingly complex cars are making potential repairs too expensive, leading to more write-offs and less work for bodyshops. What is more, cars are now safer and Trend Tracker predicts there will be fewer accidents.

Those insurers contacted for the report said they were not aware of any significant fall off in claims, saying instead that costs were generally rising but Mr Macnab warned that insurers are also facing rising damage liabilities because increasingly complex cars also leave more room for repairers to make errors. Despite this, no insurer said they were particularly concerned, suggesting the report might be scaremongering.

Mr Loosely says: "Body shops are becoming more efficient, which is good news. Repairer costs will continue to rise and there will continue to be strong demand for new parts because recycled ones are not appropriate in all cases. If more cars are being written off it is a concern but I don't think there is any crisis. The automotive market is focused on safety and competitiveness."

Mr Webb adds: "If insurers want to be environmentally friendly they should repair more parts rather than replace them with new or recycled parts. Esure has been successful with its strategy to repair more and replace fewer parts than any of the major insurers, so you could say it is a green insurer." Of course, more repairs have to be good news for the repairer industry.

The fact that some insurers are now attempting take environmental issues more seriously has to be viewed positively. For those insurers still not making their intentions clear, policyholders may say that the green bandwagon is one they definitely want to be on in the future.