Old Parts to Cut Costs: INSURERS

In a bid to cut claims costs, two major Ontario insurers will soon begin using scrap yard parts instead of brand new components for collision repairs. While proponents of the plan say it will help put the brakes on skyrocketing rates — which jumped by an average 30.8% in Ontario between August 2002 and August 2003 — consumers might wonder if they’re getting short-changed for their steep premium bucks.

Brampton-based Aadco Automotive, a leading auto parts recycler, has negotiated a supply arrangement with two large insurers which will take effect Oct. 1. The deal will see these insurers dip into the Aadco parts bin –rather than manufacturers’ new parts inventory — for repairs on cars two years and older. According to Aadco President Charlie Hodgkinson, most auto insurance policies dictate that new parts will be used for repair on vehicles that are one or two years old. However, as Ontario’s vehicle fleet ages, insurers are increasingly putting new parts into older cars.

Hodgkinson says that doesn’t make sense. “The average car on the road is 12 years old and 62% of physical damage claims are on cars that are 1994 and older,” notes Hodgkinson. Because new parts are costly and the supply of new parts for older car gets scarcer as a vehicle ages, cars get written off that could be fixed if you could solve the parts puzzle. For example, Hodgkinson says a factory-supplied new door for a used car worth $3,000 might run $1,200. That’s simply for a door “skin” that needs to be painted and installed. The same part might cost $125 from a recycler. “Spending $1,200 on a part for a $3,000 car doesn’t make sense, but spending $125 does,” Hodgkinson says. If the car gets written off because the repair is uneconomical, the person gets a cheque for $3,000, but might not be able to find a vehicle of the same quality for that price. “If you end up writing off fewer vehicles because you can fix them economically, then you’ve got a greater parts supply and it all feeds itself,” says Hodgkinson. He points out that in 2002, Ontario had about 400,000 collision and comprehensive claims. The average repair claim was $2,500, with the average parts bill running at $930. Hodgkinson estimates using Aadco parts could shave $400 from the average bill. He says that could result in savings of $160 million a year. To use an extreme example, a right front headlight for a 1999 Mercedes-Benz SL500 costs $2,080 new through a dealer (before tax) or $600 through a recycler. As for the quality of the parts, Hodgkinson says vehicles purchased by Aadco as a parts source are professionally dismantled and the parts are thoroughly inspected. Those that don’t made the grade are sold off to be melted down as scrap metal. The remaining parts are kept in an indoor warehouse, protected from the elements. So which insurers are opting for this cost-cutting plan? Hodgkinson would prefer the names of the insurers not be disclosed. So the next time your vehicle gets banged up, you might want to ask a lot of questions before authorizing any repairs. In the meantime, I’d like to know whether insurers plan to slash their own in-house costs by opting for used furniture, computers or previously enjoyed cars when they need to replace their office equipment or corporate auto fleets. Since operating expenses at Canada’s home and auto insurers rose at a much faster rate than claims costs during the second quarter of 2003 (12% vs. 7.4%), maybe some corporate penny-pinching from insurers is in order when they buy their own supplies.

For more information,

call ,
visit www.aadco.ca, or
drop into its location at 220 Walker Dr.