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Friday, 21 March 2014 01:16

Maryland Parts Bill Gets Unfavorable Vote in Committee

In a vote in the Maryland House Economic Matters committee on March 14, 2014, Maryland House Bill 574 (HB574), sponsored by Delegate John A. Olszewski Jr., received an unfavorable report out of the committee. Introduced in January 2014, HB574 and its companion, Senate Bill 487, sponsored by Senator John C. Astle, sought to prohibit insurance company personnel from specifying a specific vendor for parts or materials or part procurement process, and would have required OEM crash parts for a period of three years after the date of manufacture of a vehicle.

In a 16 to 7 vote on March 14, 2014, the Maryland House Economic Matters committee voted for an unfavorable report on HB574. In Maryland, committees report to the legislature on the bills that are assigned to them as favorable, with or without amendment, unfavorable, or without recommendation. Having been voted out of committee, the bill now returns to the floor of its chamber of origin accompanied by a report of committee action for consideration.

No action has yet been taken on SB487. The bills provided common ground for insurers and non-OEM parts suppliers in opposition. Several insurance and aftermarket parts groups testified in opposition to the bill. Repair facility operators that support the legislation believe it protects consumers and preserves a repair facilities ability to manage its operations. The Washington Metropolitan Auto Body Association (WMABA) supports the proposed legislation believing it necessary to protect the rights of repair facilities to operate their business independently and protect consumers.

The Automotive Body Parts Association (ABPA) publicly denounced the legislation prohibiting insurers from requiring the use of alternative collision parts on vehicles less than five years old.

“Senate Bill 487 will severely limit the choices that the consumer has in getting their vehicle repaired,” said ABPA executive director Edward Salamy. “These types of anti-consumer bills not only eliminate competition, a foundation of the American free enterprise system, they also increase the potential for higher insurance costs.”

ABPA claims that a representative of the WMABA made a series of false claims, including:

  • OE radiators have a better warranty than alternative supplier radiators.
  • Consumers will be required to pay additional rental car fees caused by delays due to alternative parts.

“The ABPA is not only monitoring the legislation in Maryland, but it has also come to our attention there is similar anti-consumer legislation being introduced in Rhode Island and Michigan,” said Salamy.

“Having your vehicle involved in a collision is already a very stressful experience for the consumer. Having a repair association such as WMABA using scare tactics to achieve their own agenda is not in the best interest of the consumer.”

Maryland Senate Bill 487 would prohibit “…a specified adjuster, appraiser, insurance producer, or employee of an insurer from requiring a motor vehicle repair facility to use a specific vendor or process for the procurement of parts or other materials necessary for the repair of a motor vehicle; requiring an insurer that issues or delivers in the State a policy of motor vehicle liability insurance that provides coverage for the repair of physical damage to the insured motor vehicle to authorize specified repairs to be made using genuine crash parts; etc.”

The Property Casualty Insurers Association of America (PCI) testified in opposition to the legislation. Oyango Snell, state government relations counsel, said, “PCI and our members encourage lawmakers to closely examine the possible negative ramifications for consumers that could result if Senate Bill 487 passes. This legislation not only imposes severe restrictions on how insurers manage the auto body repair process and deliver a quality repair experience, but it also could hurt consumers by increasing the costs associated with getting vehicles repaired and increasing the cost of insurance premiums. Currently Maryland’s average collision premium ranks 13th highest in the nation and that ranking could rise by forcing more repairs to always be made with original equipment parts, which can be as much as 60 percent more than aftermarket parts.”

Snell continued, “We believe lawmakers will see that this bill limits consumer choice and stands in the way of insurers providing high quality repairs at reasonable costs for their constituents.  We are urging lawmakers to table this legislation and continue to fight against higher costs for consumers.”

The Coalition for Auto Repair Equality (CARE) that represents companies in the automotive aftermarket including NAPA, AutoZone, Advance Auto Parts, O’Reilly Auto Parts, and Bridgestone-Firestone Retail Operations, raised concerns about the proposed legislation’s impact upon low-income consumers and that it stigmatizes non-OEM parts by requiring the consumer to consent to their use.

“If passed, House Bill 574 and Senate Bill 487 would require motorists who need vehicle replacement parts to specifically sign for the use of aftermarket parts in their vehicles before accepting them. This is unfair because these same vehicle owners do not have to sign for the more expensive car company-labeled parts.  In addition, this plants a seed of doubt in a consumer’s mind that the aftermarket parts are somehow of inferior quality, frightening them into spending extra money that they may not have,” said the executive director of CARE.

Addressing the issue of the three year requirement for OEM parts, an analysis prepared on the bills by the Maryland Department of Legislative services noted that the Maryland Automobile Insurance Fund (MAIF), an independent state agency created by the Maryland State Legislature in 1972 to provide insurance to residents who could not secure it on the private market, already has a policy to pay for OEM parts for two years after the date of manufacture. While adding a year to the current policy would raise costs, the analysis states, “However, despite the prevalence of motor vehicle accidents and collisions in society at large, any expenditure increase due to covering an additional year is likely to be minimal.”

The MAIF reported that in 2013 it wrote a total of 460 estimates on 2011 model vehicles (three year old vehicles that would be covered by the expanded OEM-only waiting period) and that the average difference between estimates using OEM parts versus aftermarket parts was US$117.32, for a total estimated increased cost of US$53,967. If that cost was passed on to consumers in premium, the two percent tax on insurance premiums paid to the state would result in US$1,079 tax collected.

The WMABA supported the proposed legislation believing it necessary to protect the rights of repair facilities to operate their business independently and protect consumers.

WMABA also believes that the impact on costs from the OEM-parts only requirement would be minimal and that there is no correlation between this type of provision and the cost of insurance. According to WMABA, while Rhode Island with a 30-month prohibition, and West Virginia, with a three-year prohibition, have historically higher premiums than Maryland, Indiana, with a five-year prohibition, and Minnesota with a complete aftermarket prohibition have lower premiums than Maryland.

WMABA also drew attention to the fact that consumer choice is preserved in the legislation because consumers would still have the ability to consent to the use of aftermarket parts if they choose to do so.

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