New car parts rules slash costs

The costs to insurers of car parts are set to fall as a result of government legislation introduced this week.

New rules controlling the sale and distribution of manufacturers' and non-manufacturers' parts should see millions of pounds cut from the price of repair work, driving down the cost of premiums.

It is understood that car makers such as Ford and Vauxhall currently make significant profit from the tightly controlled sale of original parts, coupled with restrictions on the use of non-manufacturers' parts.

The end of block exemption practices should see competition in both these market areas, according to experts.

Norton Consulting managing director Eddie Longworth said: "The biggest effect will be on the opportunity to reduce claims costs through the liberalisation of the parts market. This should allow insurers to cut premiums or reduce losses."

Norwich Union looks set to be one of the first insurers to exploit the changes. The insurer has set up Project Unity with parts supplier Lex Auto Logistics, giving the insurer access to parts at a considerable saving, says Longworth

But these savings, warns Longworth, may not be entirely straightforward: "It remains to be seen just how liberal the market becomes, as there are other parts of the industry struggling to protect their margins. Motor manufacturers will fight to protect their market."

The legislation covers a repair market worth an estimated £5bn per year; with 40% of these costs going on spare parts the savings could be immense.

But, not all insurers believe the motorist will see a direct benefit.

Allianz Cornhill motor damage claims manager Dane Loosley said: "We think it will inject competition into the market which is always a good thing.

"We cannot say it will reduce premiums, but it will slow the rise."