Green parts strike environmental and economic gold – so why are insurers holding back?

With recent events like Brexit and the Covid-19 pandemic hitting car part production lines and supply chains, the recycled or green parts market has finally been able to take centre stage and help grease the wheels of the repair process as the manufacturing and logistics sectors ground to a halt.

Therefore, now is the ideal time for insurance firms to “re-educate” themselves on how to do business “differently” to better utilise the currently immature green parts market to reap both economic and environmental benefits, according to Cogent Hire founder and managing director Kirsty McKno.

This will involve insurers taking a “leap of faith” to “reset the goalposts”, McKno added.

She continued: “We can still keep the costs of claims low and we can still drive revenue out of part of the claims process, but we can do it differently and bring other benefits into it as well.

“On green parts, there’s an environmental benefit that’s enormous, but there’s also economic benefit.”

For Ian Hill, managing director of green parts specialist firm Hills Salvage and Recycling, insurers can take advantage of the green parts market to boost customer retention as well as make cost savings.

He explained: [Insurers] can still get the same money they currently get for salvage, or thereabouts, but they are achieving many other benefits in terms of helping subsidise the cost of the repair [and helping] the bodyshop [become] more sustainable.

“There’s [also] the upsell of [insurers] saving something themselves on the part because the part is cheaper in the long run anyway – they’ve got the benefit in terms of customer retention.

“At the end of the day, when [a customer] takes insurance out, [they are] not actually taking insurance out to be in a better position after the accident – put a new part on a vehicle that’s five years old, you’ve actually got betterment there.”

Industry intelligence

Green parts are up to 75% less expensive than the recommended retail price of new original equipment manufacturer (OEM) parts, according to salvage and recycling company Synetiq - these parts could therefore contribute to lower claims costs and insurance premiums.

Talking turnover figures, Hills revealed its request penetration rate for green parts is 74.86% and its parts fulfilment rate is 44.58% as of September 2021 – these statistics are based on data collected from the last 90 days with its main insurer contract, Ageas.

General insurer Ageas expanded its green parts programme with Hills in March 2020 by combining its supply and salvage operation. Despite the pandemic reducing the number of cars on the roads, leading to fewer accidents, almost 7,000 green part repairs took place for Ageas policyholders last year.

Today, around one in five of the green parts the insurer uses for its repairs comes from salvaged vehicles.

Cogent Hire, part of handl Group, has also invested in Hills as part of its ambition to revolutionise the credit hire industry. McKno noted that recycled motor parts are not used for safety elements, such as airbags, but rather for non-safety critical original equipment (OE), like doors and headlamps.

Environmentally, Hill said the “big” benefit for businesses in utilising green parts is avoiding using raw materials and energy to produce new parts.

Green repairs also reduce unnecessary waste and keep vehicles on the road for longer while “helping everyone in the supply chain reduce [their] carbon footprint and do better for the industry”, he added.

This point is key for the insurance industry as businesses drive forward initiatives to meet the UK government’s goals of achieving net zero carbon emissions by 2050. “We’re all here as businesses to make profit, but it’s how we make a profit that matters,” McKno agreed.

Synetiq, for example, has avoided 5.5 million kilograms of CO2 emissions by suppling green parts to fleets and insurers across the country over the last two years (as at 24 May 2021).

Zurich signed a three-year deal with Synetiq in September 2021 to secure a supply of green parts for use within its repair process. This forms part of its overall sustainability strategy.

Zurich’s head of expert claims Gillian Ferguson said the arrangement “allows us to help eliminate the CO2 emissions created from the manufacture of new items”, while ensuring that the insurer does not “compromise on the safety of the vehicle or the quality of the repairs from a customer’s perspective”.

Taking a leap of faith

But what are the challenges to using green parts and why are some insurers hesitant to invest in salvage?

Hill said the problem is that the market has “never been scaled to support an insurance industry as it has always been business to consumer, rather than business to business”. Therefore, insurers are not confident in upscaling, he believes.

Hill continued: “The service level agreements that the bodyshops have in place with the insurer is a big thing to get over because traditionally, somebody will buy a part off somebody like us – they come and collect it, they sit down and save some money in doing it. [Meanwhile,] the insurer [needs] automation from when they do the estimate, they need the delivery service – like a main deal and supply.”

With this in mind, Hills “adjusted our business to suit that model, as opposed to just offering the services that we did prior” when initially partnering with Ageas during its first year-long pilot between January 2019 and January 2020. “We took a totally different approach,” Hill added.

Robin Challand, claims director at Ageas, said: “One challenge insurers must overcome, especially if they have a repair network that’s as keen as ours to embrace this more environmentally friendly approach to repair, is access to enough green parts.

“You’ve got to find partners that you can work with, understand and share doing something different [with]. We’re pleased to say that’s what we have with Hills and our repair network.”

Hill said: “Going into lockdown was hard, but it showed that we could do the job - even more so because parts just weren’t available during lockdown. That showed the insurer there [were] some benefits early on.

“We were fortunate enough to be chosen by Ageas - [as] an insurer, they were totally taking a risk.”