With the revision of the standard automobile insurance terms and conditions, starting August 16, if a vehicle is repaired through insurance, the price of non-original equipment manufacturer (OEM) parts, which are cheaper and quality-certified substitute parts, will become the basis for calculating repair costs. If original parts are used instead of substitute parts, the vehicle owner must bear the additional expense directly. The financial authorities state that this will lead to lower insurance premiums, but consumers are expressing dissatisfaction, saying that using substitute parts raises various concerns regarding their vehicles.
According to the insurance industry on the 29th, the financial authorities plan to apply the automobile insurance standard terms, which include substitute parts when exchanging or repairing car parts through insurance, to automobile insurance contracts renewed starting August 16. This is explained as a follow-up measure after original and substitute parts were recognized as equal under the Automobile Management Act in February of last year.
When this clause is applied, if there are substitute parts that can replace original parts during vehicle repairs through insurance, compensation can be received based on the price of the substitute parts. Substitute parts are so-called aftermarket products, which come in various types and have varying performance, but only products certified by the Korean Automobile Parts Association, the only certification body designated by the Ministry of Land, Infrastructure and Transport, are recognized. These products are 35-40% cheaper than originals. If original parts are used, additional expenses must be borne by the vehicle owner. Previously, a special clause that refunded 25% of the original price when substitute parts were used for car accidents will also be eliminated.
The financial authorities believe that using cheaper substitute parts can lower the repair costs (insurance payments) the insurance companies must bear, and if repair costs decrease, this can lead to an improvement in loss ratios, potentially resulting in lower insurance premiums. According to the Insurance Research Institute, the repair costs for property damage compensation stand at approximately 4.3 trillion won as of 2023. Parts costs account for an average of 48.2% of this amount, the highest proportion. The remaining labor costs are at 23.3%, and painting costs are at 28.5%.
The insurance industry reports that the quality difference between original parts and substitute parts is not significant, but negative perceptions lead to diminished choices. The Korea Insurance Development Institute previously conducted crash tests on exterior parts (bumpers and fenders), which are widely used in car repairs, and announced that substitute parts received 'excellent' ratings for safety just like original parts.
The insurance industry has reported that rising parts costs have increased the average repair cost per case, and the overall loss ratio for automobile insurance has also risen. In cases where injuries or fatalities occur due to automobile accidents, the loss ratio for bodily injury compensation decreased by 6.7 percentage points in 2021 and by 7.2 percentage points in 2023. In contrast, the loss ratio for property damage compensation linked to repair costs increased by 6.6 percentage points in 2022, 3.5 percentage points in 2023, and 4.8 percentage points in the first half of last year.
The increase in repair costs is attributed to a greater number of people driving expensive imported cars and electric vehicles. Recently, with advanced parts such as emergency braking systems being installed to prevent accidents, the cost of parts has risen further. The average annual increase in parts prices over the past ten years has been 4.5%, surpassing the inflation rate during the same period.
However, consumers are protesting that requiring them to bear the additional expense when using original parts effectively forces them to use substitute parts. They argue that original parts cannot completely replace substitute parts. The automotive industry also claims that due to the differences between original and substitute parts, durability cannot be guaranteed. Even if they appear identical, subtle performance differences can lead to various defects, such as vibrations or noises, and even oil leaks.
Criticism has also emerged regarding the issue of car owners who have recently purchased new cars or victims of traffic accidents being practically compelled to use substitute parts. If substitute parts are used, there is a high possibility that there will be no warranty repairs at official service centers, and it is also pointed out that the resale value of used cars decreases. A consumer has filed a public petition stating, 'When signing up for automobile insurance, there should be two options to choose from: one for original parts and one for quality-certified parts,' and added, 'This should not be a unilateral change in terms but should be subjected to the consent of the public.'