The purpose of insurance is to make the person whole again. If you sustain a loss, the vehicle should be repaired to OEM spec. IMHO, my car did not have after-market parts form the factory, so it should not have them after the accident.
In this case I assume the vehicle was repaired to OEM spec. The difference between a clean car-fax and a car-fax that has been in an accident, could be a huge amount of money. Therefore he is not whole. Unless the policy has specific provisions addressing this, he may have a case to recoup the difference.
As far as everyones policy going up... that will happen anyhow. I am not sure why people worry about the insurance companies bottom line so much, their profits are huge, and they will throw you under the bus without losing a bit of sleep over it.