Proposed reg changes may have big impact on California collision repair industry
The regulatory landscape could be changing in significant ways for California collision repairers if some proposals the state is considering move forward.
A bill introduced in February by Rep. Brian Jones (a San Diego-area Republican) would require dealerships to give car-buyers, at the time of the sale, written notice about the federal Magnuson-Moss Warranty Act, which prohibits automakers from requiring the use of OEM parts as a condition of the vehicle warranty.
The bill is being supported by the national Auto Care Association, whose members include manufacturers and suppliers of aftermarket parts, particularly mechanical parts, such as NAPA and Carquest. The association regularly seeks enforcement of the Magnuson-Moss Act when it believes an automaker has tried to convince vehicle owners that use of non-OEM parts will void the vehicle warranty.
Back in 2010 and 2011, for example, the Auto Care Association was among several trade groups contacting the Federal Trade Commission (FTC) after Mazda and Honda issued position statements recommending the use of only OEM parts for collision repair. The FTC has noted an automaker cannot say that use of such parts voids the entire vehicle warranty, but also has said that if a defective aftermarket part causes damage to another part, the automaker has the right to deny coverage for that secondary part.
Jones’ bill would require dealers to give new-car buyers a statement that reads, in part, “It is unlawful for a manufacturer or dealer to void your warranty or deny coverage under the warranty simply because you used an aftermarket or recycled part. If it turns out that an aftermarket part or recycled part was itself defective or not installed correctly and it caused damage to another part that is covered under the warranty, the manufacturer or dealer has the right to deny coverage for that part and charge you for any repairs.”
How much impact a statement like that might have on the owner of a new car by the time he or she is in a collision is unclear. But in late April, California Insurance Commissioner Dave Jones was holding hearings in Sacramento on some proposed regulatory changes that likely would have far greater impact on collision repairers in the state. The California Autobody Association is supporting both proposals, which impact the state’s anti-steering regulations and add new requirements for insurers’ surveys of collision repair labor rates.
"We feel that this anti-steering regulation will help consumers better handle their own claim by giving them more authority, “ CAA Executive Director David McClune said. “The labor rate survey gives a better and fairer way of coming up with the labor rate in order to process claims better for consumers and insurers."
Under the proposed anti-steering regulation, for example, insurers would be prohibited from saying a shop chosen by a claimant has a record of poor repairs or service without clear documentation in the claim file supporting such statements. Once a claimant has chosen a shop, the insurer could not require that the vehicle be inspected by another shop, nor could it tell the claimant that an inspection of the vehicle (if it is made available for inspection) would take more than six days after notice of the claim.
The Department of Insurance (DOI) says the change is needed because since 2009 it has received more than 160 complaints related to steering of claimants.
“While the legislature has enacted statutes expressly providing claimants with the right to freely choose a repair shop, these statutes do not contain enough specificity to provide the public, repair shops and insurers with guidance on what constitutes non-deceptive and truthful information regarding a claim,” the DOI wrote.
The proposed new labor rate survey requirements would prohibit insurers from using information that is more than 16 months old (unless that older rate data is adjusted for inflation) or that has been derived from estimates (rather than actual survey responses). Surveys would have to be sent to all licensed collision repair shops in a market, and responding shops would have to affirm they have the list of equipment identified in the current Collision Industry Conference (CIC) “Class A” shop definition (see www.CIClink.com). The prevailing rate must be either the average rate among all shops, or the rate charged by a simple majority of shops, whichever is greater. Discounted rates charged by the insurer’s direct repair shops could not be used in the calculation, according to the proposed regulation.
The DOI says the change in regulation is needed because currently insurers submit labor rate survey information to the DOI in different formats using different terminology and data, hampering the agency’s ability to make the survey information public.
“The Department received hundreds of complaints from consumers and autobody repair shops, alleging specific instances where consumers were forced to pay out-of-pocket costs, or shops were deprived of their reasonably-charged rates, due to outdated and unreliable surveys,” the DOI wrote.
Whether the California DOI proposals are implemented as proposed or amended or dropped will likely be based on the outcome of the hearing and comment period that just ended.
The proposals come less than six month after the California DOI accused Allstate and two other insurers of unfair or deceptive practices related to shop labor rates.
The allegations against Allstate Insurance, for example, included several incidents in which the insurer was willing to pay only a fraction of a shop’s labor rate, yet “had not conducted a labor rate survey or provided any other credible evidence that the labor rate used to cap or deny the portion of the claim was reasonable within [the shop’s] geographic area.”
In one such incident, which resulted in a consumer complaint, Allstate allegedly told the insured that the lower rate it was willing to pay was the “prevailing labor rate,” which the Department says was “untrue, deceptive and misleading” because it was not supported by a labor rate survey or other credible evidence. In other similar instances, only after the DOI intervened did Allstate conduct labor rate surveys, which did result in increases in the labor rate it was willing to pay. Yet in these incidents, the DOI notes, Allstate did not provide any credible evidence that its “initial capping and denying of the labor rate was reasonable.”
The allegations against Allstate cited five such incidents in all, and the DOI filed similar allegations against Alliance United Insurance (two such incidents) and Sterling Casualty Insurance (one incident).