California DOI proposes steering, labor rate survey changes

Jan. 1, 2020
Insurers and repair groups in California will likely square off in the coming year, as the CDI contemplates changes that could impact the state's steering and labor regulations.

Insurers and repair groups in California will likely square off in the coming year, as the California Department of Insurance (CDI) contemplates changes that could impact the state's steering and labor rate survey regulations, as well as the use of aftermarket repair parts.

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The CDI outlined proposed rule changes governing how labor rate surveys are conducted, and what restrictions would be placed on insurers regarding shop referrals at a public meeting on Jan. 25. The department has not formally issued a public notice of proposed action related to the changes.

Under the labor rate survey section of the regulation, the CDI wants to establish minimum standards for the labor rate surveys, including new language that indicates a specific geographic area (designated by a Zip Code) to be used in the survey.

Currently, insurance companies are free to design and conduct the voluntary surveys in any way they like. Under the proposed rule change, in order for the surveys to be considered statistically valid, the "insurer must survey all known auto body repair shops licensed to perform collision repairs by the Bureau of Automotive Repair in a specific geographic area."

"The geographic area was never defined before," says David McClune, executive director of the California Autobody Association (CAA). "That was pretty much up to an insurance company coming up with their own geographical area, so now … it would be based on a Zip Code."

"There has to be some type of recognized procedure," he added. "That's why we've been pushing the department to define a procedure."

Not everyone in the industry is onboard. Gene Crozat, owner of Santa Rosa-based G&C Auto Body said he thinks the entire labor rate survey process should be moved to the California Bureau of Automotive Repair (BAR), which licenses body shops.

"What the fix would be is to turn it over to BAR, so that when you pay for your shop license, you would pay anther $25 and you submit what your rates are going to be for that year," Crozat said. "That way you survey everyone in a geographical area that is licensed by the Bureau. That's everyone, not just some shops. You'd know instantly what shops in that area charged that year. It wouldn't be people just making up their own surveys."

While the current law spells out how insurance companies should submit surveys to the Department of Insurance, "it doesn't say the Department of Insurance at any time is going to verify that survey is true," Crozat says. "Some of the surveys are extremely flawed. They have mechanical shops and motorcycle shops on the surveys. The Department just accepts that and puts it in a drawer."

That type of change, however would have to go through the legislature. Insurance industry representatives, meanwhile, claim the proposed changes would increase costs for insurance companies and consumers.

“'[We] don’t understand how the regulations benefit consumers,” said Armand Feliciano, vice president of the Association of California Insurance Companies (ACIC). “It appears these regulations would merely benefit vendors, like auto body repair shops. Given California’s shaky economy, now is not the time to propose laws that could increase the cost of auto repairs.

“CDI is attempting to legislate through the regulatory process with these proposed labor rate survey and steering regulations,” he continued. “Regulations must have statutory authority granted by the Legislature for them to be valid; CDI does not have legislative authority to make these policy changes.”

Steering rules would be changed

CDI also has proposed changing the rules on steering so that insurers cannot suggest or recommend a repair shop once a claimant has chosen a repair dealer, unless the claimant requests a referral.

Two years ago, the legislature passed AB1200, a steering-related bill that changed the language of the California law so that insurance companies had the right to explain the benefits of their policies, including their direct repair programs, as long as the information was nondeceptive.

"That opened the door a lot wider for them to explain the direct repair program," McClune said. "The regulation previously said that if the customer said they wanted to go to Joe's Body Shop, then all discussion would cease. The regulation is going to explain that a little bit further, and give the customer more disclosure information."

Additional language would prohibit insurers from making claimants wait an "unreasonable period" to either inspect a car, obtain an estimate, or have the car repaired. Insures would be required to inspect the vehicle within seven business days after notice of loss.

Insurance companies are opposed to any additional restrictions, but even Crozat (who has sued several insurers over their steering practices) thinks the proposed language may go too far.

"How many verified complaints do you have about steering in California anymore?" Crozat says. "You don't. There's not a problem. It used to be heavy 10 years ago. I've sued mega insurance companies over steering. It isn't out there anymore; it's insignificant. The trade associations supporting this want to help the little garage, but they have to get competitive and fight for their market share."

Aftermarket parts bill on the way?

The CAA also sent a letter to the California legislature regarding aftermarket parts usage. The Alliance of Automobile Manufacturers, the California New Car Dealers Association, and the Consumer Attorneys of California also signed the letter.

The letter stated that the associations support the existing law, which requires insurance companies to inform consumers when non-OEM parts are used, and to warrant that the parts of like kind and quality.

According to the letter, "For years, the insurance industry and off-shore, aftermarket parts industry have tried to weaken the law so they may compel unsuspecting consumers to accept inferior non- EOM parts."

The associations asked the legislature to contact them "if approached to author legislation to unfairly promote the use of 'imitation' crash parts."

"We really don't know what's in the bill or when it might be introduced," McClune said. "There was a bill floating around last year that never got formally introduced, so we're anticipating that same bill will come up again. We would like to work with all parts of the industry in helping craft that type of legislation, but without seeing any of the language it's difficult to address the pros or cons of it."

The California/Nevada/Arizona Automotive Wholesalers Association (CAWA) then issued a bulletin to its members in response, characterizing the letter as a "new and bolder attack by the car companies and their new car dealers."

The CDI, meanwhile, is considering additional rule changes that could impact use of aftermarket parts that would require insurers to pay for the return costs, repair costs, and other fees associated with defective aftermarket parts.

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