An assertive stance among an ever-widening collection of California collision repairers is being credited with obtaining potentially significant action from state insurance regulators regarding alleged instances of steering and underpayments. The shop owners encouraged and assisted their customers in filing successful small claims court cases regarding short-pays, and they helped file a series of affidavits from drivers who felt they were being steered toward selecting particular repairers.
Their efforts culminated in California Insurance Commissioner Steve Poizner issuing a “show cause” order against GEICO that threatens significant fines and suspension of its license to do business in the state.
“We were heard,” says Allen Wood, executive director of the Collision Repair Association of California (CRA). “The commissioner listened,” adds CRA lobbyist Richard Steffen.
“It is a very big deal,” Steffen continues. “GEICO can still argue its way out of things, but this is the first time that an insurance commissioner has charged an insurer with steering,” he reports.
“The CRA has worked hard to drive home the message that some insurers steer and consistently underpay claims,” notes Lee Amaradio, CRA president. “Much credit should go to Gene Crozat, the past president, who worked tirelessly against unfair insurer practices and for the benefit of claimants.”
Crozat, president of Santa Rosa-based G&C Autobody, helped aggrieved vehicle owners prepare the necessary official documents describing their complaints. The information was then submitted to the California Department of Insurance along with a host of similar complaints originating from other Golden State body shops and aggravated consumers.
“All those small claims court awards against GEICO in favor of CRA customers were substantial evidence that this insurer doesn’t like to follow the rules,” says Wood.
“It is significant that the order contains allegations that GEICO engaged in steering claimants away from shops they selected,” he notes. “If nothing else, this order throws into question the statements of insurance lobbyists who contend that steering doesn’t exist.”
In May of 2007, Poizner fined GEICO $60,000 over allegations of steering and underpayments while being “put on notice not to repeat its practices,” Wood recounts.
The 2007 settlement ruling also criticized GEICO for not submitting an acceptable labor rate survey to the insurance department. “When the insurer did file a survey in November 2007, it contained rates for motorcycle shops and other businesses that brought the average labor rate down to direct repair program (DRP) levels in certain market areas,” continues Wood, referring to alleged insurer-friendly terms in GEICO’s DRPs.
“Regardless of the quality of the survey, it is vital to note that a survey is not proof that a labor rate is unreasonable,” Wood contends. “Equipment, training and type of vehicles repaired are important factors in setting a fair labor rate.”
The latest salvo directed by California insurance regulators against GEICO threatens a “cease and desist” order that could pull the carrier’s license and/or levy a series of fines ranging from up to $5,000 for each violation — $10,000 if the act is deemed “willful” — plus a civil penalty of $55,000.
“GEICO has been ordered to tell the commissioner why the commissioner should not issue an order to cease and desist,” says Jason Kimbrough, Poizner’s deputy press secretary. The company has not yet “complied with the stipulations” set forth in May of 2007, he says. “They can produce the evidence they have to avoid the cease and desist order. We’re currently talking to them about a resolution.”
Kimbrough goes on to point out that the process is a long one, which could culminate in GEICO appealing Poizner’s ultimate decision in court. “There are a lot of steps between now and then,” Kimbrough says, noting, “the clock is ticking.”
A source familiar with the negotiations reports that “GEICO will push for a mini-fine. GEICO advertises heavily in California, so it doesn’t want a big fine that will make headlines.”
GEICO did not respond to repeated requests for comment.
Sam Sorich, president of the Association of California Insurance Companies, says he is unfamiliar with the specifics regarding GEICO’s case, yet the industry scrupulously complies with all the regulations.
“We believe that (insurance) companies are following the law, and that there are procedures in place to make sure that they’re following the law,” says Sorich, raising the possibility that the numerous complaints against GEICO could stem from a single rogue employee rather than emitting from the insurer’s management practices. “We have never said that there could never be a situation where an individual claims handler has not followed company procedure.”
“The bottom line is, the department of insurance wouldn’t have gone after them if they didn’t feel there was some kind of wrongdoing,” says Todd Bishop, a founding member of the CRA and owner of Dibbles Auto Body in Santa Rosa who has been active in small claims court and filing documents with regulators. “I’ve never lost a case against GEICO; we’ve turned in hundreds and hundreds of complaints.”
Both Bishop and Crozat, the former CRA president, are unhappy that GEICO was fined only $60,000 in 2007. They each call it “a drop in the bucket” that the insurer most likely accepts as an affordable cost of doing business in the Golden State when compared to the amount of money it can make through the alleged underpayments and steering efforts.
“It appears the laws in California don’t fit GEICO’s business model,” observes Bishop. “It’s a slap on the wrist for GEICO and a slap in the face to all the shops out there. That would be like me doing 120 mph in front of a school and getting a $7 ticket.”
Not so, says Kimbrough. “The ($60,000) settlement is about six times greater than normal, so it was a serious signal to the insurance industry to abide by the insurance code when it comes to labor rate surveys and their usage,” he contends.
Bishop counters that the problems between insurance companies and body shop owners have been going on for many years amid a lax enforcement environment. “We’ve seen a great deal of smokescreen from the department of insurance.”
The CRA was founded in March of 2005 following a statehouse hearing in an attempt to spur meaningful action. “After that meeting, a group of us went over to the burger joint across from the Capitol Building in Sacramento; we said, ‘Let’s form an association and do the road show,’ and history was born,” Bishop recounts.
Going forward, Bishop does not anticipate a significant penalty being assessed by Poizner against GEICO, citing the reality of California politics. “The department of insurance is a stepping stone to become governor,” and Poizner is already exploring a campaign to land in the governor’s seat as Arnold Schwarzenegger is term-limited out of office, according to Bishop, who says a powerful insurance industry lobby can intimidate an insurance commissioner with the prospect of funneling large amounts of contributions to an opponent.
The current lieutenant governor is John Garamendi, who served as insurance commissioner prior to Poizner assuming the position. Garamendi also clashed with collision repairers who considered him too soft on insurance providers.
Bishop, in turn, can only hope for a widespread consumer backlash against the insurance industry that would propel gubernatorial hopeful Poizner toward putting some real teeth into the insurance department’s enforcement procedures. “If the general public knew about how he’s handled that office they wouldn’t vote for him,” Bishop says.
