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Letter to the Editor

Changing the Rule Book

Repairers and associations head to state capitals around the country to propose or oppose legislation impacting the Collision Repair Industry.

Repairers and shop associations often complain that trying to work with state insurance commissioners to address shops’ concerns can be akin to banging one’s head against a wall.

That is part of what has made recent events in Texas so interesting.

In a report to state lawmakers shortly before leaving office earlier this year, Texas Insurance Commissioner Mike Geeslin recommended that auto insurers be required to provide written information to policyholders about how claims and repair processes and payments differ when repairs are performed at DRP or non-DRP shops.

Geeslin said the recommendation was based on complaints his office received about steering by insurers, and policyholders being told they would be responsible for certain costs if they chose a non-DRP shop.

Geeslin also recommended that insurers be required to provide shops with DRP requirements in writing.

By March, a bill in the Texas House of Representatives would require insurance companies to provide written notice to both shops and consumers explaining how their payment policies and claims procedures differ between direct repair facilities and non-direct repair facilities.

The Texas legislation is just one example of industry efforts – some successful, others less so – to address issues and concerns via legislation. Here is a cross-country tour of what is happening, starting in Texas.

Texas bill moves forward

Thanks in part to strong support from the Houston Auto Body Association, a Texas Senate committee voted unanimously in mid-April to pass the DRP disclosure measure.

In addition to consumer disclosure, the legislation would require insurers to provide to shops, upon request, a written explanation of the requirements to become a DRP facility with that insurer.

Should the measure pass, it would require the Commissioner of Insurance to write regulations establishing the precise method insurers must use to comply with the new law.

The Senate committee noted, in its analysis of the bill, that the Texas Department of Insurance still receives complaints that insurers steer claimants to preferred repair shops, and this practice can restrict consumer discretion. According to the Department, current law does not provide consistent regulation among insurers.

Referrals remain an issue

Similar concerns about steering and direct repair programs have led to recent governmental activity elsewhere in the country.

Lawmakers in New York are considering a bill that would prohibit insurers from holding a financial interest in collision repair shops – effectively limiting the Allstate-owned Sterling Auto Body from expanding in that state. Another New York bill would require consumer disclosure that they are under no obligation to use a particular shop and may use one of their choice.

But those pursuing limits on insurer steering of consumers to shops also should be mindful of a tactic being used to fight such efforts. The Property Casualty Insurers Association of America (PCI) is suing two Rhode Island officials in an effort to halt the enforcement of that state's law that prohibits an insurer from recommending repair shops once a claimant has indicated that he or she has made a shop choice. The PCI is asking a court to declare that the law is an unconstitutional interference with free speech, much as courts in several other states have when anti-steering laws have been challenged.

Estimating systems and labor rates

But DRPs and steering are not the only collision repair issues being tackled at state legislatures around the country.

In Montana, lawmakers passed legislation, similar to laws enacted in Minnesota and Rhode Island, that would prohibit an insurer from "unilaterally and arbitrarily disregarding a repair operation or cost identified by an estimating system" that the insurer and shop have agreed to use to determine the cost of repair. As of mid-April, the bill was only awaiting the governor’s signature to become law.

Peter Abdelmaseh, Execu-tive Director of the Alliance of Automotive Service Providers of Massachusetts, said his group hopes the third time will be the charm for the association-backed shop labor rate bill, which has come close but not quite made it all the way through the legislative process each of the last two years.

Under the proposed legislation, a newly-established commission would determine the average labor rate nationally. The established rate in Massachusetts would be based on that rate but adjusted up or down based on how average technician wages (as reported by the US Bureau of Labor Statistics) in Massachusetts compare to other states.

The commission would also define three levels of shops based on verifiable requirements for such things as equipment and training. “A level” shops would receive not less than the rate established by the commission; “B level” shops would receive not less than 90 percent of that rate. Shops that did not apply or meet the A- or B-level requirements would not have an established minimum rate.

Abdelmaseh said the association has estimated that under the legislation, A-level shops would receive an hourly labor rate above $50 rather the current mid-$30s. Insurers have said this would add $100 million to their annual costs, but Abdelmaseh said those estimates are based on all shops receiving the A-level rate.

“We have said out of the 1,800 shops in the state, we think that only 200 shops will be getting that A-level rate, and maybe 300 more will be getting the B-level rate,” Abdelmaseh said. “Those shops will be doing about 60 percent of the jobs, because they tend to be higher-capacity shops.”

The association has estimated the rise in costs for insurers would be about $28 million per year, or about $6 per policyholder in the state. He said the association has proposed or worked with insurers on other changes to regulations that would help offset much of this higher cost.

Insurance-related bills could impact shops

Although auto insurers are the focus of legislation in a number of states, those bills could in turn impact shops.

Wisconsin lawmakers, for example voted to cut mandated minimum auto insurance limits; the minimum property damage coverage drivers must carry will drop to $10,000 rather than the current $15,000. Conversely, bills proposed in Maine and Nebraska would double the minimum levels of liability coverage that drivers in those states must carry.

Senators in Alabama, the state estimated in 2007 to have the third-highest rate of uninsured motorists (26 percent), voted to create an auto insurance verification system that would allow law enforcement to tap into an electronic database of insurance information. But Mississippi Govern Haley Barbour vetoed similar legislation in his state in early April vetoed a similar bill, not because he was opposed to a verification system but because he felt there had not been adequate analysis of the costs of the system and because some of the bill’s language required the Department of Public Safety to perform tasks beyond its scope of responsibility.

A bill introduced in Florida would prohibit the state's Insurance Consumer Advocate from issuing its annual review of insurance companies that includes a letter-grade on how each insurer treats it customers; a House subcommittee voted 12-2 in favor of the bill.

And a bill introduced in the Maine legislature would prevent insurers from requiring use of a particular rental vehicle company when a claim is being paid under rental reimbursement coverage. It also would require that insurers disclose to insureds that they have the right to use the rental car firm of their choice.

Bills could effect total losses

Arkansas Governor Mike Beebe in March signed a law removing restrictions on who can buy salvage vehicles in that state, essentially opening up auto auctions to the general public; the bill, backed by Insurance Auto Auctions, took just 17 days to pass.

A total loss bill in Connecticut is a good demonstration of how a bill can change dramatically in the legislative process. The bill, once supported by the Auto Body Association of Connecticut, would have required insurers to use only publicly available sources (such as NADA or Kelly Blue Book) to determine the value of a vehicle when settling a total loss claim; it would essentially prohibit the use of the valuation services of CCC, Audatex and Mitchell, all of which voiced opposition to the measure.

But after being introduced, the bill was changed to no longer include such a ban and even removes the currently-mandated requirement that insurers average any values from proprietary total loss systems with the NADA guide as a second source. The Connecticut association now finds itself opposing a bill they once backed.

Taxing issues

In Georgia, both ASA and the Georgia Collision Industry Association are opposing a bill that would create a new sales tax on repair shop labor charges.

A similar bill is pending in Indiana, where the autobody association was not taking a stand; while such a tax could require a little more accounting work for shops, one member of the association said, it also could ease pressures to raise property or other sales taxes.

Janet Chaney of the Iowa Collision Repair Association said that group is making a second effort at pushing for a state law that would in essence allow Iowa shops to transfer the expense of sales tax on paint materials they purchase to insurers or customers. Chaney said currently shops pay the sales tax on such purchases but a decades-old state law prevents them from seeking reimbursed for it by insurers. An Iowa House committee last year had approved a similar bill, but it failed to make further legislative progress.

ASA of Missouri and Kansas this spring was reminding shops that since 2003 Missouri law exempts air pollution parts (such as catalytic converters, evaporative canisters, etc.) from state sales tax; the association says that some insurers are contacting repair facilities requesting a refund of sales tax charged on past work including any such parts.

Salvage airbags eyed

Last year in Maryland, the Washington Metropolitan Auto Body Association helped defeat a bill that it felt would put into place guidelines for the use of non-deployed airbags from salvage vehicles. This year the association is taking the proactive step of backing legislation that would ban the use of salvaged airbags, airbag sensors and wiring in the repair of collision-damaged vehicles.

In California, State Senator Leland Yee has introduced legislation to increase the monetary fines (to $5,000) and double the jail time (to one year) that may be imposed for any automotive repairer that fails to properly replace a deployed airbag.

Defense, not just offense

Associations often remind shops that the legislative roles such groups play doesn’t involve only proposing legislation; it also means being there to oppose bills considered harmful to the industry.

The Automotive Service Association, for example, is opposing a bill passed by a House committee in Hawaii that ASA says would dilute the Hawaii State Motor Vehicle Safety Inspection Program by exempting vehicles from testing for their first two to three years.

ASA is also opposing a Florida deregulation bill that would repeal Florida’s law requiring the registration of motor vehicle repair shops. ASA says the registration costs 90 percent of the state’s shops just $50 a year, but says the regulation is at least in part to blame for a 70 percent decrease over the past 16 years in the number of consumer complaints related to automotive repair.

Stay in the loop

INSIGHT will continue to track industry-related activity at state legislatures throughout the year. Collision repair facility owners and vendors should definitely stay up-to-date on issues that may be addressed in your state capitol buildings. If necessary, make your voices heard, individually and through local and state industry associations.   o

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