Up in the air: Insurers keep benefiting from a collision industry filled with uncertainty
If you're finding the debate about whether insurance companies should be regulated by states or the federal government a little confusing, or if you're unclear what the possible repeal of the McCarran-Ferguson Act might mean to your shop, you're not alone.
After all, there are at least five different federal pieces of legislation being debated (see sidebar "The bills in play "). Much of what's being said about what the proposed changes might mean for collision repairers is being based, necessarily, on speculation. And there's no unanimity of opinion – even among the state and national shop associations – about which of the changes will be best for collision repairers.
But one thing that everyone seems to agree upon is this: The fate of McCarran-Ferguson, and the outcome of the state vs. federal oversight of insurance debate, could shift the future of shop-insurer relations as the industry enters this new decade.
That's why ABRN set out to get answers to the most common questions shops have on the topic.
Q: What are the proposed changes being discussed?
Bob Redding, the lobbyist for the Automotive Service Association (ASA), said two separate but related types of changes are included in proposed federal legislation.
The first type amends the McCarran-Ferguson Act by eliminating – for some or all lines of insurance – the federal antitrust exemption for the insurance industry that has been in place for more than 60 years.
The second potential change revolves around whether insurance should continue to be regulated by each state, or whether the federal government should assume responsibility for some aspects of insurance regulation.Q: Why does there appear to be more interest in this topic in recent months?
Political observers say a number of factors have led to federal lawmakers and regulators being more open to the idea of increased scrutiny of insurers. Many trace the trend back to now-retired Sen. Trent Lott of Mississippi, who fueled anti-insurer sentiment after he was among the homeowners whose claims were initially denied following Hurricane Katrina.Although AIG's property-casualty unit was virtually unrelated to its meltdown during the late 2008 financial crisis, the company's actions and federal bailout kept insurance companies in the spotlight last year, as did the healthcare reform debate.
Redding said although there is some bipartisan support for insurance reform, historically Democrats have been more supportive of stronger insurance regulation, which makes the control they gained last year of the House, Senate and presidency significant. Steve Regan of the Massachusetts Auto Body Association, for example, points out that during the Bush administration, the Justice Department did not file a single case against a major firm for violating the anti-monopoly law. But the Obama administration has made clear its plans to restore a tougher enforcement policy against companies violating anti-monopoly laws.
"The Department of Justice generally supports the idea of repealing anti-trust exemptions...in the absence of a strong showing of a compelling need," Assistant Attorney General Christine Varney said last fall in testimony to Congress. "There are strong indications that possible justifications for the broad insurance anti-trust exemption in the McCarran-Ferguson Act when it was enacted in 1945 are no longer valid today."
Q: What would change if the McCarran-Ferguson Act were repealed?
Insurers no longer would be exempt from some aspects of federal anti-trust laws. Insurer groups argue this would, among other things, hurt smaller insurers that benefit from underwriting data that insurers currently share with one another.
For collision repairers, even long-time proponents of the repeal acknowledge it likely would have little or no day-to-day impact.
"However, from a philosophical standpoint, it only seems fair that insurers should play by the same rules as any other business when it comes to their behavior in the marketplace," says Minnesota shop owner Roger Bonn, collision division director of the Alliance of Automotive Service Providers of Minnesota (AASP-MN), a group that supports the repeal.
Redding sees the repeal of McCarran-Ferguson as just part of a larger shift toward more federal oversight of insurers.
"It's one piece of this whole insurance reform universe," he says. "Certainly it does not solve all of our issues. But the U.S. Department of Justice and the Federal Trade Commission (FTC), view McCarran-Ferguson as a 'go-free card,' as an 'avoid-the-issue card.' They have used McCarran in every instance that we've met with them about consumer-shop issues in our industry. They say, 'States regulate the property-casualty insurers.' So McCarran is one piece of this puzzle to send a message to the FTC and Department of Justice: 'There are anti-trust issues that you have responsibility for. Sure, states will still regulate the insurance industry, but you have a piece in this, too.'"
Q: Who supports a change to federal regulation of insurance – and why?
As with McCarran-Ferguson, ASA has been the most vocal proponent of a shift to federal rather than state regulation of insurance. Redding said it boils down to one issue.
"Whether it's repeal of McCarran, or federal insurance regulation, the bottom line is state regulation has failed," he says.
While a handful of state associations have had some success in lobbying for change at a state level, Redding said, the industry in most states is barely monitoring legislative activity, let alone pushing for change. He said ASA gets calls from around the country every year from those interested in pushing for a state ban on insurer-owned shops, such as one ASA successfully fought for in Texas, yet the efforts in other states rarely get off the ground. He believes the industry could be more successful unifying its lobbying efforts nationally.
Redding cites three other reasons he believes the industry would have better luck influencing federal regulation of insurance. First, unlike most state lawmakers, all 535 members of Congress have at least one staff person who is responsible for insurance issues, someone who is more likely to understand the industry's issues, he said. Federal regulatory agencies may offer more pay and prestige than state agencies, which helps them attract more top talent, Redding said.
Second, Redding believes the industry could benefit from the attention national consumer media outlets could focus on insurance regulation issues that most state and local media outlets generally do not.
"You might not have a Wall Street Journal editor in the state capital of, say, North Dakota, but you're going to have a Wall Street Journal office here," the Washington, D.C.-based Redding says.
Third, he said large consumer advocacy groups that ASA believes will share shop views on insurance issues are more active on a national than state basis. Indeed, two such groups, the Consumer Federation of America and the Center for Economic Justice, sent a 12-page letter to House and Senate leaders last summer calling for broader federal insurance oversight.
Redding said he doesn't mean to take away from the legislative and regulatory "wins" a few state groups have been able to achieve, but he believes the industry will have more success working at a federal level.
"It's just very, very difficult in a 50-state battleground," he says.
Q: Who supports keeping insurance regulation at the state level – and why?
Rollie Benjamin, CEO of ABRA Auto Body and a board member of the Society of Collision Repair Specialists (SCRS), said the association's legislative committee has studied the issue for some time but has not yet taken a formal position on the issue.
He said it's his understanding that a federal charter would make it easier for insurers to compete internationally by reducing the need to seek regulatory approvals in all 50 states. That could be a positive change, he said.
"But there's fear that the regulation could get down to the level of claims settlement regulation, which is done now by the states," Benjamin says. "I will tell you that most of the people on the collision side of the industry that I've talked with, and a lot of the state associations, are not in favor of that. They're in favor of keeping claims settlement regulation at the state level."
Benjamin said that's because many in the collision repair industry feel the industry can more successfully lobby for needed changes at the state level.
"It would be very challenging to get audiences and to have an impact on the federal level, whereas you can have relationships at the state level with state senators and state representatives so you can get some things done at the state level," he says.
Bonn, of AASP-MN, agrees. The association last year issued a position statement opposing federal oversight of insurers.
"It's been argued that the collision repair industry doesn't have the resources for a decentralized effort in all 50 states, but the reality is that the industry doesn't have sufficient resources for a federal effort either," Bonn says. "Even assuming a best-case scenario where the entire industry was able to unite and agree on a specific course of action, it would be extremely difficult to go up against the well-oiled and well-funded insurance lobby. The numbers speak for themselves: In 2007 and 2008, the insurance industry spent, on average, $146 million per year on its lobbying efforts, second only to the pharmaceuticals/health products industry."
Bonn points out as examples of what the industry can accomplish with state regulation a number of Minnesota laws his association helped enact that prohibit insurers from manipulating the estimating databases, from adjusting an appraisal without physically inspecting the vehicle, or from specifying the use of a particular vendor for parts or materials.
"Given the number and gravity of issues members of Congress are dealing with in Washington, it seems unlikely that any of these issues would rise to their attention in any significant way," Bonn says. "We believe that it's just much easier for repair shops to get to know their local legislators than it is for them to get the time and attention of their members of Congress. State legislators live and work in the community and it's not uncommon for members to know and work side-by-side with them in other local endeavors, like school boards and city government. Often, they're friends, family or customers."
Q: How can I make my views on the issues known to lawmakers?
No matter which side you take on any of the federal legislative proposals, your first best step might be to visit ASA's legislative Web site (www.TakingTheHill.org)
If you share ASA's views on the repeal of McCarran-Ferguson or a shift to federal regulation of insurance, there are prepared letters at the site you quickly can have sent to lawmakers on your behalf.
If you want to send a different message to Congress, enter your zip code at the site to get contact information for Congress members from your state and write them.
