Getting state insurance commissioners to act

Oct. 30, 2017
If you can’t get your state insurance commissioner to listen to you, maybe you can get them to listen to their colleagues.

If you can’t get your state insurance commissioner to listen to you, maybe you can get them to listen to their colleagues.

Collision repair shops and associations often express frustration in trying to work with their state insurance regulators on issues related to steering, use of non-OEM parts or other insurance claims practices they consider unfair or illegal. But an increasing body of anecdotal evidence suggests one successful approach collision repairers may want to try: Point to actions taken by insurance commissioners in other states.

One example: In 2015, Montana’s insurance commissioner released a video public service announcement reminding motorists that by law they can have their vehicle repaired at the shop of their choice, and that insurers are required to pay the claim properly no matter where the car is repaired.

Part of what prompted that action in Montana: A nearly-identically scripted video released just four months earlier by the Oklahoma insurance commissioner.

Those videos were discussed earlier this year when a representative of the Pennsylvania Insurance Department spoke at a Collision Industry Conference (CIC) held in that state. In his presentation, David Buono, a consumer liaison for that agency, said steering of consumers to insurers’ preferred shops is “one of the things we do hear about,” and that his department offers a guide on consumer shop choice. Buono said he thinks it’s unlikely that insurers are directly forcing someone to take their car to a particular shop.

“What I worry about is…where a person says, ‘You know Bob’s Body Shop just takes a long time. But we can get you in this shop right away’,” Buono said. “That’s steering. So we want to make sure those types of conversations aren’t happening. The choice is up to the owner.”

During a question-and-answer session that followed, Aaron Schulenburg of the Society of Collision Repair Specialists suggested Buono review the Montana and Oklahoma videos that addressed the more subtle forms of steering.

“That’s actually a really great idea,” Buono said of such a video, saying it could be something the department could include on its Facebook page. “That’s something you could almost role-play to help consumers…understand what steering actually is.”

Another CIC attendee suggested Buono’s department review two Illinois Department of Insurance consumer guides on what to do if filing a claim with your own insurance company, and what to do if another party’s insurance company is handling the claim. Still another attendee suggested Buono’s department require more disclosures on photo appraisals about some of the limitations of estimates prepared without seeing the vehicle directly.

“I think that is something that I could absolutely look into and take back to see if a disclaimer of that nature should be added or could be added,” Buono said. “It’s something we could talk to our legislative liaisons about to see what we could do to try to make a change.”

So if suggesting your insurance commissioner follow the lead of his or her counterpart in another state is one way to potentially get action taken in your state, what are some of the examples you can point to?

Mississippi issues consumer guide

Mississippi Attorney General Jim Hood this past spring issued a new 8-page “Consumer Guide to Insurance and Auto Body Repair,” a document developed over 10 months by his office with input from a task force consisting of insurers, repairers and the state insurance commissioner. It prominently states that consumers “have the right to select the repair facility” of their choice, and that the “cheapest estimate…does not always include all procedures and parts necessary to properly repair the vehicle.”

The guide notes that “shops with certified technicians, modern tools and technology may charge more” than shops without these items. It defines “proper repair” as one performed according to OEM repair procedures and “using OEM or OEM-equivalent parts that have been properly tested to meet the manufacturers’ specifications.”

It explains the different part types, and tells consumers they “have the right decide what type of parts are used,” but also notes that insurance policies “may only pay for used or non-OEM parts when those parts would properly repair the vehicle.”

Mississippi shop owner John Mosley, who was part of the taskforce that offered input on the document, said that Hood and his staff “seem to understand the complexity of new-vehicle construction and the necessity for proper repairs.” Mosley, who ran unsuccessfully for state Insurance Commissioner last year, wrote on Facebook when posting a copy of the document, “The days of ‘the cheapest price is the price we pay’ have reached an end.”

Issuing memo to insurers

Sometimes a memo issued by a state insurance commissioner is all that’s needed to put insurers on notice that regulators are watching to ensure claims-related regulations are being followed.

Back in 2011, Montana became the second state (after Minnesota) to enact legislation prohibiting insurers from “unilaterally disregarding repair operations identified in auto repair estimating systems.” Shown more recent examples by shops in that state of insurers skirting this law led the insurance commissioner to act. She issued an advisory about a year ago reminding auto insurers about that state law and pointing out that estimating systems do not dictate market price.

“Accordingly, insurers who unilaterally disregard repair operations because such operations are not standard and customary charges in the marketplace are in violation” of the regulations, the Montana memo stated. A lower estimate from a shop in the same market does not define market price. “Instead, market price must be determined by the manufacturer’s list price on parts, prevailing surveyed labor rates, material usage and mark-up on sublet.”

Taking regulatory action

A “market conduct report” performed by the Illinois Department of Insurance (DOI) appears to have led USAA last year to instruct its direct repair shops in that state to disable the paint materials threshold in their CCC estimating system for all USAA claims.

The change was announced in a USAA memo to shops that was reported in CRASH Network. Although it wasn’t clear what prompted USAA’s change, it occurred just days before the Illinois Department of Insurance released a market conduct examination report showing that in 16 of 116 USAA claims files reviewed, the insurer unfairly placed “caps or limits on paint or materials.”

Existing Illinois law prohibits an insurer from “attempting to settle a claim for less than the amount to which a reasonable person would believe the claimant was entitled” by such means as “establishing unreasonable caps or limits on paint or materials when estimating vehicle repairs.” The Illinois Department of Insurance, which examined USAA property and auto claims from 2013 and the first quarter of 2014, found a variety of violations. In 10 of the claims found to have improper caps on materials, USAA paid $400 for paint materials; in the other six, the insurer paid $500.

The DOI determined the amount of the underpayment on these claims (all from 2013) based on the number of paint labor hours (which ranged from 13.7 to 24.8, an average of 17.8 per claim) multiplied by the hourly materials rate (which ranged from $26 to $34). The underpayments in the 16 instances ranged from a low of 40 cents to a high of $294.40, but averaged $67.48. The consent order signed by USAA in response to the DOI investigation included a fine of $19,500 and an agreement by the insurer to “institute and maintain procedures to ensure they settle claims for a reasonable amount by not placing thresholds, caps or limits on paint materials.”

“If I were a shop in another state that prohibits the use of caps, I’d be taking a copy of the Illinois memo and estimates showing a pattern of an insurer using a cap to my insurance commissioner,” one Illinois shop owner, who asked that his name not be used, said. “Our insurance commissioner’s action on this will give extra credibility to what you’re trying to show yours.”

Open lines of communication

The Pennsylvania Insurance Department representative picking up ideas at the industry meeting is a good example of how inviting your state regulators to speak at a gathering of shops can help open lines of communication.

Representatives of the California Bureau of Automotive Repair (BAR) spoke at an autobody association meeting in that state last year, saying they had learned that in some markets a wide variety of types of parts are being lumped together under the category names “alt-OE” and “opt-OE.” The BAR representatives said based on their research, it was clear that shops don’t always know what they will receive when they order such a part, so consumers certainly won’t know what the term “alt-OE” or “opt-OE” means on a repair estimate or invoice. Shops in that state are free to use such parts, the BAR representatives said, but they can’t use those terms on the paperwork without more adequately explaining what is being put on the vehicle.

“The whole premise of [BAR requirements] is that parts are described in a manner the customer understands,” Jaime Ramos of the BAR’s field operations and enforcement division said at the meeting. “So you need to find a way to explain it so the customer understands exactly what they’re getting. I would go so far as explaining: Are they getting the same warranty? Is it the same type of part? Is it a blemished part?”

A shop owner at the meeting told Ramos that at least some of the parts appear to be OEM, arriving in OEM packaging even if sold by a recycler or non-OEM parts vendor. In such instances, the shop owner asked, should they be listed on the estimate as OEM?

“It’s hard for us to say exactly how to classify it,” Ramos responded. “You as a shop owner will have to decide what it is.”

But another shop owner pointed out that several automakers, including Toyota and General Motors, have said they have no programs to sell OEM parts outside of their dealer network, and that only parts purchased through their dealers are “OEM.”

“I think Toyota and GM just did you a favor, by telling you [that ‘alt-OE’ or ‘opt-OE’] is not OEM,” Ramos told shops at the presentation.

“Having those kinds of statements from regulators at open meetings can be helpful when the topic comes up with an insurer during a claim,” one of the meeting organizers said. “Having them here to learn from us, and us to hear from them, helps us all work together.”

Look for regulations to model

California’s Insurance Commissioner Dave Jones also helped establish two new regulations (that went into effect earlier this year) regarding steering and insurer labor rate surveys that could be good models for other states’ insurance regulators to follow.

The new rate survey rules, for example, do not require insurers to use a particular methodology, but lay out one method that the California Insurance Commissioner deemed acceptable. That system requires that all registered shops be included in the survey; that surveys be based on non-discounted, posted rates; and that prevailing rate for a particular shop be based on the six closest shops geographically (although rates at other shops within a 1-mile radius can also be included).

Jones determined that new labor rate survey regulation was required after finding that some insurers failed to follow basic statistical best practices in conducting labor rate surveys, leading to unfair reimbursement of shops, and consumers having to pay more out of pocket.

“We saw surveys used by insurers that only surveyed a few shops in each geographic area,” Jones explained. “We also found cases where the shops weren’t being randomly selected. It appeared there was some deliberate cherry picking of certain shops in order to input their labor costs and leaving out certain other shops.”

Be persistent

Working for change within government is not for the easily discouraged. It generally requires time and persistence. But shop owners and associations who have successfully encouraged insurance commissioners to act on their concerns say it’s not something the industry should give up on, even if their efforts in the past have failed.

They say it’s best not to try to get your state’s insurance regulator to understand and act on all the issues you have with insurer claims practices all at once. Instead, choose one or two concerns to focus on, and try to use documentation to show patterns of behavior.

“Then keep at it,” one Montana shop owner said. “Be polite and professional and patient, but let them know through ongoing conversation that it’s an issue you will continue to press with them.”

About the Author

John Yoswick | Contributing Editor

John Yoswick is a freelance writer based in Portland, Ore., who has been writing about the automotive collision repair industry since 1988. He can be contacted by e-mail at [email protected].

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