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Despite members praising its sponsor for being willing to hear auto body industry concerns, the California Assembly Insurance Committee unanimously gave a seal of approval to a bill that flies in the face of them.
Assembly Bill 1679, which gives legislative approval to the kind of steering and labor rate survey loopholes and misbehavior the California Department of Insurance tried to check with new regulations, passed the committee 13-0 on April 19.
It now goes to the Assembly Committee on Appropriations. A hearing date doesn’t appear to have been set yet by that body.
“This is a first stop on a fairly long journey,” Insurance Committee Chairman Tom Daly, D-Anaheim said prior to the vote April 19.
The antisteering regulation for practical purposes took effect March 12. It attempts to curtail customers who under California law have the right to pick their collision repairers being inconvenienced or pressured by an insurer for not using one of the auto body shops which have agreed to certain targets (such as speed and lower bills) in return for insurer referrals. Under the bill, once a customer has selected a shop, the carrier can’t continue to push their DRP network or disparage the chosen repairer.
The new labor rate survey regulations, which demanded compliance by Feb. 28, offer a standard for how carriers should conduct labor rate surveys — but don’t require them to survey shops at all. (Carriers can survey shops with a different format should they choose, but they won’t automatically receive a rebuttable presumption of good faith by the CDI. So trying something else would carry regulatory risk.) They also define a market area as the nearest geographic six shops which completed the survey, counting the shop itself if it completed the document. If there’s a tie for sixth, both of those shops would be included for the survey.
“There is a wiping out, particularly in the area of antisteering … let’s not pretend (this) is not the case,” CDI legislative director and Deputy Commissioner Robert Herrell said in rebuttal to ACIC’s vice president of government affairs Armand Feliciano’s statement that the regulations would stand, and Feliciano acknowledged Herrell’s point.
“It does significantly undermine the steering statute,” Consumer Attorneys of California CEO Nancy Drabble said.
In the case of labor rate surveys, it figuratively throws them out by granting a rebuttable presumption of good faith for other surveys — creating the option to use versions that are open to manipulation and abuse.
Herrell said the latter bestowed the “equivalent of a Good Housekeeping seal of approval” on “virtually any survey methodology, irrespective if its statistically valid, or logically sound, or mathematically accurate, and that’s obviously a concern.”
Sponsor Assemblywoman Autumn Burke, D-Inglewood, said allowing another survey “will provide a balanced approach” by offering another option to carriers.
She said the survey was necessary to spare customers from higher premiums and repair costs. “We can protect our constituents,” she said.
This ignores that shops have legitimate expenses to cover even if carriers don’t want to pay for them — using money claimants already paid them to do so.
“Like any other business, auto body shops have different costs, different investments into their businesses,” California Autobody Association Vice President Douglas Marshall said.
ACIC’s vice president of government affairs Armand Feliciano agreed with Burke, decrying the “one size fits all approach” of the CDI’s version of the survey. He said shops wouldn’t have to report their DRP rates, and an insurer could still exclude shops that didn’t meet standards. (But both can still happen.)
Feliciano also argued that “the Legislature has a say” in a public policy issue like this, and Burke pointed out that while the CDI developed these regulations over years, “this body actually asked them to hold off on that” because it needed “legislative addressing.” She said the CDI has yet to meet with her on the measure.
Feliciano also challenged the regulations as ignoring the cost to the consumer. “Everything’s about vendors,” he said.
Feliciano’s not quite right about the absence of a cost estimate. In the case of the labor rate survey regulation, the CDI has estimated it’ll cost an insurer about $1.17 million directly the first year, $20,000 to both comply with labor rate survey rules and $1.15 million more paid to collision repairers. It estimates the entire cost will be about $2.31 million (it’s unclear what produces the other $1.2 million) and the average collision, comprehensive and liability premiums increase by a few cents.
Applying his own April 19 estimate of up to $300 million for what California says was 27.9 million insured cars is $10.75 in increased cost per car, assuming carriers pass all of it on.
Michael Gunning, vice president for the Personal Insurance Federation of California, said the bill’s adjustments to steering law were needed to make sure policyholders can get all the necessary information regarding their repair.
“Most consumers only get in an accident once a decade,” he said, and pointed out as well that no independent shops have an obligation to remind customers they can go anywhere.
Gunning quoted a CDI letter stating that legislation should enhance, not undermine consumer protections.
“It is our opinion that they’ve done exactly what they’ve stated,” he said.
Herrell disputed that, saying that under AB 1679, new enhanced consumer protections would be “eroded” and replaced with “significantly weaker” language.
Burke said that 70 percent of collision repairers were in at least one direct repair program anyway, though she would continue to hear and address the concerns of the other 30 percent.
CAA lobbyist Jack Molodanof said 75 percent of his association was in DRPs; that in itself wasn’t an issue. The CAA just wanted insurers to quit bad-mouthing shops outside of their networks.
Herrell urged the body to let the regulations — which are just a few months old — live for a bit before revamping them.
He said the labor rate survey issue was about insurers “not particularly wanting to pay the prevailing wage,” and said they still had the “unfettered ability” under the regulations to still negotiate any rate with any shop
“They can do that right now,” he said.
Herrell also cautioned that AB 1679 treated as trade secrets some labor rate survey-related information “that in fact, is not a trade secret” — and even shielded some data from the CDI. He said the agency didn’t see how such classification was in the interest of consumers.
Like Drabble’s consumer attorney group, the Consumer Federation of California opposes AB 1679.
National Institute on Money in State Politics data show that Burke has received at least $106,950 from the broader insurance industry (which includes other lines rather than auto) during her elections for state office. However, she’s also received $9,000 from the California New Car Dealers Association and $4,500 from the consumer attorneys trade group — both of which oppose the bill.
She said she was also very open — and lauded by her peers April 19 — to hearing out constituents and interests on this matter, so shops and the CDI might want to take the opportunity to talk with her further.
Correction: An earlier version of this article incorrectly spelled California Department of Insurance legislative director and Deputy Commissioner Robert Herrell’s name and incorrectly referred to the Assembly as the House. The article has since been updated to correct the errors.
California Assembly Insurance Committee hearing on AB 1679 (Works well in Firefox)
California Channel, April 19, 2017
CDI legislative director and Deputy Commissioner Robert Herrell speaks April 19, 2017, in opposition to Assembly Bill 1679. (Screenshot from California Channel video)