The Texas Office of Public Insurance Council (OPIC) has recommended to the state’s legislature that the right to appraisal on insurance claims be a mandatory part of policies.
Many car insurance policies include an appraisal clause that policyholders can invoke to have a third-party appraisal done when they don’t agree with their carrier’s valuation of their vehicle or damages. Low valuations often lead to improper indemnification for loss, and in some cases can lead to total loss determinations on vehicles that could otherwise be fixed. Both the carrier and the policyholder hire an independent appraiser and if the appraisers can’t agree, an umpire is selected to make the final decision.
However, OPIC notes in its January report to the legislature that it is “increasingly concerned with restrictions on appraisal in policy forms filed by top insurers.”
“These restrictions can adversely impact consumers, who buy insurance to make sure damage to their property will be repaired or replaced,” OPIC wrote in the report. “Without appraisal, they may be forced to choose between accepting the insurer’s offer and paying out-of-pocket for any disputed amount, or taking on the costly and time-consuming burden of going to court, while the repairs to their auto or home remain in limbo.”
According to their website, OPIC represents the interests of Texas consumers in insurance matters and works on consumers’ behalf to create and maintain a balanced marketplace. The Texas Legislature established OPIC as an independent agency in 1991.
Since 2015, changes in the market due to rising costs based on increasing vehicle values, inflation, and supply chain issues as well as disputes between insurers and repairers “have made disputes over property claims more frequent and more contentious,” according to OPIC.
OPIC also laid out three reasons insurers are against the right to appraisal and why they disagree with each.
The first is that one carrier has limited or eliminated the consumer protection provision from their policy in the past, but OPIC says the change in market conditions warrants that less reasonable now and “could become a serious problem for consumers.”
The second is that some carriers say there are repairers that abuse the process and demand excessive compensation. “If this is the case, it is a problem with some providers, not with appraisal itself. It is an issue that is resolvable through appraisal, rather than being caused by it.”
Lastly, OPIC says carriers point to court cases failing to provide finality, but those claims were based on insurance behavior, not the amount of loss. “The cases in question simply say that paying an appraisal award neither absolutely precludes nor absolutely mandates insurer liability for claims handling behavior,” OPIC wrote. “The fact remains that appraisal still does what it is intended to do — resolve the amount of loss.”
OPIC also contends that the right to appraisal “saves the parties and the judicial system time and resources.”
OPIC’s recommendation is to amend the state’s insurance code to require personal auto and residential property insurers to have an appraisal clause in their policies.
Auto Claim Specialists Managing Director Robert McDorman told Repairer Driven News that he’s “extremely pleased” with the recommendation.
“I just think it’s wonderful news for the insured citizens of Texas,” he said. “This gives them a platform to contest the loss when their insurance carrier misses it and vice versa. It levels the playing field for both the insurer and the insured. Appraisal is the guard rails for indemnification.”
The next step is up to the legislature, which McDorman said a bill will go before soon that seeks mandatory appraisal.
In September, the Texas House Insurance Committee held a public hearing to review consumer rights and appraisal in automotive and homeowner policies.
Melissa Hamilton, public counsel at the Texas Office of Public Insurance Council (OPIC), explained to the committee that the appraisal clause was the general standard for years in auto insurance claim disputes until 2014 when a large insurance carrier, which she didn’t name, sought approval from the Texas Department of Insurance (TDI) to remove the clause from its policies. Approval was granted in 2015. Only one other insurer, who also wasn’t named, has sought approval to remove the clause since then, in 2021, to which OPIC filed an objection with TDI. The insurer’s request was denied in July for failure to address TDI’s questions, she said.
Committee Chairman Dr. Tom Oliverson (R-District 130) said he sees the opportunity for a study to be conducted on the nearly eight years’ worth of data from the insurer that removed its appraisal clause.
Consumer Federation of America Director of Insurance Doug Heller also pointed out that eliminating the right to appraisal affects public safety. Appraisals serve as a check and balance of insurers in determining how much to pay to repair a vehicle and provides a second opinion “that helps prevent dangerous mistakes and oversights in post-crash assessment and repair.”
The committee didn’t take any action on the appraisal issue during the hearing.
Featured image credit: sefa ozel/iStock