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UPDATE Wisconsin association questions insurance commissioner on indemnification, claims handling

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Associations | Business Practices | Collision Repair | Insurance
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The Wisconsin Collision Repair Professionals (WCRP) secured a meeting with the state’s insurance commissioner to discuss “disturbing trends” in the relationship between collision repair facilities and insurers.

Jolene Plautz, who works with the WCRP’s legislative committee, secured a meeting with Insurance Commissioner Nathan Houdek in September to ask questions related to indemnification, appraisals, co-pays, and insurers’ refusal to cover labor and repair costs.

WCRP says insurers have begun refusing to pay for certain parts or procedures, presumably to offset the rising cost of repairing modern vehicles.

This is despite insurers raising rates by an average of 38.9% year-over-year, according to a Marketwatch report that indicated the increase is above the national average of 16%. For those living in Wisconsin, the heightened cost of premiums has added $475 to the average driver’s annual insurance bill.

“They are using aggressive tactics to control claims costs,” the association said in an introductory letter to the Commissioner. “The rates and allowances once agreed to are being reduced to the point where repairers are struggling to make a profit, and in some cases even stay in business. We absolutely don’t want to cut corners to stay in business at the risk of compromising the safety of customers.”

“As our costs of doing business are skyrocketing, it has been very obvious that insurance companies have become very tight-fisted and are refusing to pay our labor rates.”

This is resulting in technicians leaving the collision repair industry for other sectors that offer more competitive wages, the letter said.

After setting the stage by detailing the issues repair facilities are facing, WCRP posed nine questions to the commissioner. The questions related to:

    1. How stakeholders can work together to allow repair facilities to become competitive in the labor market with other industries;
    2. Why insurers refuse to pay centers’ posted labor rates;
    3. Recourse customers can take when an insurer refuses to cover the cost of a necessary repair;
    4. Whether a state policy exists indicating policyholders could have a copay and, if not, how insurers would be permitted to refuse payment for repairs;
    5. Whether an insurer’s refusal to pay for OEM-recommended procedures would be considered “arbitrary and capricious,” including in cases where failing to pay would result in unsafe repairs;
    6. Whether it is arbitrary and capricious to refuse payment on a recommended repair procedure;
    7. If state policies are required to have an appraisal clause and, if there is such a clause, whether it can be used for repair cost and total loss disagreements; and
    8. Whether the statement “no insurer shall fail to initiate and conclude with due dispatch an investigation of a claim for repairs on a motor vehicle on the basis of whether the repairs will be made by a particular contractor or a repair facility” violates Section 632.375 of the state’s insurance code.

Andrea Davenport, an attorney with the Wisconsin Office of the Commissioner of Insurance (OCI), later responded to the questions by email, first by offering an overview of the bureau’s regulatory authority.

Davenport said that the OCI’s ability to regulate insurers’ claims handling process is “somewhat limited.”

“If an insurer follows the law and the terms of the relevant policy, OCI cannot force a company to pay a claim. Additionally, OCI cannot make determinations regarding the value of a particular claim,” she wrote. “That said, OCI does monitor the complaints it receives and investigates potential company-wide or industry-wide issues in Wisconsin, including potential violations of Wisconsin’s insurance statutes or rules in claims handling practices.”

Davenport added that the OCI could not answer most of the questions (including two through six and questions eight and nine) broadly, saying they would need to be addressed on a case-by-case basis.

“This is because OCI would need additional information regarding each scenario before determining whether the potential issues raised in those questions amount to violations of Wisconsin’s insurance statutes or rules,” she wrote. “Additionally, while we appreciate your members’ concerns, OCI is unable to answer WCRP’s first question because it falls outside the scope of OCI’s authority.”

Regarding the third question, which asked about available recourse customers have when their insurer refuses to pay for a repair, Davenport said it depends on the policy terms and the specifics of the case. She said the likely recourse would be for a customer to file a lawsuit.

“The customer could also file a complaint with OCI, but please keep in mind that OCI does not have the authority to determine which repairs may be necessary,” she said.

Davenport offered a similar response to the fifth question, saying OEM procedure-related questions on a case-by-case basis. However, she also said that when it comes to OEM parts and procedures, insurers are required by state law to provide notice before they seek to use a non-OEM replacement part in a repair.

In responding to the seventh question regarding whether state policies are required to have an appraisal clause, Davenport said she wasn’t aware of any state statute that requires it.

“Finally, we again encourage you and your members to submit complaints to OCI when potential issues arise— such as the issues raised in the example emails in the addenda to your questions,” she said. “This is the best way for OCI to review the issues your members are experiencing and identify any potential violations of Wisconsin’s insurance statutes and rules, as it allows OCI to gather the information it needs to assess the complainant’s concern.” 

Concerns about rising repair costs and ensuring repair facilities are properly compensated by insurers to safely complete them has been a topic of discussion in states nationwide.

Earlier this month the Nevada Division of Insurance (DOI) hosted a forum featuring a panel of industry experts. They were gathered to discuss the factors driving up costs throughout the state, and the importance of ensuring repair facilities are properly compensated for the heightened expense of fixing modern vehicles.

Aaron Schulenburg, executive director for the Society of Collision Repair Specialists (SCRS), said during the Nevada event that while it’s evident repair costs and vehicle advancements have driven up the cost of fixing the modern fleet, it’s also obvious that actions must be taken to ensure a sustainable insurance industry.

“This means we need insurance businesses to be able to collect rates that allow them to function properly in their role and service to the consumers,” Schulenburg said. “The topics we are exploring today do not just impact the collision repair centers in the state of Nevada, but rather this issue and the concerns I’ll share today are collectively felt across the United States.

“There are some perspectives I share today that may not be popular, but I hope that they open the dialog to look at the challenges being faced at the ground floor where after having paid for insurance–increasingly expensive insurance–a consumer experiences a loss, files a claim, selects a repair facility of their choice, and then struggles through cost mitigation efforts that create for challenging consumer experiences and potentially even greater incurred out of pocket expenses.”

Schulenburg added that while he’s a proponent of working together across the insurance industry to create more awareness of the true cost of repairing a modern vehicle, he also hopes that will lead to more appropriate risk assessments leading to complete indemnification.

“Carriers are receiving rate increases, often centered around diminished profitability and rising costs. But while rising costs from increased complexity and technology in the vehicles is a logical justification for increased rates, those increases aren’t translating to an ease of experience for the consumer in the claims process,” he said. “You would presume if my rates increase, because the technology has increased, that means the cost to fix the technology will naturally be covered as a result.

“But that is not the experience we find. If it were — as it should be — then the answer is simply to underwrite appropriately for the modern fleet.”

He said the collision repair community has found that, even as insurance costs rise, a growing distance remains between insurance settlement offers and the final costs of repair.

“Collision repairers and insurance companies should have a shared promise to the consumer – to help people in their time of need, after they’ve experienced tragedy and loss. The consumers we serve need more,” Schulenburg said. “They need solutions and support. Not just to the rising cost of insurance, but to curb the increased out-of-pocket responsibility and a relief from the economic pressure to accept a less-than-acceptable repair.

“There is only one right way to repair a vehicle — especially a vehicle with a modern, sophisticated suite of safety technology. Repairers have an obligation to the consumer to utilize OEM procedures and information. If a vehicle is equipped with ADAS and safety technology, as they virtually all are today, those procedures play even greater roles.”


Featured image courtesy of Cheri Alguire/iStock

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