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NAIC proposes elimination of repair center consumer protections

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Insurance | Legal
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Proposed changes to the National Association of Insurance Commissioners (NAIC)’s Public Adjusters Licensing Model Act, which is used by state legislators as a template for bills, would eliminate the assignment of benefits (AOB) from customers to repairers and prohibit repair facilities from acting as public adjusters for their customers in negotiating claims with insurers.

Effectively, repairers’ and public adjusters’ hands would be proverbially tied when it comes to advocating for following OEM repair procedures to complete safe and proper repairs as well as appropriate payment when the need to fight for fair payment arises.

“Subject to its terms relating to assignability, a property insurance policy, whether heretofore or hereafter issued, under the terms of which the policy and its rights and benefits are assignable, may provide that the rights and benefits under the insurance may only be assigned to a person who has the legal authority to represent the named insured and may explicitly prohibit assignment of rights and benefits to any other person, including a property repair contractor,” the proposed revisions of Section 15 state.

“For purposes of this subsection, having ‘legal authority to represent the named insured’ includes the person named by the named insured as having the named insured’s power of attorney, the person who is the name[d] insured’s licensed public adjuster, or any other comparable person. Property repair contractors operating in this State may not subvert the public adjuster licensing requirements of [insert appropriate reference to state law] through the acquisition of a power of attorney from the named insured.”

Commenters included:

The model draft and all written comments can be found here.

Eversman told Repairer Driven News the revisions taken exactly as they are now would be detrimental to consumers and repairers.

“Either the repairer will go out of business because they won’t be able to charge what they need to charge to be able to safely and properly repair these vehicles and stay in business or the consumers will have to pay out of pocket to get their vehicles properly and safely repaired from responsible repairers,” Eversman said.

“Or you will have irresponsible repairers who go, ‘Oh, well.’ It’s going to be the John Eagle scenario all over again — ‘Oh, this is just what the insurance company said it would pay so I’ll repair it the wrong way and I’ll put people’s lives in danger.’ …none of those scenarios are good for consumers.”

The scenario Eversman referred to was the Matthew Seebachan and Marcia Seebachan v. John Eagle Collision Center lawsuit. A 2010 Honda Fit replacement roof was panel-bonded by the repair center rather than using the welds dictated by Honda OEM repair procedures. Doing so led to two people sustaining injuries during a future collision.

Matthew and Marcia Seebachan were involved in a collision on a 75 mph stretch of road when a 2010 Toyota Tundra in the other lane hydroplaned into their vehicle, leading to the Fit striking the right front quarter of the Tundra. As a result of the improperly bonded roof, the couple was trapped in the Fit as it burned.

Eversman likened the effect of the proposed public adjuster licensing language to that of consumers struggling to find an attorney to represent them in a property loss claim — the time and work required isn’t worth the money made so no one takes the case.

In his written comments, Butler backed up what Eversman surmised, “Since a majority of my work is centered around the underpayment of a claim for repairs or vehicle value, I am working to recover the ‘short payment,’ not the full value of their claim. There is simply not enough money at stake to work on a contingency basis nor be limited by a percentage value of the claim. The proposed legislation would make it impossible for me to protect consumers and charge reasonably for my time. In many cases, this proposed legislation would have me be relegated to work for less than minimum wage due to the ferocious nature many insurers refuse to cooperate and even acknowledge my representation or requests for information.

“…the insurance industry would be given a license to run public insurance adjusters out of business by forcing adjusters to spend unreasonable amounts of time that would be financially unrecoverable based on this proposed legislation.”

The revisions state that public adjusters wouldn’t be able to charge, agree to, or accept as compensation or reimbursement any payment, commission, fee, or other thing of value equal to more than 15% for any insurance claim settlement.

“The insurers know that so they would effectively, with these limitations if they all passed, deny consumers the ability to hire a public adjuster,” Eversman said. “Clearly, there have been complaints by [insurance] industry about the fact that these assignments are costing them money. The same way that they have made arguments about the appraisal clause is costing them money. Now, the consumers have found out that it’s there and they can use it to their benefit.

“It tells you that insurers are underpaying claims because… if they’re losing these cases to the repairers, if they’re losing these cases to the consumers in the appraisal clause, they’re not paying what they need to be paying to properly and safely repair consumer vehicles. But that’s not necessarily how people are looking at it. They’re looking at it as ‘bad, bad gouging repairer.'”

She added that while the revisions would benefit insurers it would take away two avenues consumers have to dispute what their insurance company says it will cover — prohibition of AOB and limiting the chances of a public adjuster taking a claim because of the amount they’re allowed to charge not being enough.

In his comments to NAIC, Schulenburg wrote on behalf of SCRS that proper and clearly defined public adjuster licensing rules are warranted but cautioned against “outright acceptance” of the proposed changes. SCRS requested a reevaluation of Sections 15, 16, and 19.

Issues with Section 15, elimination of AOB, would be “problematic in that it strips consumers of one of a very limited number of recourses available to them in the event of a dispute about the amount owed for a loss,” SCRS wrote.

“Creating model language that standardizes the removal of consumer rights creates unnecessary obstacles to obtaining full indemnification for a covered loss… What this provision equates to is [the] requirement for a consumer to assume out-of-pocket expenses, after already facing the hardship of inflated premium costs, to be able to address a disputed difference between the repair professional’s bill for services, and the insurance company’s assessment of costs.”

In regard to Section 16, which would prohibit “unlicensed actors” from representing themselves as public adjusters, Schulenburg wrote that the language could paint the wrong picture.

“We are concerned at how this may be interpreted by states adopting the model language, given the common [business] relationships that exist within the collision repair and property insurance claims ecosystem. ‘Company adjusters’ and ‘Independent adjusters’ routinely put collision repair facility employees in a position to debate, and some may say ‘negotiate,’ the extent of repairs and repair costs. Does this force a collision repair center into inappropriately performing the task of a ‘Public adjuster,’ potentially opening allegations of fraudulent insurance acts?”

SCRS, like Eversman, also takes issue with the contradictory nature of Section 19 in that it goes against Section 16’s stated public adjuster license provisions by stating, “A public adjuster shall not have a direct or indirect financial interest in any aspect of the claim, other than the salary, fee, commission or other consideration established in the written contract with the insured.”

Schulenburg wrote, “If the consumer has been fully disclosed in writing the various roles a repair representative may serve in their capacity of advocating for the consumer’s interest, as the party most familiar with the technical repair demands, it seems to intentionally disadvantage the consumer to remove their repairer as a potential public adjuster.”

The Coalition Against Consumer Fraud also disputed the contradictions between sections of the proposed changes, namely sections 15 and 19.

“To provide further consumer protection, it may additionally be beneficial to ensure, as part of the licensing process, that an individual or business applying for a public adjuster license does not have an interest in a company that provides repair services,” Walker wrote. “Proposed language that could be added to Section 5 has been provided for consideration.”

He also provided a draft penalties section that the coalition proposes should be added to the model act that would impose fines for each insurance loss adjustment made without a certificate of authority to act as a public insurance adjuster.

As its written comments to the Producer Licensing Task Force, WICRA shared slides from its presentation given during a July Washington State Office of the Insurance Commissioner (OIC) workshop about a survey it conducted regarding photo estimates. Commissioner Mike Kreidler said he held the workshop because of a historic volume of complaints submitted to his office since 2021. Public comment lasted for more than three hours.

Thirty independent repair shop respondents to WICRA’s survey said they see nearly 1,300 photo estimates every month and they’re only accurate 2% of the time. Eighty percent of respondents said the photo estimates they receive are never accurate.

WICRA advocates for the right to appraisal within the state and for a law to be put in place to enforce the National Highway Traffic Safety Administration (NHTSA)’s standards for safe vehicles by mandating OEM repair procedures for safe vehicle repairs.

The association also seeks the revision of the current Washington Administrative Codes (WACs) to reflect 2023, not 1977 when the Model Claims Act was passed, and fine insurers for violations of WAC unfair claims settlement practices.

On the insurance side of comments, Harber Appraisal’s Mike Harber took issue with placing a limit on smaller claims of 10-15% because that “would make representing insureds prohibitive in auto property damage claims.” He also found the prohibition of a public adjuster to recommend a service provider to be concerning.

IAB asked in its comments for an expansion of the scope of the revisions to stop unlicensed “bad actors” from convincing insurers to allow them to handle all or part of their insurance claims. IAB noted as well that, in Pennsylvania, policyholders are allowed to assign benefits post-loss “as a matter of right,” meaning that the revisions as currently written would contradict existing law.

NAMIC wrote in support of the revisions with some suggested additions to clarify NAIC’s intent.

NAPIA wrote in support of the revisions as well with some suggested additions, including a note encouraging states to consider language that requires public adjuster fees to be reasonable. The majority of states don’t regulate a specific fee percentage and “likely a good number of those will continue to have no interest in enacting a fee cap,” NAPIA wrote.

The window for written public comments to be submitted has passed but NAIC told RDN it expects to hold a meeting in mid-December to discuss the initial draft and comments.


Featured image: Stock photo of a damaged vehicle assessment. (Credit: supersizer/iStock)

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