Sunday, 30 June 2002 17:00

Bill prohibiting tied shops passes committee

A California State Senate Bill that would make it illegal for an insurance company to have any financial interest in a body shop passed the Senate on May 29 by a vote of 28 to 7, with support from both Democrats and Republicans. The bill will now go to the State Assembly Insurance Committee for a vote.

Earlier in May, SB1648 passed out of the Senate Insurance Committee by a unanimous vote of 5-0.

The California Autobody Association, (CAA) which lobbied State Senator Jackie Speier (D-San Mateo) to introduce the legislation, called the passage "a major hurdle for the bill."

"This bill still has a long way to go," said David McClune, CAA Executive Director. "It still has to pass the Assembly Insurance Committee and go to the Assembly floor for a vote. Our CAA members and other supporters have worked very hard in communicating our issues to the Senate members but we can't stop now. We still need everyone in support of SB1648 to contact their assembly member and ask them to support the bill."

Auto Club investment in Caliber

The measure was sparked when The Inter-Insurance Exchange, parent company of Automobile Club of Southern California, made a minority investment in Caliber Collision Centers, based in Orange County. If the bill should become law, the Inter-Insurance Exchange would have eight years to divest its holding in Caliber (modified from the original three years proposed by Speier.

The bill analysis, written by the Insurance Committee, states, "There is an inherent conflict of interest that imperils consumer protections when an insurer that pays for the repair of a vehicle has that repair work done at a facility from which it derives income as an investor."

Speier, who is the chairperson of the Senate Insurance Committee, contends insurer ownership in repair facilities could lead to the sanctioning of non-OEM parts. California law requires a repair facility to disclose when non-OEM parts are being used in the repair of a vehicle.

Speier said, "The anti-steering regulations (in California) are weak and provide no deterrence to an insurer coaxing insureds to shops that have a DRP (direct repair program) relationship with the insurer."

In addition, she said, "Insurer ownership would only serve as a greater incentive to steer insured [motorists] to shops owned by the insurer."

There is a precedent in California to limit ownership. Hospitals are not allowed to hire physicians, but instead have contractual agreements with them. Physicians are also not allowed to refer patients to labs they own or in which they have a controlling interest.

CAA reps testify for bill

The California Autobody Association was heavily represented at the Senate committee hearing. The insurance committee heard testimony from David McClune, CAA Executive Director, Jack Molodanof, CAA Lobbyist, Yumi Vaught, CAA current President, Rick Johnson, CAA Vice-President, Kelly Swenson, CAA Treasurer, Don Feeley, Jr., CAA past president, and Curt Nixon, CAA Legislative Committee Chairman. CAA's position is that this bill will lead to anti-trust violations, limit the consumer's choices, and create unfair competition.

The insurance industry was heavily represented during the hearing in opposition to the bill. Their position was that the bill deprives shops of needed capital from insurers who want to invest in shops. Allstate Insurance Company called the bill "anti-competitive."

Caliber Collision President Bill Lawrence, who testified against the bill, outlined four reasons why the bill in its present form is unnecessary for consumers and harmful to the improvement of the collision repair industry: first, the industry needs capital and insurers can provide it; second, capital is easiest obtained from parties making strategic investments such as insurers in repair facilities and such investments do no harm to consumers when the investor has no controlling interest in the repairer; three, there can be full disclosure required of all such investments so that consumers would be aware of any connection between insurers and the repair shops; and four, the consumer is already protected by his legal right to choose where his vehicle will be repaired.

Caliber shop closure "orchestrated"
 
Caliber's Lawrence charged that the highly publicized discipline of Caliber's Costa Mesa shop by the B.A.R. last month was orchestrated by Sen. Speier's office to influence passage of the bill: "The disciplinary action could not have come at a worse time for us."
 

Caliber and Auto Club want modifications to the bill that would permit investment by insurance companies but not controlling interest, a scenario similar to the Auto Club's minority investment in Caliber which did not include a seat on Caliber's board of directors.

ASA and auto dealer group support bill

In addition to the CAA supporting this bill, the California Motor Car Dealers Association said that "if insurers were to own shops and control the repair market, consumers would be unlikely to be able to pick a repair shop based on which one would do the best work."

ASA's support for the measure was voiced b Bob Redding, ASA's Washington, D.C., representative, in a letter to Speier. "ASA supports Senate Bill 1648 and looks forward to working with you as the bill makes progress in the legislature. As small business owners, we believe the rights of our customers have to be protected. Your legislation provides this protection."

 

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