Monday, 15 May 2017 17:58

CAA Members Urged to Fight Potential Labor Rate/Steering Bill

Written by Victoria Antonelli

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Jack Molodanof CAA Meeting April 22
CAA lobbyist Jack Molodanof flew down from Sacramento to Orange County to educate members on a bill that was introduced in early April.

 

The California Autobody Association (CAA) Orange County Chapter held an “emergency” meeting on April 22 so CAA lobbyist Jack Molodanof could inform members of a potentially problematic bill for shops and consumers. 

The meeting was held at The Phoenix Club in Anaheim. 

 

Bill AB-1679 was introduced on April 6, 2017 and is moving quickly through the legislature, according to Molodanof. It proposes a reformed set of standards for insurance companies to adhere to when conducting labor rate surveys.

 

“These new standards have been watered down,” he said. “We think this bill allows insurance companies to conduct surveys that are going to result in unfair, unreasonable and unreliable rates, and in turn cost the consumer.” 

 

The CAA lobbyist went into detail about how the current legislation came to be, and how bill AB-1679 intends to change it. He began with the importance of transparency. 

 

“In 2000, Senator Jackie Speier passed a bill including a provision stating that if an insurance company conducts a labor rate survey, they have to provide a copy to the Department of Insurance,” Molodanof explained. “Before then, insurance companies could come to your shop and say they conducted a survey and that the rates needed to be adjusted downward, and when you asked to see how they came up with those numbers, they would say the survey was confidential.”

 

Although the new regulation is currently in affect (as of March 2017), AB-1679 wants to “set the law back 17 years,” according to Molodanof. 

 

“The insurance companies want to turn the survey information into trade secrets again, so shops and consumers can’t see how the rates were determined without a subpoena,” he explained. “It’s very troubling.”

 

As more surveys became transparent in the early 2000s, Molodanof said the public realized how much the lack of standards impacted labor rate survey accuracy. Thereafter, AB-1200 passed to prevent insurance companies from “steering” customers to their direct repair programs.

 

“Insurers can promote their DRPs, but they cannot disparage the shop a customer chose or mislead customers from a shop they chose,” he explained. 

 

Molodanof shared a story about an insurer who told a customer that their shop of choice wouldn’t provide a warranty for repairs. The customer then went and told the shop that the insurer said that. Turns out they had no basis for making that claim. 

 

The CAA lobbyist stressed again, “We have no problem with insurers promoting their DRPs; in fact around 75-80 percent of our members’ shops have at least one direct repair program. But we had to draw a fine line between promoting and disparaging.” 

 

Bill AB-1679 wants to repeal the current “steering” protections. 

 

“Insurance companies will be able to make disparaging comments about auto body if this passes,” Molodanof stressed.

 

When California Insurance Commissioner Dave Jones was elected in 2011, he sat down with consumer groups, new car dealers, auto body shops and insurance companies to figure out what other standards needed to be put in place. One of the first challenges was figuring out how to determine the geographical area for labor rate surveys. 

 

Molodanof said after five years and thousands of hours of negotiating, researching, and speaking with professionals, including economics professors from Sacramento State University, they decided on geocoding.

 

“It captures the local market and neighborhood community,” he explained. “The program uses a software application, so if you put in the address of a shop in a certain area- longitude and latitude- it can tell you the six [number varies in urban areas] closest shops. It’s very accurate.”

 


 

Molodanof said the insurance companies didn’t like this method because they thought the shops would get together, collude and raise rates.

 

“That’s against the law,” he said. “We adhere to the antitrust laws and we’re very careful about that.”

 

Bill AB-1679 would allow insurance companies to survey an entire county (encompassing thousand of square miles) instead of using geocoding.

 

“That’s not fair; look at Los Angeles County for example,” Molodanof said. “Rent and business rates are totally different in Marina Del Rey versus Inglewood, why would labor rates be the same?”

 

Commissioner Jones also stressed in the current regulations that 100 percent of shops in the geographical area that are BAR certified and provide workers comp and garage keepers liability insurance need the opportunity to participate.

 

“It’s okay if they don’t participate, as long as you provide the standardized survey questionnaire and give them the opportunity to respond,” explained Molodanof. 

 

AB-1679 states that insurance companies only have to survey 20 percent of the shops in a county, and even though they still have to be recognized by the BAR, they do not need to have liability insurance and workers’ comp requirements.

 

“This means shops that pay under the table can be surveyed, which will skew the accuracy of the rates,” he added. “Also, it’s unspecified what the 20 percent pool is going to be. It’s ‘cherry picking’. Look at what happened in the 2016 election due to polling inaccuracies.”

 

The next standard Commissioner Jones set pertained to DRP rates being used on surveys.

 

“If you’re going to do a survey you cannot include the direct repair rate because it’s a volume discount; you have to include what you regularly charge,” the CAA lobbyist explained. “Volume discount rates are not market rates, even though the insurance companies think they are.”

 

Molodanof shared an example to better prove his point.

 

“If Walmart wants to buy a million bags of Lay’s potato chips, Lay’s is going to give Walmart a volume discount,” he said. “But if you or I went into Lay’s and demanded the same price for one bag of potato chips, they’re not going to give it to us. Everyone else gets charged the regular price; that’s the market rate.”

 

members caa meeting april 22 4
The Phoenix Club in Anaheim was packed with California industry members interested in hearing about a potential bill that “will negatively impact their business” if passed.

 

Molodanof believes including DRP rates in the surveys will artificially lower the labor rates, causing the consumer to pay more out of pocket. 

 

“The passing of AB-1679 would allow insurance companies to use DRP rates in labor rate surveys,” he said. 

 


 

Commissioner Jones then tackled the timeliness and format of the surveys.

 

“Insurance companies were using surveys that were five, six years old,” Molodanof said. “We decided that the labor rate surveys should be updated annually.”

 

The CAA lobbyist said the insurance companies felt this was too short of a time frame, so Commissioner Jones said they can get a year extension if they do a CPI increase. 

 

“The insurance commissioner then developed a standardized survey questionnaire,” Molodanof explained. “It’s very simple. You don’t have to fill it out, but it’s is recommended that you do.”

 

He said that out of the 187 insurance companies in California that sell auto insurance, approximately 12 to 15 do surveys, despite the opportunity to gain a rebuttal presumption. A rebuttal presumption confirms that the insurance company has completed the survey correctly, and the insurance commissioner backs their rates. 

 

“The insurance companies don’t like providing survey questionnaires because they feel it’s too much of a hassle,” said Molodanof. “If AB-1679 passes, they will be able to go through paid invoices or third party software to determine rates, which means they could be using a DRP rate or some other negotiated rate. You won’t know for sure.” 

 

The last current standards Molodanof explained that will be affected by AB-1679 pertain to estimates, re-inspections, and distance customers have to travel to a DRP shop.

 

“Under the new regulations, insurers can’t send people to go get their car repaired or inspected [to a shop] that’s over a certain number of miles away,” he said. “In an urban area you can’t go over 15 miles and in more rural areas the limit is 25 miles.”

 

Also, according to current regulation, if insurance companies want to re-inspect the vehicle, they have six days to do so after they have notice and access to the vehicle.

 

“Before this regulation was set, the process could be dragged out for weeks and weeks, causing unnecessary delays in repairs and higher costs due to rental cars, for example,” the CAA lobbyist explained. 

 

Lastly, the current regulations state that consumers only need to get one estimate, versus two or three.

 

“We don’t need to do that anymore, the shops are all qualified and highly regulated,” Molodanof said. 

 

AB-1679 intends to take away the limitation on the number of miles an insurance company can send a customer for a repair or inspection, days for a re-inspection, and number of estimates. 

 

“The CAA is not the only organization opposing this bill,” he said. “The Department of Insurance, California Conference of Machinists, New Car Dealers Association, and Consumer Attorneys of California are all opposed to the legislation.”

 

Molodanof encouraged all members to call their senator and assembly members on a Monday and set up a meeting for a Friday to discuss why AB-1679 will hurt their business and consumers.

 

“We don’t have the vast resources that the insurance companies have, so our best tactic is strong grassroots campaigning, one-one meetings” he said. “You are all industry experts. You need to explain to legislators why and how this will negatively impact your business.”

 

For more information, visit calautobody.com or contact Jack Molodanof at jack@mgrco.org.

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