The purpose of the hearing was to take oral testimony from interested members of the public concerning the proposed regulation. Those who did not speak at the hearing had the option of submitting written testimony to the Department of Insurance (DOI) by 5 pm that day. All comments, both oral and written, will be submitted to the Office of Administrative Law when and if the regulation in adopted.
Speaking in front of three Department of Insurance representatives—Bill Gausewitz, counsel to the insurance commissioner, Theresa Campbell, staff counsel for the DOI, and Drake Shogun, manager of special projects for the DOI—at least 10 people made statements on behalf of the collision repair and insurance industries.
Although their reasons are vastly different, both parties seemed to agree that the proposed regulation isn’t good for shops, consumers or insurance companies, and needs to be re-written in order to serve its purpose, which is to clarify and interpret code 758.5.
Most everyone who offered comments objected to one specific part of the proposed regulation—the last paragraph, known as Section E, which states, “Nothing in this article restricts the ability of an insurer to explain contractual provisions of the insurance company to the claimant, including the insurer’s obligation to pay only costs that are reasonably necessary to restore the damaged vehicle to its pre-accident condition.”
The first person to speak at the hearing was Jeff Fuller, executive vice-president of the Association of California Insurance Companies (ACIC).
Fuller said he believes that the proposed regulation will stifle commercial free speech and should be further researched and analyzed before it is adopted. “Any regulation should clearly spell out consumers’ rights to be fully informed, as well as protect the insurers’ right to provide relevant, truthful information to the consumer,” Fuller said.
Fuller also stated that in his opinion, steering by insurance companies is no longer prevalent. “At one point in this industry, there were insurance companies that leaned on insured customers to go with a particular repair shop, but I know of no companies that engage in that practice today.”
Other speakers strongly disagreed with Fuller’s assessment that steering no longer exists within the insurance industry.
“We’re steadily making improvements with steering,” said David McClune, executive director of the California Autobody Association (CAA).
“But, it’s still alive and doing well. It’s the number one issue among CAA member body shops and we need to get a regulation that will stop it. Then, most importantly, whatever regulation we do adopt needs to be aggressively enforced by the insurance commissioner.”
Gene Crozat, owner of G&C Auto, with three locations in the North Bay, said that both insured consumers and body shops are afraid to stand up to the insurance companies, which is why steering still exists.
“Obviously, every insurance company has a right to free speech,” Crozat said. “But even a high school dropout like me knows that it’s wrong to coerce and steer insured consumers. The reason they’re getting away with it is because consumers are afraid of the insurance companies. They’re scared that their insurance will be cancelled or that their rates will go up. And shops won’t speak up because they’re afraid of retaliation. The main problem is enforcement. The insurance commissioner needs to get out in front of the podium and address these issues and enforce the laws that already exist. Section E of this proposed regulation is the worst, because it will obligate insurance companies to steer.”
Rex Frazier, president of the Personal Insurance Federation of California (PIFC) said that the proposed regulation doesn’t clarify anything but simply muddies the waters further.
“The Department of Insurance hasn’t told us specifically what constitutes steering conduct,” Frazier said. “How are we running afoul? This regulation takes a paternalistic approach that prevents people from making educated decisions and we’re just deferring yet another fight. We believe that insurance companies ought to be able to give their customers the information they need so that they know what choices they have when choosing a shop to fix their car and we consider it bad public policy.”
Allen Wood, director of the Collision Repair Association of California (CRA) said that his association is most concerned about the rights of the insured.
“It’s a fact that insurance companies put their bottom line above the needs of their customers,” Wood said. “Steering continues unabated and consumer complaints are answered by the department form letters. Section E needs to be re-written; strike the word ‘reasonable’, because it’s not defined.”
Alice Bisno, executive director of the Automobile Club of Southern California, said that customer satisfaction is her organization’s major concern.
“If the consumer has a shop in mind, we respect that decision,” Bisno said. “The reason for this regulation is consumer protection, and we support that. Based on what we see, however, our customers tend to be more satisfied with the work they’ve received through our IRP’s.” (Immediate Repair Network, which is the same as a DRP).
Cecil Autry, lead council for Allied Insurance Company, said that the proposed regulation isn’t yet ready to be accepted as written.
“We need to study this issue more,” he said. “It will harm insurance customers the way it is now, and for that reason we object to it.”
Jack Malodanoff lobbyist for CAA, also objected to Section E of the proposed regulation.
“We’re very concerned about Section E, because it creates a big loophole that can open up potential abuses. The language of that section needs to change.”
Malodanoff also thinks enforcement is the key to any anti-steering legislation, he said. “We are hopeful once these regulations are approved, that the Department of Insurance will take action against those insurance companies that illegally steer.”
Martin Zurada, an attorney representing G&C Auto, described the proposed regulation as “providing chicken soup to someone with a broken leg.” Although he didn’t object too much to the first four parts of the regulation, he is strongly opposed to Section E.
“Section E looks like something that may have been included for the insurance companies,” Zurada said. “All of the existing language in this subsection must be removed, because it will only exacerbate the existing problem of indirect steering and actually assist some insurers in collecting windfall profits from their pervasive misconduct. This subsection would permit an insurer to explain to a claimant that the claimant is contractually and unconditionally obligated to accept the insurer’s labor rate survey and that the insurer can thus set the reasonable repair cost for the claimant’s vehicle in its sole discretion. The proposed regulation does more harm than good because the DOI has attempted to appease the insurance companies rather than implementing regulations that would stop persistent and pervasive wrongful conduct by insurers.”