What is wrong with insurers “steering” consumers to a specific auto repair shops or “Direct Repair Programs” (also known as “DRP”)?
AB 1200 proposes that legalized “steering” simply allows insurance companies to pass more information on to the consumer. This sounds like it should protect consumers. More information is better. However, the reason “steering” is prohibited in many states, including California, is because it is anti-competitive and puts the consumer at risk for unsafe and subpar repairs because the insurance companies are motivated by one thing and one thing alone—profit.
How do insurance companies control repair costs?
Insurance companies enter into contracts with auto repair shops. These contracts are called “DRP” contracts. Many of these contracts contain oppressive, unconscionable and even unlawful terms. These contracts are not regulated. The terms of these contracts and the DRP guidelines are not disclosed to the consumer as they are being “steered” by the insurance company to a DRP shop. Most of these DRP contracts and DRP guidelines include confidentiality clauses and force repair shops to do repairs at rock bottom labor rates with the insurance company dictating the time and method allowed to perform the repair.
U.S Assemblywoman Jackie Speier, who authored California’s anti-steering law, has recently recommended all California consumers pick up their auto policies and read the terms. Speier is concerned that AB 1200 will undo all of the consumer protections she helped to put in place back in 2003. Hayashi responded to Speier’s public outcry by attempting to claim all the consumer advocacy groups opposing her bill have some type of vested interest. Vested interest? How about tens of thousands of 2009–2010 campaign dollars being donated by the insurance industry that sponsored this bill?
Insurance companies want to take in premiums, but when it comes to paying out claims they want to absolutely minimize the cost so they can continue to reap substantial profits.
In an email sent out by AIG/21st Century, the insurance company reminds their DRP shops that they have, “missed the mark” when it came to their quota of using non-Original Equipment Manufactured, used and aftermarket parts. The email goes further stating, “[t]he percentage of used and aftermarket part usage will need to increase.”
In a Mercury Insurance DRP contract I reviewed, the auto repair shop would not be reimbursed the full amount of the cost of new original equipment manufactured parts. Only if the Mercury DRP shop used aftermarket or reconditioned parts would the body shop avoid a loss to the body shop on the part.
I recently visited the Capitol and sat down with Hayashi to discuss AB 1200. The above facts were discussed with Hayashi who didn’t seem to connect the issues and obviously found it to be disinformation. As a consumer attorney dedicated to representing California consumers, I was astounded by Hayashi’s lack of information and implications on a bill she has authored. As I attempted to explain to her how unlawful steering of California consumers to Direct Repair Programs (also known as “DRPs”) detrimentally harms consumers and has potential safety issues, she appeared distracted and lost. The dark side of the DRP agreements is the insurance business practices that force the DRP shops to meet quotas on aftermarket part usage, and perform repairs under untenable time constraints, all to save the insurance company dollars.
I currently represent consumers against their insurance companies who have unlawfully “steered” them to DRP shops. These consumers have lost money and property as a result of the unlawful business practice of steering. Sub-par repairs and mandatory use of non-original equipment parts can leave a late model car without its manufacturers’ warranty and compromise the safety and integrity of the vehicle. Through litigation research, I have unearthed many examples of how steering negatively effects consumers. As I shared this information with Hayashi, she could not grasp the difference between auto insurance and health insurance.
When a consumer purchases an auto insurance policy there is, in most cases, no “in network” or “out of network” repair shops. A consumer isn’t given a list to peruse to see if their trusty mechanic or auto shop is on the insurance companies “list.” Unlike the PPO model in health insurance, this is not how auto insurance is marketed or sold. In the health insurance model, the Insurance Company-Medical Provider contracts (similar to the auto industry’s DRP contracts) are highly regulated under the Knox-Keene Act. DRP contracts are not highly regulated. In many instances these DRP contracts dictate the amount of time and the type of parts that can be used to repair a covered vehicle.
Contrary to Hayashi’s recent assertion that trial lawyers sometimes file questionable or frivolous lawsuits, the California voters in 2004 addressed frivolity and passed Proposition 64. This voter initiative put in procedural safeguards to make sure unfair competition law claims cannot be filed unless the person filing has lost money or property as a result of the unfair business practice.
By law, California drivers must carry insurance on the vehicles they drive. When an insured vehicle has a covered loss, by law, a California consumer is free to choose an auto repair facility. When an auto insurer unlawfully steers a consumer to a DRP facility, which causes damage to the policyholder, a complaint is justified.
The Bottom Line
If insurance companies are given the license to steer consumers to shops they control, insurance companies will make more money and consumers will get what is paid for… the cheapest used or aftermarket parts, a repair technician that is being paid below market wages and told they need to complete the repair in far less time it actually takes to bring a car back to pre-loss condition. Does this sound like the hallmark of a quality repair?
Not a New Problem
In 1963, US Attorney General Robert Kennedy brought a claim against the auto insurance industry for anti-competitive business practices—just Google the 1963 Consent Decree or go to http://www.ican 2000.com/documents/1963/. Price fixing and controlling the repair and claims process has been historically recognized as unfair. California has anti-steering legislation for a reason—to protect consumers.
Insurance companies have regularly violated California anti-steering laws with little or no consequence. The Department of Insurance has recently recognized it is “a dog without teeth” and has set out to clarify the existing anti-steering laws. The insurance companies do not want steering to be regulated and are supporting AB 1200 in an attempt to circumvent the consumer protection laws for one reason—so they can make more money.
AB 1200 came in quietly, with little to no opposition. It sailed through the assembly without much discussion. Amendments have been made and the lines have been drawn.
Insurance companies uniformly support this bill, for one reason – it will make them more money. Consumer advocates uniformly oppose this bill, for one reason —it is bad for consumers.
If a consumer wants a recommendation from her insurance company on where to take her car to be repaired, nothing in the existing law stops the insurance company from dispensing any information or recommending any shops.
If a consumer tells the insurance company where he wants to take his car, the insurance company must pay the reasonable repair rate to have that vehicle brought back to pre-loss condition. All repair shops must guarantee their work. This is the state of the law.
If AB 1200 passes, consumers will lose their freedom to choose and will have to pay to choose. Insurers will have a new way to legally badger consumers into using the insurance companies’ DRP shops.
If insurance companies are going to be allowed to legally steer consumers to shops under insurance companies control, then additional amendments need to be made to make sure the DRP contracts and program guidelines are transparent to the consumer being steered.
As a consumer [or a repairer], if you want more information from your insurer you have every right to ask. More information is needed. DRP contracts and program guidelines need to be regulated and disclosed to the consumer. Insurance companies should not be allowed to interfere with the proper repair of your vehicle by dictating the parts that can be used, the depressed labor rate they will pay and the limit on the time it will take to perform the job properly.
Don’t let insurance company dollars manipulate our legislature. I urge you to contact your State representatives to oppose AB 1200.