The Department says the proposed regulations, under Article 6.5 of the Insurance Code, Unfair Practices, are meant to provide increased protection for the public from “financial and physical harms caused by inferior repairs or defective aftermarket parts and to maintain insurer accountability in the process.”
The Department of Insurance expects that the proposed regulations will create only insignificant cost impacts on insurers, but insurers dispute this.
The proposed changes are meant to clarify what it means to prepare an estimate in an amount sufficient to have repairs completed in a “workmanlike manner.” The existing problem, according to the department, is that when a manufacturer or estimating provider outlines a procedure to complete a particular repair, “the insurer may refuse to include the time or parts necessary to complete the repair in a way that is compliant with the repair standard in the estimate. This causes the estimate prepared by the insurer to be insufficient to comply with the statutory requirement.”
The regulations clarify that insurer-written estimates must be prepared in an amount that will allow for repairs to be made “in accordance with accepted trade standards for good and workmanlike automotive repairs by an auto body repair shop,” and that “No insurer shall willfully depart from or disregard [accepted trade standards] in the preparation of claim settlement offers” and “An insurer shall not prepare an estimate that is less favorable to the claimant than the standards, costs, and guidelines provided by the [estimating system].
Another change of particular interest would require the shop estimate to function as the starting point for any insurer adjustments. This effectively allows the insurer only to “red line” a shop estimate, striking out what it proposes not to pay for, rather than writing an entirely new estimate for the adjusted amount. The insurer would then be required to provide its customer with the edited copy of the estimate written by the shop of their choice.
The department says this amendment “is reasonably necessary to allow both the consumer and the auto body repair shop to identify specifically where those adjustments have been made...”
The balance of the proposed changes deal more specifically with aftermarket parts. Those changes would mandate:
• that insurers disclose in writing, on any insurer-prepared estimate that specifies aftermarket parts, that they warrant those parts as “like kind, quality, safety, fit, and performance” as OEM parts.
• that should an insurer have “implied, actual, or constructive knowledge” that a specified aftermarket part is not equal to the OEM in terms of quality, safety, fit, and performance, the insurer shall immediately cease specifying the use of that part and shall notify the estimating software provider and request this part be removed from the estimating software. The insurer would also be required to notify the distributor, manufacturer, and, if applicable, any certifying entity. In addition, the insurer specifying a part later found to be defective would be responsible for any costs associated with removing and replacing the part with either a compliant non-OEM part or an OEM part.
The Department says, “Performing repairs in a manner that is not compliant with current repair standards or placing an inferior aftermarket part in a vehicle may result the vehicle’s value to depreciate. Also, a part that is not of like kind, quality, safety, fit, and performance may cause injury or even death if it malfunctions.”
The department explains, “After several years of evaluating this law and investigating complaints from the consumers and auto repair shops, The Department of Insurance has concluded that disputes regarding the true cost of repairs of damaged vehicles and the applicable repair standard required to comply with the current regulation continue to negatively effect the claims handling process. Additionally, aftermarket parts that are not compliant with the current regulations continue to infiltrate the repair process threatening public safety. The Department is also aware of substantial costs borne by auto repair shops and their customers associated with installing defective or poorly fitting parts required by insurers.”
The proposed amendments are intended to address these and related issues, the Department said. “...the added disclosures and reporting safeguards provided by the proposed amendments increase the overall transparency in the insurance claims transaction and maintain insurers’ accountability in the process.”