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Thursday, 24 April 2014 19:03

California Insurance Commissioner Dave Jones Speaks With Autobody News About the State of the Industry and the Future

California insurance commissioner David Jones was elected on November 2, 2010, with 4.7 million votes. He leads the California Department of Insurance (CDI), the largest consumer protection agency in the state, which regulates the $123 billion insurance industry. Autobody News sat down with Jones to find out what he’s achieved in the collision industry and what he’s learned since getting elected.

Q: What were the very first collision-related things you did as insurance commissioner?

DJ: Shortly after becoming insurance commissioner, and even earlier as a member of the California legislature, I sought significant input on repair standards and aftermarket parts concerns from consumers, collision repair shops, consumer safety and advocacy groups, and other stakeholders. This information led to me take action so that consumers are protected from inferior repair standards and potentially defective aftermarket replacement crash parts. In late 2011, I held a public workshop on these issues and proposed new regulations. After receiving significant public comments from stakeholders, and making substantial changes to the proposed regulations, CDI submitted the final rulemaking package to the Office of Administrative Law (OAL). OAL approved the regulations on December 31, 2012, and they became effective March 30, 2013.

This rulemaking addressed two primary issues:

  • First, I determined that many insurers were not creating estimates that fully compensated claimants and repair shops for the cost to repair damaged vehicles in a workmanlike manner according to the standards of repair required of collision repair shops licensed by BAR and failed to provide support for adjustment made to body shop estimates. These amended regulations clarified that an insurer must use reasonable repair standards as the basis for estimating repair costs, and that insurers must properly itemize and support adjustments made to estimates.
  • Second, the amended regulations enhance and clarify an insurer’s obligations when it seeks to use non-OEM or aftermarket parts. I was made aware of non-compliant aftermarket parts, such as bumper reinforcements, hoods latches, and other safety-related parts being required by insurers. I also became aware of substantial costs borne by consumers associated with installing defective or poorly-fitting parts required by insurers. These amendments clarified an insurer’s obligation when using an aftermarket part, and what steps it must take when it identifies a non-compliant aftermarket part.

Since these regulations became effective, CDI has seen complaints on these issues decrease, but I’ve instructed my compliance team to be vigilant in monitoring insurer practices.

Q: Leaders in the California collision industry have told us that, so far, you’re the best insurance commissioner they’ve ever worked with because you’re talking the talk and walking the walk. What do you think you’ve done right and what still needs to get done?

DJ: I’m flattered that the collision repair industry feels that way, but I’ve always striven to be fair to all stakeholders on the issues I face as insurance commissioner. My mission as insurance commissioner is insurance protection for all Californians—that includes ensuring consumers get a fair shake from insurers, and that small businesses (like collision repair shops, contractors, etc.) who are vital to assisting insurance claimants repair and replace what was damaged, are treated fairly, and are paid a reasonable amount for these important services. As insurance commissioner, in the area of collision repairs, I have tried to strike a balance between the interests of consumers, insurance companies, and repair shops. This philosophy has been successful in getting CDI, stakeholders in the repair industry, and representatives of the insurance industry to work together to revise the CID Fair Claims Settlement Practices regulations regarding the standards for repair and the use of aftermarket parts, as previously stated. There is still more work to be done to better protect consumers. With regard to collision repairs, this includes addressing other issues brought to my attention by consumers and repair shops alike—the lack of fairness and consistency in how collision repair labor rate surveys are conducted by insurers (when they use these surveys to pay claims) and to prevent illegal “steering” of consumers to the insurers’ Direct Repair Program (DRP) shop. These issues cause consumers to pay more out-of-pocket for repairs and limit a consumer’s choice in selecting a collision repair shop.

Q: How have you been involved with the car repair industry and specifically the auto body repair industry while in this position?

DJ: I’ve been significantly involved both prior to and after becoming insurance commissioner. I’ve participated and worked collaboratively with the California Autobody Association (CAA), other collision repair associations, insurer trade groups, consumer safety and advocacy groups, OEM auto manufacturer groups, and aftermarket parts certification groups to understand each point of view and gather data and facts so that I ensure that consumers are protected, and insurers are fulfilling the promises they made to pay collision repair claims.

Q: Do you think the tug-of-war between the insurance companies and body shops will always exist?

DJ: While I expect there will always be some level of friction between body shops and insurance companies, I’ve also seen instances where they have been able to work together. For example, when insurers and body shops worked together to resolve the artificial capping of “paint and material” charges, with CDI involvement, the result was a collaboratively-created law (SB 1371 in 2008) that resolved this perennial dispute. My hope is that these types of collaborations can be extended to other areas of dispute. However, I’m not blind to the tensions that exist, and so while I continue to urge collaboration, I’m prepared to act on what I determine to be the best policy for consumers, even in the face of insurance industry opposition.

Q: Back when I initially interviewed you, you said that you consistently refuse to accept donations from insurance companies or anyone associated with the insurance industry: “I think it’s important that there’s not a conflict of interest, so I’m not soliciting or accepting contributions from the insurance industry.” Has that worked as you anticipated, and how have you been able to avoid this conflict of interest?

DJ: I do not accept contributions from insurers, their directors, their employees, or agents and brokers. I think this has worked well to prevent a conflict of interest with those who I directly regulate.

Q: What (collision-related) legislation came on your radar while in office, and how have you responded?

DJ: In 2012, while my proposed regulations addressing repair standards and aftermarket parts were in the midst of the rulemaking process, some factions of the auto insurance industry attempted to counter my proposal by introducing bills that would create less consumer protection, cause vehicles to be repaired below reasonable repair standards, reduce insurance coverage to consumers, and increase the potential that unsafe aftermarket parts are used to repair vehicles driven on California highways. These bills included AB 1098 and SB 1460. This effort to undermine my authority to protect consumers was done at the very end of the legislative session using a “gut and amend,” which is when a bill is gutted entirely and new content added to it very late in the legislative process in an effort to avoid public scrutiny and hearings. I was able to garner support from consumer safety and advocacy groups and the collision repair industry to oppose and stop these unfounded bills from becoming law. I will continue to use my authority as insurance commissioner to oppose any similar future attempts by the insurance industry.

Q: Do you think the relationships between the insurance companies and the body shops have improved since you took the position. If so, how?

DJ: In some respects, yes. I’ve heard that subsequent to my successful opposition to these bills and the adoption of my proposed regulations, insurers have been more willing to negotiate with collision repair shops on some issues. But, as I noted, there are still unresolved issues and areas of dispute between these stakeholders. I continue to urge collaboration and have offered the expertise of CDI to aid in this process.

Q: Aluminum is currently the big new thing in the collision industry. How do you think this will affect the relationships between insurers and repairers?

DJ: I think with any new repair operation or process, or new type of material used in the repair process, there is a period of potential dispute. However, I’m hopeful that insurers and repair shops can get together, perhaps through the CIC or other groups that might involve all stakeholders (insurers, body shop, repair estimating companies, etc.), to resolve each of these differences with the goal of providing safe repairs by body shops and excellent customer service by insurers.

Q: You’ve been very available to body shops and organizations like the CAA while some of your predecessors have been less transparent. How has it helped you to do a better job?

DJ: Without the valuable expertise and feedback of the collision repair industry, cost estimating companies, consumer groups, and insurance companies, I would be unable to make informed, reasoned decisions on how to best regulate in this area.

Q: Where do you think the collision repair industry will be in five to ten years?

DJ: I think with the growth in the use of technology, of both the repair process and the new technology placed in vehicles (e.g., automatic braking systems and other crash avoidance systems), the collision repair industry is being transformed before our eyes. The next five to ten years will see significant changes to the collision repair industry and to how the insurance industry will react to these changes. As insurance commissioner, my job is to ensure consumers receive safe repairs without unfair out-of-pocket costs, that insurer fulfill their promise to pay for these reasonable repair costs now and in the future, and that repair shops maintain their independent nature that they are not unfairly influenced by the insurance industry.

Q: Where do you stand on labor rate surveys and steering?

DJ: As previously noted, I’ve determined that there is lack of fairness and consistency in how collision repair labor rate surveys are conducted by insurers (when they use these surveys to pay claims). This has caused consumers to pay more out-of-pocket for repairs, and/or repair shops not getting a fair price for the services they ably perform. In 2012, I held a public discussion on this issue to solicit feedback from insurers, repair shops, and other stakeholders. This is a very complex issue and so requires careful study. My team of experts and attorneys are currently studying this issue. Once they have completed their work, I will determine if it is appropriate and within my regulatory authority to initiate a second major rulemaking on collision repair issues. I expect to have a better idea of what direction CDI might go and the appropriate timing later this year.

Q: Have you been able to enforce laws that are already on the books?

DJ: As noted, one thing I did to enforce the already-existing laws was to make sure the current laws were clear on what an insurer is obligated to do in estimating repair damages and using aftermarket parts. This clarity has led to increased compliance and fewer instances of dispute in these areas. Also, I’ve used my consumer services and market conduct functions to identify and address any issues raised by consumers, body shops, and on-site audits of insurer claims practices. While not specific to just automobile insurance, in 2013, CDI has been able to recover more than $63 million for consumers and other claimants as a result of these consumer services and market conduct functions, more than $188 million since I became Insurance Commissioner.

Q: How have you been able to stand up to the powerful insurance lobby?

DJ: I make decisions that are in the best interest of consumers. One of many examples where I opposed the powerful insurance industry lobby was, as noted, in garnering support from consumer safety and advocacy groups and the collision repair industry to oppose and stop the bills, which would have led to less consumer protection from becoming law.

Q: Is your initial feeling about why you took the job still the same or has it changed/evolved?

DJ: I sought this important office to serve consumers and Californians. I still feel it’s a privilege to hold this office.

Q: You told me back then that, “This job is not a stepping stone for higher office.” Do you still feel that way?

DJ: The office of insurance commissioner is a higher office—I am one of only eight statewide elected constitutional officers. I have been focused throughout my first term on being the best possible insurance commissioner. And I am running for reelection as insurance commissioner because I believe I have done a good job, and I would like to continue to serve California in this way.

Q: How have you been different than your predecessor?

DJ: I will let my record and accomplishments speak for themselves.

Q: Thank you very much. Good luck in your reelection efforts.

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