New California Department of Insurance (CDI) regulations approved by the California Office of Administrative Law (OAL) are likely to drive up auto body repair costs for consumers and micromanage how insurers develop auto body repair estimates cautioned the Association of California Insurance Companies (ACIC).
"We want to send a cautionary message to consumers because these new regulations give auto body repair shops a distinct advantage in preparing scope of work estimates, which could drive up repair costs," said Armand Feliciano, ACIC vice president. "Auto insurers write the checks for approximately 80 percent of all auto body repairs in the nation. Insurers work hard to give policyholders quality repairs and get them back on the road, while managing costs to keep premiums affordable. These regulations essentially require insurers to pay whatever auto repair shops demand. Insurers no longer have the ability to negotiate the most effective, less costly repair."
The CDI regulations were originally released in June 2012. ACIC provided comments expressing concerns in August 2012. The OAL approved the regulations on December 31, 2012 and will become effective on January 31, 2013.
"These regulations let auto body repair shops - who have a financial stake in the repair process - to unilaterally set the repair prices, and insurers will not be allowed to counter those prices," said Feliciano. "Additionally the regulations will incentivize repair shops to use original manufacturer parts - which are 60 percent more expensive than aftermarket parts even though the aftermarket part is equivalent or, in some cases, better."
Under the new aftermarket parts regulations, insurer estimates for auto repairs must do the following:
(1) Be in "an amount that will allow for repairs to be made in accordance with accepted trade standards";
(2) Must not "deviate from the standards, costs, and/ or guidelines provided by the third-party automobile collision repair estimating software" ; and
(3) Require insurer adjusted estimates to be in either "an edited copy of the claimant's repair shop estimate or a supplemental estimate..., and the adjusted estimate must "identify specific adjustment made to each item and cost ...."
"The new rules also require insurers that encourage the use of aftermarket parts to provide written warranties on parts that the insurers did not manufacture," said Feliciano. "The enabling legislation that authorizes these regulations required manufacturers to warrant the aftermarket parts, not insurers."
Under the new aftermarket parts law, insurers who try to control costs by specifying the use of aftermarket parts must do the following:
1) Must disclose in writing that it warrants aftermarket parts to be "at least equal to the original equipment manufacturer parts in terms of kind, quality, safety, fit, and performance";
2) Cease using the aftermarket parts if the insurer has knowledge that a part is unequal to the original equipment manufacturer parts"; and
3) Pay for the costs associated with "returning the part and the cost to remove and replace" the aftermarket parts
"The use of aftermarket parts is a proven way to make quality car repairs while containing costs which then keeps premiums reasonable," said Feliciano. "These regulations will make it more difficult for insurers to provide policyholders with affordable alternatives and choices. Limiting the use of aftermarket parts is like taking away the option to saving money by using generic drugs."