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Thursday, 18 August 2016 17:57

CDI Commissioner Addresses Steering, Labor Survey Regulations

Dave Jones NACE 2016 Insurance Commissioner CA
California Insurance Commissioner Dave Jones gave a 30-minute presentation that was packed with information, followed by a brief Q&A session.

If you own a body shop in California, you would likely agree that our current Insurance Commissioner, Dave Jones, has been proactively helping the collision industry since day one.

Jones was first elected in 2010 and re-elected in 2014 as he leads the California Department of Insurance and regulates the California insurance market. Insurers collect $259 billion a year in premiums in California, making it the largest insurance market in the nation.

On August 12 at the NACE | CARS Conference and Exposition in Anaheim CA, Jones made a 30-minute presentation and industry update, including a report on proposed labor rate survey regulations and how they will affect shops and insurers and other information about steering regulations and how they will protect consumers and shops. In addition, he also discussed crash parts and other issues that might affect consumers in the auto body industry now and in the future.

In many ways, Jones's speech was his department's state of the union address, in which he described the work he has done on behalf of all three stakeholders in the collision industry in California. "My goal is to strike a balance between the interests of consumers, insurance companies and repair shops," he said. "This is a very interesting system where each one needs the other. Consumers need insurance, insurers need repair shops and repair shops need insurers, so there’s a relationship between everyone involved in the system."

One of the first things the commissioner addressed was how his department has dealt with the ongoing debate of OE vs. aftermarket parts. "My department and stakeholders in the repair industry and representatives of the insurance profession are working together to update and improve the department's fair claims settlement and practice regulations regarding the standards for repair and use of aftermarket parts," Jones said. "Those of you operating in California know there’s a set of regulations issued by the department called the fair claims and settlement practice regulations that address insurance company standards for estimating repair costs and for the use of aftermarket parts. I received a lot of input initially from consumers, collision repair shops, consumer advocacy safety groups and insurers with regard to issues in the area of repair standards and aftermarket parts. So this led me to conclude that we needed to update and clarify those regulations to make sure that they were compliant with the original intent and to make sure that consumers would be protected from inferior repair standards and potentially defective aftermarket parts."

In 2011, the DOI held a public workshop on repair standards and aftermarket parts in addition to several public hearings. They then submitted the final regulations to the Office of Administrative Law in 2012 and it became effective in 2013, according to Jones.

These regulations clarify 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 the adjustments. In addition, those regulations enhanced and clarified and insurer's obligation when it ceased to use non-OEM parts, Jones outlined.

"So we received a lot of testimony about non-compliant aftermarket parts such as bumper reinforcements, hood latches and other safety-related parts being required by insurers. We also became aware of the costs bore by consumers and by shops especially with installing a part that does not fit properly or work properly and doesn’t otherwise meet the repair standards. Our new regulation clarified the insurer’s obligation when related to the use of an aftermarket part and what steps it has to take when it identifies a non-compliant, non-working aftermarket part.

"So there was a lot of angst about this regulation in certain quarters," Jones said. "But since it became effective three years ago, we’ve seen complaints on these issues decline dramatically. But we’ve instructed our compliance team to be vigilant, and if you have complaints in this area, then we would urge you to get them to us. We’ll continue to investigate any complaints in this area, but the good news is, I think the regulations are working."

Jones then started addressing the authenticity of labor rate surveys, a hot topic that literally every collision repairer in California is interested in. "One of the things that we’re concerned about at the department is the evidence that the labor rate surveys that have been submitted to us and used by insurers to pay the insurance claims are producing inconsistent, inaccurate and unreliable results," he said. "What this then leads to is consumers having to pay out of pocket costs or small businesses like yours suffering financial harm by being deprived of their reasonably charged rates by outdated or unreliable surveys.

"Our regulation includes a standardized method for a labor rate survey, and if an insurer does follow these reasonable and common sense standard guidelines, the insurer will get a rebuttable presumption that the labor rate component of the claim paid by the insurer is fair and equitable," Jones said. "So there is some real value to the insurer to use the standard methodology in the regulation. But if the insurer conducts a labor rate survey that differs from the methods and standards set in the regulation and can support these methods, the insurer can use a different survey methodology. But the burden is on them to demonstrate that it is a clear result and a fair and equitable settlement of the claim. So that’s the construct of the regulation."

A more specific and regional sampling of shops for labor rate surveys is also a dilemma Jones and his department is dealing with, he said. "We encountered the fact that surveys included too few shops. We saw surveys that were produced by insurers that only surveyed a few shops in each geographic area and we also found that there were cases where the shops weren’t being randomly selected. It would appear that there was some deliberate cherry picking of certain shops in order to input their labor costs in the survey and leaving out certain other shops. So our proposed regulation would require that all shops within a defined area be included in the survey and that there be a reasonable sample size so that there’s no selection bias."

By using a geo-coding system, the DOI believes they can get more accurate survey results overall. "Our regulation defines the geographic area closest to the particular shop where the labor rate survey is being used by the insurer and we use a geo-coding method to figure out where those shops are. And so all that’s laid out in the regulation. We’ve actually geo-coded all of the shops in the state with a unique identifier to make sure that the closest six shops are randomly selected for labor rate surveys being done for the shops in that particular area."

Jones then delved into the subject of steering, a problem that some body shops have said is worse now than ever. "We’re addressing in the new set of regulations the issue of alleged steering. The current law insurance code prohibits insurers from requiring automobiles to be repaired in specific repair shop and prohibits them from suggesting or recommending a repair shop unless certain conditions are met," he explained. "So what we’re seeing in the market is that consumers whose vehicles are damaged are sometimes confused about or uncertain or even sometimes deprived of their right to select a repair facility.

"We’ve received information that insurers are making statements to claimants regarding these rights that sometimes are not accurate," Jones continued. "Our proposed regulations will define what is steering during the claims settlement process and what is false, deceptive or misleading information to the claimant. So we’re trying to provide greater certainty and clarity for what can be said and what cannot be said.

"Another issue with alleged steering is that some claimants have been forced to travel an unreasonable distance or wait an unreasonable period of time to obtain an inspection of their damaged vehicle or obtain an estimate or have an automobile repair specific to a repair shop," Jones said. "So we’re seeking to clarify in the proposed regulation what’s considered to be an unreasonable distance; a period of time to inspect the vehicle; what’s an unreasonable period of time to obtain a repair estimate, and so forth. This regulation would require insurers to inspect damaged vehicles within six business days from when the claimant files a notice of claim assuming the claimant makes the vehicle available for inspection. The proposed regulation also would prohibit insurers from requiring claimants to travel an unreasonable distance to obtain an inspection of a vehicle, to obtain a repair estimate or to have an automobile repaired at a specific repair shop."

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