Below is the CRA’s opposition statement on AB 1200, an insurance industry sponsored bill that weakens California’s anti-steering law. Fax Your Letter of Opposition to AB 1200 TODAY to the Senate Banking, Finance and Insurance Committee at 916-327-7093.
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June 22, 2009
The Honorable Ron Calderon, Chair
Senate Banking, Finance and Insurance Committee
Room 5066 State Capitol
Sacramento, CA 95814
RE: AB 1200(As Amended April 29, 2009), Oppose Unless Amended
Hearing Set for July 1, 2009
Dear Chairman Calderon:
The board of the Collision Repair Association of California (CRA) has voted to strongly oppose AB 1200 and to request the adoption amendments that would support consumer choice as now protected under existing law. Unfortunately, the bill as currently drafted endangers the consumer’s right to select an automotive repair dealer (ARD) when repairs are subject to coverage under a policy of insurance.
First, state law and regulations protect consumer choice under Insurance Code Section 758.5. Starting in October of 2007 the CRA’s lobbyist and other representatives of trade organizations, including the Personal Insurance Federation of California (PIFC), the sponsor of AB 1200, participated in meetings with Department of Insurance officials to clarify what an insurer may or may not say to a claimant who has selected an automotive repair dealer (ARD). The issue at hand concerns the actions of some insurers who attempt to direct or “steer” claimants that have a commercial business agreement with an insurer.
Steering is illegal in California. A few weeks before this bill was introduced, the Department of Insurance filed a show cause order against GEICO, alleging, in part, that the insurer had steered claimants to GEICO-favored shops even though the claimants had selected a shop.
Again, few days before AB 1200 was introduced, the Insurance Commissioner released proposed rules that would not allow an insurer to provide information about the insurer’s direct repair program if the claimant has already selected an ARD. Obviously, the insurers didn’t like the proposed rule, or the enforcement action involving GEICO. AB 1200 bill would undo the proposed rules and possibly affect negations between GEICO and the department over GEICO’s steering behavior.
During the steering discussions, Mr. Tony Cignerale, Deputy Insurance Commissioner, made it clear to the PIFC and others that Insurance Code Section 758.5 did not prevent an insurer from explaining provisions of the claimant’s insurance policy. In fact, the proposed rules state the following: “Nothing in this article restricts the ability of an insurer to explain contractural provisions of the insurance policy to the claimant…” The CRA hoped AB1200 would simply echo Mr. Cignerale’s comments. But AB 1200 is much too broad—it would allow an insurer to discuss “benefits” it could provide a claimant during the claims handling process. These so-called benefits could include the insurer’s direct repair program which insurers consider a benefit since a direct repair program is designed to cut corners on repairs and cost. Specifically, some ARDs (automotive repair dealers) have commercial business agreements with an insurer. Insurers will not allow ARDs to reveal the details of these commercial business agreements, but in some cases, the agreements provide benefits to the insurer, not to the claimant in terms of how a vehicle is repaired. So, AB 1200 would allow an insurer to extol on certain DRP benefits during the claim process without revealing all the aspects of a DRP agreement. In brief, if the claimant knew the full extent of DRP conditions, her or she might reject the DRP scenario. A hidden “insurer benefit” might include the mandate on an ARD to use non-factory parts, including used parts from a salvage yard. For example, if an ARD fails to use enough aftermarket parts in the repair process, the insurer will drop the ARD from its referral list. Insurers issue quarterly “report cards” that track part usage at specific ARDs. The ARD is constantly under pressure to use the cheapest parts in a repair, even if the manufacturer recommends against the usage of aftermarket parts for matters of safety and maintaining the original warranty on the vehicle. Remember, the liability for the standard of repair falls on the ARD, not the insurer.
The CRA would remove its opposition to the bill if the reference to “benefits” were struck and replaced with language that emphasized that the insurer has the right to discuss policy provisions at any time during the claims process.
The CRA is an association of ARDs that ascribe to the highest standard of vehicle repair. It is the CRA’s hope that the committee will work to maintain the strong protections established through prior legislation by former State Senator Jackie Speier and to give Insurance Commissioner Poizner’s time to adopt the proposed anti-steering rules and to “apply” them as an enforcement tool.
Should you have any questions about the information in this letter, please contact our legislative representative, Richard Steffen, at 916-524-8046.
Yours truly,
Allen Wood
Executive Director
cc. Members of the Sen. Banking Finance and Insurance Committee
The Honorable Mary Hayashi
The Honorable Steve Poizner
Tony Cignerale
