It’s called “steering” and in California’s billion-dollar automobile body repair business it’s a big deal – especially for the insurers who typically foot the bill and the 6,000 repair shops that want the business.
Steering means to pressure a policyholder into using a particular auto body shop favored by the insurer to get the car fixed. The practice is illegal, in part because of a 2003 law authored by former state Sen. Jackie Speier, a San Francisco Democrat.
“This law was necessary because insurance companies routinely make deals with preferred shops to use cheaper used or “after-market” parts rather than parts made by the vehicle manufacturer,” Speier wrote in an opinion piece in the San Francisco Chronicle.
“Sometimes, the imitation parts work fine, but too often they don’t fit the vehicle or are made of inferior metals and plastics. The law made it illegal for insurers to steer policy holders toward specific shops.”
But insurers and their allies believe that law is ambiguous, that it blocks companies from getting vital information to customers – in effect, a gag order – and that the issue of quality parts is a red herring to mislead the public. Insurers, including the top automobile insurers in the state, want the law changed.
“The existence of such a gag order is clearly a terrible circumstance for a consumer unknowingly limiting themselves from important information,” said Aubry Stone of the California Black Chamber of Commerce.
“The law, while appropriately protecting the absolute right of a claimant to choose any body shop they want, may restrict claimants’ access to beneficial information.”
A new bill, AB 1200 by Assemblywoman Mary Hayashi, D-Alameda, would make that change, insurers say.
“It provides disclosure and information to consumers so they can make informed choices about where they can get their vehicle repaired. That’s all it does,” said Janine Gibford of the American Insurance Association. She also noted that other consumer-protection provisions in state law, such as disclosure and the kinds of repair parts used, remain in effect apart from Hayashi’s bill. The state’s largest auto insurers are supporters of the bill, including State Farm, Allstate, 21st Century, Farmers, Liberty Mutual, Progressive and other major carriers support Hayashi’s bill.
Consumer Watchdog, which opposes the bill, said the language of the legislation doesn’t do what insurers contend.
“It’s anti-steering bill that would permit steering,” said Consumer watchdog attorney Todd Foreman. “It specifically states that an insurer can provide information about services. That’s what steering is. It essentially guts the consumer protections in Speier’s bill regarding steering and when a company can’t steer.”
The collision repair industry agrees, and believes the bill hurts the consumer by allowing insurers to selectively push customers to shops that have dubious, cost-cutting contracts with some carriers.
Steering has long angered consumer activists and other critics who believe the practice occurs, despite the prohibitions. They believe the insurance industry makes side deals with favored shops – deals that are not spelled out to the claimant — to cut costs at the expense of repair quality. Insurers flatly deny the contention, noting that in this issue, as in others in the Capitol, their consumer foes are financed heavily by the trial attorneys, the insurers’ arch-enemies.
To the dealers, the issue of the quality of the repair parts is no red herring and reflects the arrangements between insurers and repair shops.
“One such insurer agreement requires that DRP shops use ‘independently manufactured (knockoff), remanufactured, rebuilt, or recycled replacement parts’ when available,” Brian Maas of the California New Car Dealers Association told a Senate committee.
“Another caps the amount of time for which repair shops can charge when making specific repairs, pushing the shop to cut corners.
Yet another requires DRP shops to us ‘cost-saving repair techniques,’ including the use of ‘salvage parts, rebuilt parts, after-market (knockoff) parts, reconditioned parts, use of adhesives, panel sectioning and plastic repairs.”
Hayashi contends her AB 1200, sponsored by the Personal Insurance Federation of California, would not weaken the earlier law and that it has been mischaracterized by its opponents. This week, AB 1200 fell two votes shy of being approved by the Senate.
But that vote is not final and negotiations over a compromise were under way. It could come back to the floor as early as Thursday, get amended on the floor and returned to the Assembly, where an earlier version of the bill was approved with no opposition. The crux of the negotiations: The language of a written disclosure notice regarding a customer’s options.
“I would not support, much less carry, a bill that would threaten consumer protection,” Hayashi wrote in an Aug. 19 op-ed in the San Francisco Chronicle, the same day that Speier’s piece appeared in the same newspaper. “It does not allow insurance companies to force a particular body shop on a claimant. Rather, it serves to provide consumers with more choices so that they make an informed decision when considering auto body repair shops.”
On its face, the language in the bill — amended at least four times since it was introduced in February — bears out Hayashi’s comments. There are specific provisions prohibiting steering, requiring a separate written notice of a repair shop’s recommendation and barring insurers to provide customers with recommendations unless requested.
“The only thing this bill does is make it clear that insurers can talk to claimants about their own DRPs (direct repair programs),” said Hayashi’s chief of staff, Corey Jasperson. He added that the revised legislation also requires a “free-standing, separate document” that spells out the insurers’ ability to offer recommendations.
Consumer Watchdog and others question that view, and note that the bill originated with the insurance industry.
Both sides, however, are players in the Capitol. During the first two quarters of the year, for example, PIFC, the sponsor of the bill, reported $158,000 in lobbying expenses and about $167,000 in campaign donations. Key opponents, the new car dealers group, spent some $320,000 on lobbying expenses. The Consumer Attorneys of California, critics of the bill, spent $476,000 on lobbying, according to the secretary of state’s office.