Here’s what state lawmakers around the U.S. are debating that could affect the industry
By John Yoswick
If you want to know what to expect to come out of your state Capital — good or bad — it’s worthwhile to pay attention to what’s happening in other states. Very often what gets introduced or passed elsewhere will end up under consideration by your state’s lawmakers.
So here’s a cross-country tour among capital cities to see what’s happening legislatively this year that could affect the industry.
Which parts and who chooses
Use of “alternative parts” is one of the primary subjects for state legislation in many years, and 2018 is proving no exception.
Four years after the West Virginia Supreme Court ruled that the state law banning the use of non-OEM parts on newer vehicles does not place a similar restriction on the use of salvage parts, proposed legislation (SB 308) would have ensured that it does. That bill stated that only new, OEM parts may be used for insurance-paid repairs on vehicles that are under three years old. But the bill failed to make it out of committee by a legislative deadline.
Parts use is also one element of prosed legislation in Illinois (HB 4926) backed by the Alliance of Automotive Service Providers (AASP) in that state. It would prohibit the use of non-OEM parts without the customer’s written authorization. But the bill goes further, saying no shop “may use repair specifications or procedures that are not in compliance with the original equipment manufacturer…unless authorized by the customer in writing.”
A bill (HB 1189) introduced in Indiana this year would extend to third-party claimants the same right “to approve the type of body parts used to repair a motor vehicle” currently spelled out in state law for first-party insureds; a similar bill failed to move out of committee last year.
A Massachusetts legislative committee has passed a bill (S 109) that prohibits insurers from mandating the use of non-OEM parts on any vehicle still under manufacturer warranty or lease agreement.
A bill introduced in Hawaii (HB 1620, and its companion bill SB 2243) stated that vehicle owners “have the right to expect that their vehicles are repaired properly following a collision” and that “proper repairs include the installation of OEM parts.” The bill said some insurance companies only pay for non-OEM parts that “can be unsafe because they are not crash-tested and are inferior” to OEM in fit and finish. Therefore, the bill would have prohibited insurers from “charging insureds an additional fee for repairs that use OEM parts if the vehicle manufacturer has recommended that OEM parts be used in the repair.”
At a late January hearing, Hawaii shop owner Dale Matsumoto noted that a third-party claimant can be forced by the other party’s insurer to put non-OEM parts even on a recently-purchased new car. But Hawaii Insurance Commissioner Gordon Ito told lawmakers the bill “lacks an obvious benefit to consumers” because it would raise insurance premiums.
The House committee holding the hearing opted to recommend that the bill be replaced with language calling for a task force to study the issue. The proposed task force would be charged with developing recommendations on the issue before the 2019 legislative session.
That’s a tactic that opponents to limits on the use of non-OEM parts employed in a number of states last year. For example, LKQ Corporation and others supported a bill in Arkansas last year that would have repealed that state’s existing law requiring insurers to use OEM crash parts on any vehicle still under the manufacturer’s warranty. As shops voiced opposition to the change, backers changed course and instead called for a year-long study into any consumer complaints related to parts over the last three years. That study, according to Ray Colas of LKQ’s government affairs department, would help lawmakers decide “whether or not [non-OEM] parts should continue to be restricted.”
Bills that could be called ‘sweeping’
Industry proponents sometimes cobble together legislation that attempts to address not just one but a wide variety of issues shops find problematic. One such example was a bill (SB 156) introduced in the Indiana Senate earlier this year.
As introduced, the bill would have prohibited an insurer from limiting the ability of a consumer to choose a shop, or requiring the consumer take the vehicle to the insurer’s drive-in claims center. It would have prohibited an insurer from using “boycott, intimidation or coercive acts” as part of negotiating repair costs, or adjusting claims (if in dispute) without physically inspecting the vehicle. Insurers also would have been prohibited from specifying a particular parts vendor, or “unilaterally and arbitrarily disregard(ing) a repair operation or cost identified in the estimating system” being used by the insurer and shop.
The original bill also placed new limitations on actions by shops, including prohibiting shops from coercing or intimidating consumers to boycott an insurer’s drive-in claims center, or denying an insurer’s access to inspect a vehicle during normal business hours.
But the Indiana House dramatically amended the bill, passing it 84-12. All of those insurer prohibitions were stripped from the bill, leaving only a ban on insurers requiring that repairs be made by a particular shop.
Instead, the amended bill would put new limits on shops, including prohibiting a shop from securing an insured’s or claimant’s assignment of rights related to repairs. It would also limit lawsuits related to deceptive acts under the new statute to those brought by individuals — prohibiting class-action lawsuits — and would make it a “rebuttal presumption” that a vehicle repair is not defective if it is made in conformity with OEM repair procedures or generally accepted industry standards. (A “rebuttal presumption” is something taken as true unless proven otherwise, such as a criminal defendant being considered innocent until proven guilty.)
The House version of the bill must now be reconciled with the dramatically different Senate version. The Senate has “dissented from House amendments,” according to the state’s legislative website, so the legislation could conceivably die if no agreement can be reached.
A similarly “sweeping” bill (HSB 529) proposed in Iowa would prohibit an insurer from requiring a consumer use a particular shop for an estimate or repair, or from engaging in any practice that “intimidates, coerces or threatens a claimant or that provides an incentive or inducement” to use a particular shop. The bill also would require any insurer with a direct repair program in a given market to open the program to any shop meeting the established criteria, such as agreeing to “perform quality repairs at market price that meet industry quality repair standards.” Under the proposal, DRP criteria cannot include a shop abrogating its right to purchase parts or supplies from the vendor of the shop’s choice.
Legislative efforts to undo regulatory actions
Shops in California are generally pretty happy with new regulations Insurance Commissioner Dave Jones, put in place last year related to steering and labor rate surveys conducted by insurers. So they lobbied hard against a lawmaker’s proposal to significantly alter if not scrap those changes.
Under the current regulation, insurers cannot suggest or recommend a shop once a consumer has selected a shop, though they can provide “specific truthful and non-deceptive information regarding the services and benefits available to the claimant during the claims process,” including information about warranties and the anticipated time to repair the vehicle. But they cannot provide “false, deceptive or misleading information to the claimant,” including saying a shop has a record of poor service or quality if that statement is known to be (or should reasonably be known to be) untrue or misleading. Insurers also cannot require a claimant travel more than 25 miles (15 miles in urban areas) to obtain an estimate or have the vehicle repaired.
In terms of labor rate surveys, the current regulation does not mandate that insurers use a particular survey method, but does lay out one method that Jones’ department will consider as “fair and equitable.” That method requires, for example, that only labor rate data collected within the past 16 months be included, although this can be extended to 28 months if the oldest data is adjusted upward based on inflation. The labor rate data must be obtained through a survey, not from estimates. All registered shops must be included in the survey, and surveys are to be based on non-discounted, posted rates. The regulation requires that prevailing rate for a particular shop be based on the six closest shops geographically, although insurers can also include shops within a one-mile radius around that core area when determining what rate it will pay a shop.
Starting last year, however, insurers lobbied for a bill that would have largely repealed those regulations. Consumer groups were among those fighting the legislation. In a letter earlier this year to the lawmaker who proposed the bill, Consumer Watchdog said such a repeal “will irreparably harm policyholders,” and “potentially cost many consumers their safety or even their lives.” The letter stated that the proposed legislation “would allow State Farm — and all other insurers — to provide consumers with only one choice: You may go to one of ‘our’ shops, or your claim will receive ‘heightened scrutiny,’ it will take more time to fix, you will pay more, and it will be far less convenient. In essence, do what we tell you — or else — no matter how much it may cost or harm you.”
In the end, the bill failed to move out of committee by a legislative deadline earlier in January and thus died. Weeks later, however, a new bill (AB 2276) impacting shop and insurer interactions was introduced. This bill would prohibit an insurer from requiring its direct repair shops to pay for the costs of an insured’s rental vehicle or towing; the bill goes on to say, however, that the insurer and shop may agree in writing to conditions under which the rental vehicle costs become the responsibility of the shop, such as when the shop fails to complete work on the vehicle within an agreed-upon time.
The bill also gives insurers far more latitude in conducting labor-rate surveys, though it makes it clear they are under no obligation to conduct such surveys. If they do, the bill would allow them to base prevailing rate on what is charged by shops in the same state legislative district (many of which are quite large and diverse) or in contiguous zip codes; at least 30 shops, or 30 percent of the shops within one of those geographic areas, must be surveyed, the bill states. As with the earlier bill, this one is being opposed by the California Autobody Association.
Meanwhile Insurance Commissioner Jones isn’t afraid to push insurers in other ways as well. After the new federal tax cuts were finalized, Jones said those changes will allow insurers in that state to “retain even more of policyholder premiums as profit.” He has directed his department, therefore, to review insurers’ rates “to see if we can enable policyholders to also benefit from the lower corporate taxes paid by insurers.”
Other bills that could impact the industry
Bills in other states could potentially impact the industry in a variety of ways.
Higher highway speeds are sometimes cited as among the factors increasing claims frequency; although South Carolina law already prohibits driving too slowly in the left (passing) lane, Sen. Ross Turner this year has introduced a bill (S 809) to increase the fine for doing so to as much as $200.
Oregon legislators this year passed a new law (HB 4087) that will require collision repair and mechanical repair shops in that state to have a $20,000 bond if they ever place a mechanic’s lien on a customer vehicle. A lobbyist for the Northwest Automotive Trades Association (NATA) said the legislation was a compromise crafted after a lawyer proposed a “complicated and expansive” shop regulatory system; the lawyer had said he’d seen unscrupulous shops hold cars “hostage” using mechanic’s liens, but couldn’t represent the vehicle owners involved because even if they won in court, the shops involved often had no assets to settle the judgment. NATA worked with the lawyer, car dealers, and Oregon regulators to craft the bond requirement instead, arguing that it provides a source of funds to satisfy a court judgment if a consumer wins, and will help weed out unscrupulous shops that might not qualify to get a bond. The new requirement goes into effect in January.
Lawmakers in Florida are considering at least two bills (HB 19, SB 150) that would repeal or reform the state’s no-fault auto insurance system.
Scrapping or scaling back on vehicle safety inspections in the few states that still have such programs is a common proposal by lawmakers who view such programs as unpopular with consumers. The Automotive Service Association remains a vocal opponent to weakening such programs. Shops can visit the association’s legislative alert page (www.takingthehill.com) for a quick way to voice opposition to such proposals under consideration this year in Missouri (HB 1444 would end the state’s vehicle safety inspection program); in West Virginia (SB 90 would end the inspection program); and in New Hampshire (HB 1328 would change the annual inspection requirement to a once-every-other-year inspection).
And in New Hampshire, a House committee has given a do-pass recommendation to bill (HB 1663) that calls for the creation of a four-member legislative committee to study reimbursement rates under auto insurance policies, with the committee issuing a report by November. •
John Yoswick, a freelance writer based in Portland, Ore., who has been writing about the automotive industry since 1988, is also the editor of the weekly CRASH Network (www.CrashNetwork.com). He can be contacted by email at john@CrashNetwork.com.
