Do Insurance Companies Influence Laws That Harm Customers?

Customers often struggle to navigate the bureaucracy in the world of auto repair shops and insurance policies.

For this auto body shop with a proven track record of success—30 years of great work—I wrote their SEO optimized articles on what constitutes a good repair, and how the unregulated power insurance companies cause problems for both customers and repair facilities.

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Imagine if the people required to pay for your surgery were telling your surgeon what to do in order to reduce costs. The conflict of interest implicit in that is all too apparent, isn’t it? The surgeon knows better than anyone else how to repair one’s injuries. Nobody would want the operation conditioned by some need to save money, right? We’d require the surgeon to do the job correctly.  

Now imagine if those responsible for financing the surgery began lobbying to push a bill that takes away your right to choose your own surgeon. Imagine that this bill then forces you to select a surgeon who has special trade deals with their sponsors. Suddenly your life would depend on a surgeon who may have to avoid the necessary procedures established for successful surgeries to be performed, for the sole purpose of lowering what the sponsor is required to pay. You’d be against that bill, wouldn’t you?

Well, that is exactly what State Farm insurance tried to do with its bill AB 1679, but in the industry of automobile repair.

State Farm already does everything in their power to steer policyholders into the repair facilities with which they have trade deals, their DRPs (direct repair programs). Apparently, the effort was too much of a hassle for them, so they wanted to remove regulations set in place to protect consumers. With AB 1679, carriers would have been unleashed from restrictions keeping them in check.

Insurance companies would now have a law that makes it much easier for them to make their policyholders take their vehicles into their contracted shops. In exchange for getting work sent to them, these shops must now perform their repairs according to the carrier’s terms.

That translates into an increase of repairs that favor cutting corners and reducing costs instead of prioritizing safety. Independent shops that abide by the manufacturer’s procedures would find themselves shut down by the shops in the carrier’s DRPs. Suddenly every policyholder would have to pay out of pocket should he or she wish to ensure their car getting restored to its pre-accident conditions.

There is therefore no better demonstration of just how powerful an insurance company can be, and the degree to which it means to control how cars are repaired. If the bill had been passed for healthcare, the only surgeons you’d have available in your policy would be those prioritizing saving money for their sponsor as opposed to saving the health of their patients. To drive in further the comparison between having a repairman performing shoddy work on your car to a surgeon carrying out negligent surgery on your body, bear in mind that a subpar car repair can actually put your life in danger.

It’s no surprise then that the California Department of Insurance (CDI) imposed heavy regulations on carriers in the first place: they were protecting people from malpractice. That protection would have been crushed under this bill.

Consumer Watchdog’s counsel and advocate, Michael Mattoch, wrote an elaborate letter condemning the bill to assembly member Autumn Burke, who was going to approve it. The letter provides a detailed explanation of all the negative consequences that would’ve been a direct result of the bill having been approved. The following is a summary of some of the regulations that would have been repealed:

THE ENFORCEMENT OF A PROPERLY CONDUCTED LABOR RATE SURVEY.

An accurate survey establishes the going rate for repairs in a range of auto body shops in a specific geographical area.  It sets the standard for the costs involved for correctly fixing a car, and therefore, allows for a reasonable price to be charged. As late as March 2017, the CDI had to enforce regulations that prevented insurance companies from rigging their surveys in order to drop prices below the true market rate.

Removal of the regulation would allow insurance companies to do the following:

• Insurers could include shops that don’t have the necessary equipment required by the state Bureau of Automotive Repair (BAR) and aren’t in possession of any licenses.

• Insurers could use rates set by shops in their Direct Repair Programs, which they force to work at rates lower than the market in exchange for sending them jobs.

• In their surveys, carriers wouldn’t have to take into account independent repair facilities, shops that follow the manufacturer’s guidelines.

• Carriers could include shops from miles away from the city and would not accurately reflect the local market. That would force policyholders to travel outrageous distances (over 25 miles) to get estimates and repairs carried out at carrier DRPs.

• Labor rates can be used from third-party software that helped an insurer dictate costs of labor to a shop. Such dubious labor rate surveys could not be challenged.

THE REGULATIONS AGAINST STEERING

Removing these regulations would have made it easier for insurance companies to steer their policyholders to their contracted shops in the following ways:

• Carries wouldn’t have to provide accurate information on behalf of the services and benefits it offers when handling a claim.

• They wouldn’t be obliged to provide a reasonable time frame for their agents to inspect cars. The current regulation states an insurance company has a time frame of 6 business days to inspect a damaged vehicle. By having this repealed, a carrier can intentionally delay inspections if they want to (i.e. when you want to take your car to an independent collision center)

• Carries could now force consumers to obtain an estimate from one of their DRPs, even when the consumer already has one from their chosen shop.

CONCLUSION

It is clear then that the entity hired to pick up the tab for a repair, should not, under any circumstances, be meddling with the expert’s instructions on how a vehicle must be repaired. Nevertheless, carriers like State Farm dare to do it anyway. They are so determined to rig prices and repairs, they’ve lobbied for a bill to be passed that would remove regulations currently keeping them in check.

The outrage was further discussed by the president of the organization Consumer Watchdog, Jamie Court, who didn’t doubt that the bill, which in the end wasn’t passed, would simply undergo a process of “gut and amend.” That is to say that the bill would be substituted for a similar one. Guess what? That’s exactly what happened.

The bill was reborn in another one called AB 2276, which was also opposed by the CAA (California Autobody Association). Whether it gets passed, remains to be seen. Like the consumer watchdog, let’s pay close attention and see what happens next.

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Published version here.