SACRAMENTO — Today, the California Department of Insurance (CDI) will hold the first of two hearings on proposed regulations designed to give more money to auto body repair shops.  Five property casualty insurance trade associations, representing nearly 100 percent of the California auto insurance market offering both commercial and personal auto insurance, oppose these regulations.  The trade associations include the American Insurance Association (AIA), ACIC, the Property Casualty Insurers Association of American’s California voice, the National Association of Mutual Insurance Companies (NAMIC), the Pacific Association of Domestic Insurance Companies (PADIC) and the Personal Insurance Federation of California (PIFC). 

“The frequency and severity of auto accidents are increasing nationally and are causing California auto body repair costs to skyrocket,” said Armand Feliciano, ACIC vice president.  “California’s total loss cost per insured car has been climbing and its growth rate since 2013 is now the 4^th highest in the nation CDI’s proposed regulations are untimely because they add costs to a system already struggling with surging costs.  These costs could increase premiums paid by California drivers.”

The California Department of Insurance (CDI) is proposing auto body labor rate survey and steering regulations.  The auto body labor rate survey regulation is a prescriptive approach on how companies should conduct a labor rate survey and imposes a significant cost on insurers. CDI initially estimates that these regulations would cost about $1.17 million.  The steering regulation is equally problematic because it attempts to regulate what insurers can say about non-direct repair shops and limit the insurer’s ability to have a vehicle inspected by a direct repair program.  Both regulations exceed CDI’s authority and are examples of regulatory overreach that will ultimately drive up costs for consumers.

“Auto insurers are committed to providing insurance consumers with accurate and helpful information about the auto repair process, including information about the benefits of using direct repair shops that undergo extensive auto repair quality-control review by insurers. The proposed regulation will needlessly hinder insurers in their efforts to assist insurance consumers in securing high-quality auto repairs in a timely and cost-effective manner,” said Christian Rataj, NAMIC senior director.

The trades, in their letter on the regulations, point out that it is simply not the role of the Department to interfere in the free market system and propose laws that could financially benefit the auto body repair shops.  The trade associations also disagree that the regulations will necessarily benefit consumers as “higher labor rates” could increase insurance premiums.  If one of the goals of CDI is to “prevent auto body repair shops from facing the dilemma of whether to accept a financial loss, or bill the consumer,” then that is a policy question that should be addressed by the legislature as many stakeholders need to be involved in that policy question.  The regulatory process is not the appropriate venue to address these changes.

“We believe that the auto body labor rate survey regulation is one sided, and there other parties that need to weigh in here.  We hear the Department’s argument that somehow auto body repair shop believe they are underpaid. But what about “overpaying” auto body repair shops because of higher labor rates?” asked Michael Gunning, PIFC vice president. “Isn’t that equally important for policyholders and insurers? Insurance rates are highly regulated and scrutinized by law, that’s a fact.  As we understand it, auto body repair shops in California are not even required to pose their labor rates publicly. How do insurers verify labor rates? Do we rely on the questionnaire and take their word for it?”

“Consumers and policy holders benefit by a transparent and fair system for paying for repairs to automobiles,” Katie Pettibone, AIA vice president.  ” Similar to healthcare costs, actual price paid and what is posted rates can be vary greatly. We are concerned that the proposed labor rate survey regulations would allow “rack rates” or outlier costs to be charged and passed on to consumers and insurers.”