State Senator Calls for Study of a Common Car Insurance Practice

An Iowa state senator has requested that the legislature assemble a committee to study the effects of direct repair programs (DRPs) used by car insurance providers. Specifically, the senator has asked the committee assess the effects of DRPs on repair shops, consumers and the availability of affordable auto insurance prices in the state.

Most consumers may be unaware of what a DRP is. But if they’ve had to use an insurer to pay for repairs made at an auto body shop, they’ve likely at least been offered to participate in one.

DRPs are set up through agreements between insurers and auto repair shops. Coverage providers agree to suggest particular shops to policyholders for repairs, and in return the claims process gets streamlined somewhat because certain shops are dealt with more frequently and may agree to take on additional administrative tasks in return for the insurers’ referrals.

But even though insurers and repair shops would like to direct every policyholder to preferred shops for repairs, they can’t. Most states have laws on the books that prohibit coverage providers from “steering”–telling policyholders either directly or indirectly that they must use a certain repair shop or that they will have to pay out of pocket for some of the repairs if they choose to take their car to a different facility.

Complaints of steering have been so numerous in places like Texas that the state Department of Insurance there issued a report on DRP programs in the state. According to the report, all of the state’s top five insurers had DRPs in place in 2010.

Those five insurers told the Texas Department of Insurance that between 18 percent and 50 percent of initial claims filed with them were serviced at their direct repair facilities.

The proposed committee would consist of consumers and representatives from the auto repair and insurance industries.

About Matthew Morisset
Matthew Morisset is a proud alumnus of the University of Redlands, where he obtained a degree in English Literature. Utilizing his passion for analysis and writing, Matthew looks for important trends in the auto insurance industry and their implications for consumers and the market as a whole.

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