Insurance Trade Groups Decry Calif. Auto-Body Repair Proposals

Industry trade groups went to the California capital last week to testify in protest of the state Department of Insurance’s (DOI) proposed regulations governing auto-body repairs and the use of aftermarket replacement car parts.

Officials issued a notice in June that it was seeking to change state standards of repair and use of aftermarket parts by clarifying insurers’ obligations during the repair process. Officials called it an effort to address “disputes regarding the true cost of repairs of damaged vehicles and the applicable repair standard” that “continue to negatively affect the claims-handling process.”

At an Aug. 9 hearing held by regulators, the Association of California Insurance Companies (ACIC), a state offshoot of the nationwide Property Casualty Insurers Association of America (PCI), offered testimony in which the insurance groups said the regulations were not only “burdensome,” but too “vague” to make their intended impact.

DOI Says Aftermarket Parts, Crash Repairs a Public Safety Issue

Aftermarket, or second-hand parts, are replacement parts from generic suppliers that cover a range of vehicle-related functions from collision to appearance and include fenders, tires and exhaust systems.

A look at several years of complaints from consumers and auto repairers about the repair process and use of aftermarket parts prompted the DOI to propose the new regulations, according to a summary of the proposal from state officials.

Loose regulations have allowed faulty aftermarket parts to “infiltrate the repair process” and produce “substantial costs borne by auto repair shops and their customers,” according to the summary.

The DOI did not specify how the regulations would change, only saying its effect would refine repair standards by clarifying how insurers are allowed to adjust claim estimates and ensuring that repairs be completed “in a workmanlike manner.” Another amended regulation would “clarify” the installation process of aftermarket parts to keep faulty parts out of use.

“When motorists repair their vehicles with safer parts, drivers of the repaired car, other drivers and the highways should be safer,” regulators stated in their proposal, adding that tightened standards over repairs and aftermarket parts could help motorists getting California auto insurance with savings in liability premiums.

Groups Claim Proposals Show DOI Overreach

At Thursday’s hearing, the ACIC claimed exactly the opposite, saying insurance carriers hamstrung by the proposed regulations would be unable to “contain” costs in a repair system that is already well-maintained with “checks and balances.”

“The current free market system provides checks and balances by allowing the parties to work together to determine prices for auto repairs and parts,” ACIC vice president Armand Feliciano said in a statement. “These regulations will undermine insurers’ ability to manage costs and basically provide auto body shops a blank check.”

Heavier aftermarket regulations will inflate costs because original equipment manufacturer (OEM) parts are 60 percent more expensive than aftermarket parts, according to the PCI, which estimated that an OEM-dominated market would lead to auto insurance premiums rising by $26 for each Californian.

“Aftermarket parts serve the same function as generic drugs,” Feliciano said. “They give consumers an alternative to the high cost of brand name drugs.”

The ACIC also took issue with what it called “blanket statements” from the DOI that did not cite expert opinions on why the proposal was needed.

In addition, the ACIC said, the duty of changing repair and aftermarket regulations lies with the state Legislature and not insurance regulators, the latter of which trade groups claim lack the authority to even propose legislation needed to make such changes.

The ACIC said it will follow the developing issue as the DOI reviews the comments and issues raised at the hearing over the next two to three months.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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