Insurance Groups Press Veto of Rhode Island Auto-Repair Bill

As Rhode Island awaits a final decision on recently passed legislation overhauling the relationship between insurers and the auto body shops that customers go to for claims-related service, industry trade groups are pushing Gov. Lincoln Chafee to veto the measure that they say will create an “explosion of litigation.”

HB 7782, introduced by Rep. Stephen Ucci (D-Johnston), would give auto repair shops the right to sue insurance companies over payment disputes and restrict insurers from directing customers to specific businesses for repair work, a practice called “steering.”

The bill also prohibits insurers from branding a car as a total loss if repair costs are less than 75 percent of the “fair market value” before the crash.

The legislation was passed by state House representatives on June 11 and senators on June 13.

Since the bill’s passage by state legislators, the American Insurance Association (AIA) and Property Casualty Insurers Association of America (PCI), both of which represent more than 1,000 insurers across the U.S. and hundreds of billions of dollars worth of annual premiums, have publicly pressed Chafee to veto the bill.

PCI Conducts Analysis of Bill’s Presumed Impact in 2008

In its analysis of HB 7782, the PCI said the bill’s provisions would have resulted in a 26.5 percent increase in annual premiums if it had been passed in 2008, forcing policyholders to pay $164 more a year. The trend would have continued, according to the analysis, with annual premiums increasing the following year by $207 and in 2011 by $263.

The particulars of how the analysis was conducted were not given by the PCI. The PCI said the bill, if approved by Chafee, would trigger events to unfold in the same way as in its analysis, with escalating costs and auto crashes “likely to become much more expensive for Rhode Island residents over the next three years.”

The PCI said the legislation is faulty because it forces “more cars with severe damage to be repaired instead of totaled.” Also, auto repairers, empowered with the right to sue, could overcharge insurers and take them to court if they did not agree.

AIA officials echoed the sentiment, calling the bill “poor public policy” that could instigate an “explosion of litigation.”

“Rhode Island’s drivers should say ‘no’ to increased litigation and increased repair costs,” Gary Henning, AIA regional vice president, said in a statement. The legislation “pads the wallets of auto body shops at the expense of consumers.”

AIA officials cited statistics they said show that labor costs in the state far outpace the national average and drive up the price of claims. Passing HB 7782 could further inflate costs and make the search for affordable car insurance in the state even more difficult, according to the AIA.

Rhode Island was the seventh most-expensive state for auto insurance in both 2008 and 2009, according to recent data from the National Association of Insurance Commissioners.

Legislator Says His Bill ‘Levels the Playing Field’

In an interview, Ucci said attacks on his legislation forecasting costlier premiums and more litigation were unsurprising because insurers “will say that any change to the way they currently run business leads to higher rates.”

Ucci called his bill a “consumer protection” measure that “levels the playing field between the insurance industry and small, locally owned body shops.”

Reimbursements for claims-related work have dogged smaller body shops because they currently have no legal recourse to dispute those amounts, according to Ucci.

He also said that he disagreed with insurers’ prediction that his bill would lead to a surge in court cases because its “real intent is to ensure fair negotiating practices.”

“The only way rates will go up is if insurers don’t pay the proper amount to fix automobiles,” he said after the legislation was passed in the state House. “I hope no body shops are pushed toward their right to action.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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