Plan addresses gap in crash repair coverage
State regulators said they would propose measures today that would help motorists fully recover their repair costs when their vehicles are damaged in accidents.
Consumer groups have long complained that insurance companies won’t pay labor costs that exceed limits set by the insurers themselves. The proposed regulation would set a new formula for determining the limits, which would be based on surveys of auto collision repair shops in the same geographic area.
“There’s a lot of ambiguity in the existing regulations,” Insurance Commissioner John Garamendi said. “Our aim is to provide more clarity.”
Garamendi said consumers should benefit from the changes. But the head of an auto insurance industry trade group disagreed, saying the current system benefited consumers by helping to keep a lid on auto repair costs.
“We really think we’re on the side of the consumer with this one,” said Sam Sorich, president of the Assn. of California Insurance Companies in Sacramento. “This has the potential for raising costs, which would raise rates. That’s not good for anyone.”
Under the current system, insurers typically pay “prevailing rates” for hourly labor, and it is up to consumers to pay any costs that exceed that amount.
Eileen Dolores Fall, a Northern California resident, found that out last year when she took her Mercedes E320 to an auto body shop in Gilroy after an accident. The repair shop charged $80 an hour for body repairs and $95 an hour for mechanical work.
Allstate Insurance Co. refused to pay more than $62 an hour for either, and Fall found herself on the hook for $1,685 in unreimbursed expenses, according to her attorney, John Quisenberry.
“We know that this happens all the time and consumers end up having to pay millions of dollars out of their own pockets,” said Quisenberry, who said the auto body repair industry takes in nearly $3 billion a year in California.
Quisenberry filed suit in Los Angeles County Superior Court last week seeking restitution for Fall and two other motorists. The suit seeks class-action status so that other motorists can be covered by a decision.
Currently, insurance companies set prevailing rates by conducting surveys of auto repair shops. But the regulation is vaguely written and doesn’t say what constitutes a valid sampling, said Gary Gartner, a Department of Insurance spokesman.
The department began hearings last year on the issue. Today, it is scheduled to release a draft proposal that would require insurers to comply with a new prevailing-rate formula if they choose not to pay what the auto body shop charges.
That formula breaks the state into 114 zones. Insurers would be required to survey hourly rates at every licensed body shop in the zone and could not pay below the average hourly rate for that zone.
In addition, Gartner said, insurers would be barred from including in their surveys those auto shops with which they’ve negotiated service agreements. Under such agreements, insurers typically agree to cover all costs for motorists who patronize the approved shops, and the shops agree to discount their prices.
The state Office of Administrative Law has 30 days to review the regulations. If it has no objections, the new formula would go into effect later this year, Gartner said.
Sorich said that if the rules were implemented, the industry trade group “would have to at least consider challenging the rules in court.”
“We don’t think the Department of Insurance has the legal right to do what they’re proposing,” he said. “They are going way beyond what the statute allows.”
Garamendi countered that the insurance department was simply clarifying existing law, not changing it.
“It’s the consumer -- or the body shop -- that ends up getting harmed” under the current system, he said.
“The auto body industry claims that the labor rates are unfair in that they do not accurately reflect the true cost. The consumer believes that their insurance should be covering them, whatever the cost might be.”
Sorich contends that because insurance companies pay for most accident repairs, they have the best database of information on what repairs should cost.
“Insurance companies pay claims every day and have a good feel for what the market rates are,” he said.
