Group Pushes for Regulation in Car Rentals

Insurance regulators were advised Tuesday that “collision damage waivers” commonly sold by car rental companies may not be insurance but should be regulated anyway to protect consumers from potential price gouging.

Car rental firms customarily offer the waivers, or CDWs, for a daily fee of $5 to $8 or more. For customers who pay the fee, the rental firms waive all costs arising from collision damage. Without it, the customer can be held liable for damages up to a specified amount, ranging from hundreds to several thousands of dollars.

However, in many cases, such coverage duplicates what the customer might already have under a regular car insurance policy.

The National Assn. of Insurance Commissioners, which is meeting here this week, is considering model legislation that could bring car rental firms such as Hertz, Avis, National and Budget under some form of state or federal regulation.

The car rental firms, which oppose regulation on the ground that the CDW is not insurance, won a preliminary point Tuesday when an advisory committee exploring the question for the association concluded that the waiver differs from insurance in certain technical respects.

For example, if there is a claim, the rental car company does not reimburse the driver for repairs but merely has its own auto fixed.

On that basis, the committee advised against adopting a draft bill proposed by Iowa and Arizona regulators that would define the companies offering CDWs as insurers subject to state insurance codes.

(Among other things, these codes spell out what reserves insurers must set aside against future losses, subject the companies to state audits and require insurers to justify their rates.)

The committee suggested that regulation could be accomplished by creating a separate chapter of law apart from the insurance codes, granting regulatory authority to “an appropriate state agency.” This might be the motor vehicles department, the attorney general or the insurance department.

An alternative would be to authorize regulation by the Federal Trade Commission “or a similar federal agency.”

A final option offered by the committee would simply pass the problem to the National Assn. of Attorneys General “in view of the fact that these agencies normally include consumer protection units.”

Besides the model law proposed by Iowa and Arizona, other actions are pressing the car rental firms. Louisiana’s insurance commissioner ruled last April that the CDW clause contained in Hertz’s rental agreement was insurance and gave Hertz 30 days to register as an insurance company. Hertz is appealing that ruling.

Hertz, Avis, National and Budget--the nation’s four largest rental car companies--also find themselves defendants in a California class-action lawsuit alleging that they sell insurance without proper authority, at excessive cost, and indulge in price fixing, the committee reported.