Model Law Proposed on Car Rental Insurance
Insurance regulators proposed a model law Tuesday under which car rental agencies would have to justify the fees charged to customers to free them from liability for collision damages.
A spokesman for the industry called the proposed legislation unnecessary, unreasonable, unworkable and “anti-consumer.” However, the National Assn. of Insurance Commissioners, holding its national summer meeting here this week, is expected to approve it Thursday.
The model bill, which the regulators will seek to have introduced in the 50 state legislatures, was approved by an NAIC committee after a year’s study, even though the panel concluded that the so-called collision damage waivers--CDWs as they are known in the car rental trade--are not insurance at all.
The typical CDW simply transfers a car renter’s responsibility for damage to the rented car to the rental agency. Typically, if a customer refuses the waiver, he can be liable for several thousand dollars in damage to the car in case of an accident.
Many customers choose to rely on their personal insurance, however, or to accept the risk rather than pay the waiver fee, usually around $10 a day. If a customer buys the waiver, he or she receives no payment in case of a collision; the company simply assumes responsibility for the loss of its property.
Since the regulators agreed last year that the waivers cannot be defined as insurance, the NAIC has no right to concern itself with them, according to attorney Jeff Johnson, who represents major car rental agencies.
Johnson, retained by the American Car Rental Assn. and the nation’s five largest car rental companies (Hertz, Avis, National, Budget and Thrifty), urged the regulators to delay final action until their next national meeting in December in order to correct what he called “a significant number” of technical problems with the proposal.
“You are going to enact a model bill that cannot be complied with,” Johnson warned. “The bill will not be credible. . . . Over the summer, we can work out wording that will work.” He said model legislation can be developed that the industry would support.
As approved by the committee of regulators, the model bill would require car rental agencies to pay an annual state fee and, among other things, submit their proposed charges for collision damage waivers to an unspecified state agency.
Johnson argued that the car rental business is highly fragmented through franchises and small, independent firms. No actuarial data exists on which to base a judgment as to whether the fees are excessive, he said, but competition keeps them reasonable.
Federal antitrust law prohibits the sharing of financial information within the industry--a requirement from which insurance companies are expressly exempted, Johnson added. However, he added, the industry supports setting disclosure standards to help consumers understand the waivers.
An industry-supported disclosure bill cleared the California Assembly last week and is now before the Senate. It would require car rental contracts to warn renters that the contract makes them responsible for any damages and that if a waiver is offered it may duplicate the customer’s own automobile insurance.
“California’s on the right track,” Johnson said in an interview.
If the NAIC’s model bill were enacted, he said, he would advise his client companies to drop the waivers. That would deny consumers a choice and would be likely to lead to higher car rental rates for all customers, regardless of their personal insurance needs.
