BILL ANALYSIS
AB 1200
Page 1
Date of Hearing: May 6, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 1200 (Hayashi) - As Amended: April 29, 2009
SUBJECT : Motor vehicle insurance: auto repair programs.
SUMMARY : Provides that nothing in existing law (see below)
restricts the ability of an insurer to explain benefits the
insurer provides as part of the claims process.
EXISTING LAW :
1)Prohibits insurers from requiring that an automobile be
repaired at a specific automotive repair dealer.
2)Prohibits insurers from suggesting or recommending that an
automobile be repaired at a specific automotive repair dealer
unless either of the following applies:
a) A referral is expressly requested by the claimant;
b) The claimant has been informed in writing of the right
to select the automotive repair dealer.
3)Specifies that after the claimant has chosen an automotive
repair dealer, the insurer shall not suggest or recommend that
the claimant select a different automotive repair dealer,
unless a claimant expressly requests a referral from the
insurer to a specific automotive repair dealer.
4)Requires an insurer that, by the insurance contract, suggests
or recommends that an automobile be repaired at a particular
automotive repair dealer, to do both of the following:
a) Prominently disclose the contractual provisions in
writing to the insured person at the time the insurance is
applied for and at the time the claim is acknowledged by
the insurer, and
b) If the claimant elects to have the vehicle repaired at
the shop of his or her choice, the insurer shall not limit
or discount the reasonable repair costs based on charges
that would have been incurred had the vehicle been repaired
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by the insurer's chosen shop.
FISCAL EFFECT : None.
COMMENTS :
1)Purpose. The author states that this bill will ensure that
consumers can make an informed choice when selecting an auto
repair facility by clarifying that insurers can explain the
benefits of their own repair programs to claimants.
2)Background. Existing law was enacted to prevent insurance
companies from 'steering' or otherwise preventing a driver
from having auto repairs performed at a repair facility of his
or her choice. (Added by SB 551 (Speier), Chapter 791,
Statutes of 2003.) Auto insurance companies often contract
with a network of trusted auto repair facilities, known as
direct repair programs (DRP), to provide repairs for the
insurance company's claimants. Some benefits of a DRP may
include warranties on repair work, guaranteed prices,
streamlined repair process, and on-site car rental.
The California Department of Insurance (CDI) is in the process
of adopting a regulation to interpret the rights of consumers,
auto repair shops, and insurers in connection with existing
law. The proposed CDI regulation would define when
"suggesting or recommending" takes place in connection with
repairs to repairs of automobiles and auto insurance.
3)Support arguments. The Personal Insurance Federation of
California (PIFC), the bill sponsor, and other proponents
state:
a) Some body shop owners want to use the current law to
withhold information from customers about their auto repair
options. For them, it is not enough to prevent auto
insurers from requiring a specific auto body shop. They
want to "lock-in" a customer by depriving them of an
informed choice about alternatives, including an auto
insurer's DRP.
b) One Court of Appeals has overturned a Texas law that
prohibited an insurer from recommending policyholders have
their vehicles repaired at an insurer-owned body shop. In
that decision, Allstate v. Abbott, 495 Fed.3rd 151 (2007) ,
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the court said: "Consumers benefit from more, rather than
less, information. Attempting to control the outcome of
the consumer decisions following such communications by
restricting commercial speech is not an appropriate way to
advance a state interest in protecting consumers."
c) This bill would provide an appropriate balance of the
need for claimants to understand the benefits of an auto
insurance policy, including DRP benefits, and the freedom
to choose an auto repair shop without auto insurer
coercion.
4)Statement of concern. The California Autobody Association
(CAA) expresses concern that, under the bill, it is possible
for insurers to make statements to claimants that either
disparage or discourage the services available in a non-DRP
shop. Phrases such as "that shop didn't make our preferred
list," or "if you take your car to that shop we cannot
guarantee the repairs," or "you will have to pay the
difference in the cost of the repairs" can cause a claimant to
be 'steered' toward the insurer-selected auto body shops.
The Committee is informed that CAA is meeting and working with
the author and the proponents in an effort to find a
resolution to their differences. The CAA views the present
form of the bill as a "work in progress."
REGISTERED SUPPORT / OPPOSITION :
Support
Personal Insurance Federation of California (PIFC) (Sponsor)
Association of California Insurance Companies
Farmers Insurance
National Association of Mutual Insurance Companies (NAMIC)
Pacific Association of Domestic Insurance Companies (PADIC)
State Farm
3 individuals
Opposition
Congresswoman Jackie Speier (on previous version of bill)
Concern
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California Autobody Association
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086