Efforts to curb steering of consumers by insurers has probably been the single most common focus of industry-related state legislation introduced this year, and there has been some movement in lawsuits related to steering as well.
Here’s a wrap-up of some of the latest in the long-simmering battle over whether and how insurers are allowed to influence motorists’ choice of shops.
States eye legislation
Most of the anti-steering bills introduced around the country this year failed to gain much legislative traction.
After about 70 representatives of the collision repair industry attended a legislative day at the Missouri Capitol this spring, for example, a hearing date was set for SB 775, a bill that would have required an insurer to halt “any efforts to re-direct, refer or otherwise influence the vehicle owner in the choice of repair facility…once the vehicle owner has stated they have chosen a repair facility.”
Backers of the bill said that hearing provided an opportunity to educate legislators on the issue, but even the Senator who sponsored the bill acknowledged that, “the chairman of that committee tends to be more friendly to the insurance (industry) than to the collision industry.”
Surprisingly, however, the committee voted in favor of the bill in May, but the vote came just a day before the end of the legislative session and it moved no further.
A bill in Kansas (HB 2653) would have prohibited an insurer from using “a deceptive referral practice whereby the consumer is misled into thinking that a particular repair shop, facility, vendor or supplier must be used.” The bill, however, did not move out of committee.
Legislation that would have prohibited insurers in Washington state from recommending a source for glass repair or replacement if an insured indicated he had chosen a facility did not make it out of committee after insurers, calling it “a gag order,” opposed it at a Senate hearing.
A bill introduced in Alabama that would have prohibited insurers from recommending or suggesting that repairs be made by a particular shop unless a shop recommendation is specifically requested didn’t move forward in the legislature.
California’s own “anti-steering bill” (SB 1167) changed almost on a weekly basis. As introduced, it required insurers to determine if a claimant had selected a shop prior to any discussion of repairs, and prohibited the insurer from discussing its DRP if the claimant has selected a shop.
Insurers launched an all-out attack on the bill. California-based Mercury Insurance sent a letter to shops in March urging them to contact state lawmakers to oppose SB 1167.
“We believe this bill represents a substantial threat to the way in which we currently do business,” the insurer wrote in the unsigned letter to shops one week ahead of a hearing on the bill.
Three insurance associations jointly created a website (www.caautobodychoice.com) to oppose the bill; they published an opinion piece that said, “(C)laimants who have chosen a specific auto body shop without adequate information would be denied vital information about shops pre-qualified by insurance companies.”
But even prior to an April hearing in the Assembly, the bill was amended, stripping out the prohibition on an insurer discussing a shop or program once the vehicle owner has chosen a shop. The version of the bill eventually approved calls only for formation of a task force under the insurance commissioner to look into issues arising from changes to existing California anti-steering laws and to report back to the legislature by the end of 2009.
The only state that has passed anti-steering legislation this year is Connecticut, where Attorney General Richard Blumenthal has been a vocal supporter of strengthening limits on insurer referrals. Blumenthal endorsed legislation that said an insurer may not “recommend, request or require” that a specific shop be used.
The bill also would have required that insurer estimates state that insurers “may not interfere with the consumer’s choice of repairer.” The bill specifically prohibited insurers from waiving deductibles or offering warranties if the consumer uses an insurer-recommended shop, and would have prohibited insurers from suggesting that use of any shop would result in delays, added costs or lack of a warranty.
“The consumer may be under the impression that he or she has no real choice. We want to make clear: Your car, your choice,” Blumenthal said in a television news piece on the topic.
It was a second, less sweeping piece of legislation that Connecticut legislators eventually passed, however. Under that new law, all estimates and insurance cards must include a statement that the customer has “the right to choose the licensed repair shop” where damage will be repaired.
Shops must post a sign with a similar notice. Perhaps most significantly, no vehicle may be repaired under a direct repair program unless the vehicle owner signs a written acknowledgement stating, “I am aware of my right to choose the licensed repair shop where the damage to the motor vehicle will be repaired.”
Connecticut lawsuit moves forward
But the legislation is only one part of a several-pronged approach the Auto Body Association of Connecticut (ABAC) and a number of shops in the state are taking to combat steering.
The Connecticut Supreme Court in late May affirmed a trial court’s 2006 order granting the association and a group of body shops class action status in a suit they filed in 2003 against The Hartford. The class in the lawsuit could include hundreds of independent shops across the state.
The Hartford had challenged whether the shops, who allege that the insurer has engaged in unfair trade practices by steering consumers to its DRP shops and improperly establishing artificially low reim- bursement rates, should be granted class action status. A spokesman for The Hartford said the company was disappointed with the ruling but would not appeal and was “eager to move ahead” and “confident of prevailing on the merits.”
The ABAC, which said a trial in the class action suit is tentatively scheduled for December, filed a similar suit against Progressive Insurance last year.
One of the challenges in bringing such suits is finding an acceptable way to calculate the damages or loss to a shop caused by steering of insureds to other shops. In its May ruling, the Connecticut Supreme Court said the methodology presented by the shop plaintiffs demonstrated that “generalized evidence,” rather than that specific to one shop, may be used to prove “ascertainable loss.”
The plaintiffs had presented an analysis by economic consultant Frederic Jennings Jr. that showed the lowest percentage of insureds referred successfully by a Hartford claims representative in a given period was 19% while the average was 47%.
“If 19 percent is used as the benchmark for the number of insureds who would use (DRP) shops in the absence of steering, no more than 19/47ths, or approximately 40 percent, of all referrals to preferred shops would have gone to those shops without steering,” the court said in its summary of Jennings’ affidavit.
That would mean the insurer successfully steered 60 percent of those who would have otherwise gone to non-DRP shops, stated Jennings. In 2003, he said, that meant about 2,200 jobs in Connecticut were diverted from non-DRP shops. Multiplying that number by the average repair cost per claim determines the revenues lost by non-DRP shops.
The last step in the equation, Jennings wrote in his analysis, is if the average net profit margin of shops is 5 percent, the profits lost by the non-DRP shops to steering equates to 5 percent of the total revenue from those 2,200 jobs.
The future?
It’s clear that give then lack of resolution in most of these state legislative debates and legal battles, the issue of steering and related legislation and lawsuits will remain on the table from California to Connecticut for the foreseeable future.
John Yoswick