The draft regulations largely pertain to the specification and use of aftermarket parts, but also include new requirements for adjusting estimates as well as consumer disclosures and remedies in the event that a defective part is used for a repair. (See PROPOSED REGULATIONS in italicized text below).
At times heated, comments made at the meeting reflected clear differences between aftermarket advocates and those representing the OE manufacturers. At one point parts certification was introduced, but it was pointed out that the issue at hand was not certification, but insurer accountability.
Gene Crozat, the owner of G&C Auto Body with seven Northern California locations, attended the meeting and offered his perspective prior to the presentation. After reviewing the proposed changes, Crozat recognizes that the Commissioner is addressing a volatile subject and questions some of the language within the contemplated revisions.
“I fix 1,000 cars every month and at least 70% of them contain aftermarket parts, prescribed by the insurance companies,” Crozat said. “In many cases, the aftermarket parts are equal in quality when compared to factory parts and price is always a huge issue. By using aftermarket parts many cars that would have been totaled can be fixed. For example, a bumper on a 1998 Toyota Corolla from the factory costs $239, but I can get a comparable set for $74 from the aftermarket. We need the aftermarket to provide competition for the OEMs. Can you imagine what factory parts could cost if there was no aftermarket?”
Crozat questions the word “defective” in the proposed revisions, he said. “They need to be more specific there, because it’s too loose and open to interpretation. Who is going to determine that these aftermarket parts are defective and what does defective mean? There is just too much wriggle room here and that needs to be addressed.”
Overall, Crozat lauds the Insurance Commissioner’s efforts toward clarifying the factory vs. the aftermarket dilemma, he said. “The 500-lb. gorilla in this industry is the labor rates issue, but this is a good start and we’ve needed a meeting like this for quite some time. Opening up dialog and sharing ideas is always important and the DOI is doing it the right way.”
Son Sean Crozat, manager of G&C’s Santa Rosa location, said that it all comes down to the consumer. “The market will take care of itself. If the majority of the aftermarket parts out there were truly defective or inferior, body shops wouldn’t use them. If all these damaged cars were totaled by the insurance companies, rates would go up and the customer would suffer the most.”
Gigi Walker—owner of Walker’s Auto Body and Fleet Repair in Concord, and the Past President of the CAA and former president of the East Bay CAA’s chapter, said prior to the meeting that she was enthused about the positive things that could result. Before the meeting she told Autobody News:
“I hope these new regulations proposed by Commissioner Jones will better hold accountable the parts that don’t work to the insurers,” she said. “As you know, many shops don’t get reimbursed for parts that don’t fit properly. These proposed revisions just might help the collision repairer to recoup the costs associated with ill-fitting aftermarket parts. These might not cover a DRP contract position with an insurer/collision agreement, but by Commissioner Jones opening up the conversation it’s definitely good for both sides of the industry. I’ve never seen this before, so it’s very promising.
“The OEMs have procedures in place for the replacement/welding of certain components on vehicles and to make sure that these are mandatory in the written estimate and in the repair process are crucial in delivering a quality repair to the consumer. I hope some of the changes make the repair process for the collision repairer and consumers better, because that’s what it is all about. The first change adds more specific requirements for estimates written by insurers. Current law simply requires insurers to write an estimate that will allow the repairs to be made in ‘a workmanlike manner.’”
Taking a more forceful position was industry trainer and Autobody News columnist, Toby Chess, who continues to maintain that the return rate on even certified aftermarket parts is unacceptably high. Chess maintains that shop owners are too intimidated by insurers and parts suppliers to complain about any parts that don’t fit correctly. At the meeting he asked those in attendance to blink their eyes to graphically demonstrate the time required for an airbag to detonate in what may be a life saving instant. His implication was clear—any mismatched component may impact the millisecond timing of an airbag deployment.
The proposed DOI regulations would require an estimate to be written “which will allow for repairs to be made in accordance with trade standards for good and workmanlike, mechanical, autobody and frame repairs and shall include, but not he limited to, repair procedures performed in accordance with original equipment manufacturer service specifications or, if manufacturer specifications and procedures are not available, nationally distributed and periodically updated service specifications that are generally accepted by the auto body repair industry. No insurer shall willfully depart from or disregard accepted trade standards for good and workmanlike repair in the preparation of claim settlement offers or estimates prepared by or for the insurer. Insurers shall not prepare an estimate that deviates from the collision repair estimating software guidelines for use and repair.”
“In addition, if an insurer should choose to adjust a shop’s estimate, newly proposed regulations would require the insurer to detail each adjustment made to the shop estimate along with the cost associated with each adjustment.”
In the proposed rules dealing with aftermarket parts, insurers would be required to communicate in writing that it will warrant any aftermarket parts used to be of like kind, quality, safety, fit and performance as original equipment parts. Should a part be found to be defective or unsafe, the proposed rules would require insurers to “immediately cease requiring the use of these parts” and notify the estimating software provider and request the part be removed from the estimating software.
Likewise, if a CAPA part is found to be defective the law would require CAPA to be notified.
Finally, the proposed regulations contain language requiring that “insurers specifying the use of non-original equipment manufacturer replacement crash parts that are found to be defective, unsafe, or do not otherwise comply with this section, shall pay for the costs associated with loss of use or rental car expenses caused by the use of such part.”
Not everyone agreed on the wording of the proposed reform. Rick Tuuri, Vice President of Industrial Relations for Audatex North America, Inc. attended the meeting. As a representative for a company that makes an estimating software platform for the collision industry, Tuuri said he was willing to offer his opinions, because “we really don’t have a dog in this fight.”
“We like to stay upstream of any pending legislation that affects the collision industry, so I attended the meeting,” Tuuri said. “It was productive overall with a lively conversation and a little rancor from both sides, but the bottom line is both the insurers and the repairers don’t like the bill as it’s written. It’s too vague and the wording needs to be more precise. What exactly does ‘defective' mean? If an aftermarket part is not well-made, it will not last on the market and we will pull it off of our system without hesitation. We won’t work with a supplier that can’t provide a quality product and I doubt such a company would survive very long making inferior aftermarket parts.”
“I think the people from the DOI made the right move to host this meeting and subsequent meetings will be planned, I’m sure,” Tuuri said. “It’s always healthy to open up the dialog at an early stage in any legislative process. The comments that the DOI’s people heard, I believe, will give them pause and now they probably realize there is still much work ahead. The insurance companies and the body shops rarely agree about anything, but they concurred on this bill and said it’s not acceptable in its current form.”
After the meeting, David McClune, Executive Director of the CAA released the following statement:
“The California Autobody Association supports the California Department of Insurance’s efforts to clarify and improve current laws and regulations that protect consumers from some insurers who prepare estimates that do not meet standards for good and workmanlike repairs, and those insurers that require poor quality and unsafe aftermarket replacement crash parts in a repair of a vehicle. The CAA will continue to work with the DOI to further these improvements.”
STATE OF CALIFORNIA
DEPARTMENT OF INSURANCE
45 Fremont Street, 21st Floor
San Francisco, California 94105
October 20, 2011
REGULATION FILE: REG-2011-00024
Amend Article 1 of Subchapter 7.5 of Chapter 5 of the California Code of Regulations, as follows:
Amend FCSPRs Section 2695.8(f):
(f) If partial losses are settled on the basis of a written estimate prepared by or for the insurer, the insurer shall supply the claimant with a copy of the estimate upon which the settlement is based. The estimate prepared by or for the insurer shall be of an amount which will allow for repairs to be made in accordance with trade standards for good and workmanlike, mechanical, auto body, and frame repairs and shall include, but not be limited to, repair procedures performed in accordance with original equipment manufacturer service specifications or, if manufacturer specifications and procedures are not available, nationally distributed and periodically updated service specifications that are generally accepted by the autobody repair industry. No insurer shall willfully depart from or disregard accepted trade standards for good and workmanlike repair in the preparation of claim settlement offers or estimates prepared by or for the insurer. Insurers shall not prepare an estimate that deviates from the collision repair estimating software guidelines for use and repair. If the claimant subsequently contends, based upon a written estimate which he or she obtains, that necessary repairs will exceed the written estimate prepared by or for the insurer, the insurer shall:
(1) pay the difference between the written estimate and a higher estimate obtained by the claimant; or,
(2) if requested by the claimant, promptly provide the claimant with the name of at least one repair shop that will make the repairs for the amount of the insurer’s written estimate. The insurer shall cause the damaged vehicle to be restored to its condition prior to the loss at no additional cost to the claimant other than as stated in the policy or as otherwise allowed by law. The insurer shall maintain documentation of all such communications; or,
(3) reasonably adjust any written estimates prepared by the repair shop of the claimant’s choice and provide a copy of the adjusted estimate to the claimant and the claimant’s repair shop. The adjusted estimate provided to the claimant and repair shop shall be either an edited copy of the claimant’s repair shop estimate or a supplemental estimate. The adjusted estimate shall identify each adjustment and the cost associated with each adjustment made to the claimant’s shop’s estimate.
Amend FCSPRs section 2695.8(g) as follows:
(g) No insurer shall require the use of non-original equipment manufacture replacement crash parts in the repair of an automobile unless:
(1) the parts are at least equal to the original equipment manufacturer parts in terms of kind, quality, safety, fit, and performance;
(2) insurers specifying the use of non-original equipment manufacturer replacement crash parts shall pay the cost of any modifications, inspections, and tests to the parts which may become necessary to effect the repair; and,
(3) insurers specifying the use of non-original equipment manufacture replacement crash parts warrant that such parts are of like kind, quality, safety, fit, and performance as original equipment manufacturer replacement crash parts. The insurer must disclose in writing, in any estimate prepared by or for the insurer, the fact that it will warrant that such parts are of like kind, quality, safety, fit, and performance as original equipment manufacturer replacement crash parts ; and,
(4) all original and non-original manufacture replacement crash parts, manufactured after the effective date of this subchapter, when supplied by repair shops shall carry sufficient permanent, non-removable identification so as to identify the manufacturer. Such identification shall be accessible to the greatest extent possible after installation; and,
(5) the use of non-original equipment manufacturer replacement crash parts is disclosed in accordance with section 9875 of the California Business and Professions Code.
(6) insurers specifying the use of non-original equipment manufacturer replacement crash parts that are found to be defective, unsafe, or do not otherwise comply with this section, shall immediately cease requiring the use of these parts and shall notify the collision repair estimating software provider, or other estimating entity it contracts with, of the part and request this part be removed from the collision repair estimating software.
(7) insurers specifying the use of non-original equipment manufacturer replacement crash parts, which are certified by the Certified Automotive Parts Association (CAPA) and are found to be defective or unsafe, shall file a Quality Complaint Report with the Certified Automotive Parts Association (CAPA);
(8) insurers specifying the use of non-original equipment manufacturer replacement crash parts that are found to be defective, unsafe, or do not otherwise comply with this section, shall pay for the costs associated with returning the part and the cost to remove and replace the non-original equipment manufacturer part with an original equipment manufacturer part.
(9) insurers specifying the use of non-original equipment manufacturer replacement crash parts that are found to be defective, unsafe, or do not otherwise comply with this section, shall pay for the costs associated with loss of use or rental car expenses caused by the use of such part.
Amend FCSPRs section 2695.8 “Note” as follows: NOTE: Authority cited: Sections 790.10, 12921 and 12926 of the California Insurance Code, Section 3333 of the California Civil Code and Sections 11342.2 and 11152 of the California Government Code. Reference: Sections 758.5, 790.03(c) and 790.03(h)(3) of the California Insurance Code, and Section 9875 of the California Business and Professions Code, and Section 3365 of the California Code of Regulations, Title 16, Division 33, Chapter 1, Article 8.