Saturday, 30 April 2005 17:00

CA consolidator M2 goes belly up as deal fails

Shop owners must remain ever attentive to legislation introduced to control aspects of the collision repair process. Provisions may be added to seemingly innocuous bills that can have devastating effects on how autobody shops do business. And a bill's sponsor can be a clue to the need for added vigilance.  

A bill introduced in the California State Senate that was called "extremely bad for the collision repair industry" by the California Autobody Association (CAA) was effectively gutted in the insurance committee before being passed and sent to the full Senate.

"What finally passed the committee (6-0 vote) was a PPO/HMO for auto insurance," said CAA Lobbyist Jack Molodanof. Moladonof went to the Senate committee meeting to testify against SB 98, only to find that the bill's author, Senator Kevin Murray (Democrat - Los Angeles) had amended the bill just before the meeting, omitting the parts that CAA most strongly objected to.

The original bill, sponsored by Mercury Insurance, would have changed existing laws to provide that, if a policyholder selected an auto body shop not recommended by the insurer, and that shop's estimate of repair costs was not acceptable to the insurer, the insurer could obtain estimates from two other shops "in the area" and be liable for only the higher of the estimates presented.

The bill also provided that insurers could offer reduced prices on auto insurance if the policyholder agreed in advance to have the vehicle repaired at one of three body shops recommended by the insurer.

Mercury said the new law was necessary because some shops charge "exorbitant rates" that drive up the cost of insurance for consumers. Other than Mercury, the bill had no official support from other insurers and was opposed by both CAA and the California Motor Car Dealers Association.

CAA expressed fear that the original bill would effectively eliminate consumer choice of repair facilities and would "cap" the final repair cost of a vehicle based on the original estimate because, in a dispute, the insurer could rely on the lower cost estimates of its preferred shops. CAA said that insurers could obtain the two repair estimates not only from their DRP shops but also from any "back yard" shop without the proper equipment to even make the repair, thereby artificially depressing repair costs.

CAA was also concerned that the original bill, by capping repair costs based on the original estimate, could be used to prevent supplements to the estimate as hidden damage was uncovered during the vehicle tear down. In fact, the bill itself made no mention of supplements to the original estimate.

On Thursday, April 28, the last day for passing most bills from committee to the Senate floor, the bill's author stripped all provisions from the bill except for the one that states: "Nothing in this section shall prevent an insurer from offering a preferred provider program to an insured in which, in return for a premium reduction, the insured agrees that the insurer shall be liable only for the cost of repairs performed at any one of three automotive repair dealers recommended by the insurer."

"There are already insurance policies out there with provisions like that one," said lobbyist Molodanof. "Most of the committee was against the original bill, but the deletions turned everyone around. They took out the stuff that would be really bad for us. It would be a lot harder to defeat this one. The bottom line is, the senators agreed with us (CAA) that the provisions in the original bill were bad for consumers."

Non-OEM parts bill fails - for now

In other legislative action, an Assembly bill (AB 1163) that would have made aftermarket crash parts legally of "like kind and quality" to OEM parts, and would have eliminated the requirements that repair estimates distinguish between OEM and aftermarket parts and that consumers approve the use of aftermarket parts, quietly died in committee for this year. "They made it into a two-year bill," explained CAA Executive Director David McClune, "which effectively kills it for now, but it could be brought up again next year. We'll have to wait and see."