Friday, 31 January 2003 09:00

Legislation to outlaw tied shops on track in Texas

The Texas legislation unveiled at NACE that would prohibit an insurance company from holding or acquiring an interest in an automotive repair facility was scheduled to be introduced in Austin as early as February 4, this according to Jay Propes, a legislative consultant in Austin who is working with supporters of the bill. 

According to staffers in the office of the bill's author, Texas State Senator John J. Carona (R-Dallas), introduction of the bill was delayed while it was being redrafted to make it "cost neutral," meaning there would be no cost to the State if the legislation is enacted.

As originally written, enforcement of the divestiture provisions (eg., Allstate selling its interest in Sterling Collision Centers) would have been up to the Department of Insurance and could have meant additional cost to the state. "Anything that has a price tag attached to it is less likely to fly this year," said one staffer.

The revised bill is likely to rely upon the Texas civil courts for enforcement of any required divestiture.

ASA backs bill

ASA's Washington, D.C.-based lobbyist, Bob Redding, said his organization is still working with Carona to get the bill introduced. He indicated that committees were still being organized in the State Senate and that Carona might wait until all committee assignments were final before introducing the bill.

Since the appearance at NACE by Senator Carona, ASA has organized two meetings with supporters of the bill, including automotive dealerships and independent body shops in Texas. "We see it moving forward," said Redding.
The ad hoc group supporting Carona's legislation includes Alan Walne, a Dallas city councilman who is part of an investment group that owns Herb's Paint & Body Shops in Dallas. Walne said at the NACE Town Hall Meeting that the law should reflect "what is best for the customer" and that Allstate purchasing Sterling was simply a "cost-saving measure." He urged "don't let this go on. Stop it now before they (insurers) make more of an investment."

Walne and other supporters of the measure, reportedly including several auto dealers who have body shops, have hired Propes' organization, The Graydon Group, to help organize support for Carona's bill. According to Carona, Allstate has already hired a lobbyist to defeat the bill.

Referring to the Carona bill and the Texas State budget deficit, Propes said, "It's not going to get out of committee if it has a cost attached to it." Propes also noted that if this legislation is going to happen, the time for it is now while the problem is still limited to one or two insurance companies.

In addition to Allstate owning Sterling, InterInsurance Exchange, which operates Automobile Club, took a minority financial position in Caliber Collision Centers last year. Caliber operates 30 centers in Texas and 38 in California.

Divest by 2006

As originally drafted, Carona's bill would take effect September of this year and prohibit insurance companies from owning an interest in a repair facility after September 1, 2006. Until that date, insurers having such a financial interest would have to disclose it to their insureds and inform them of their right to use any shop of their choosing. Insurers would also be prohibited from offering any incentive or compensation to anyone for referring work to an insurer-owned facility.

Roy Smalley, a Dallas-area shop owner and veteran of the last fight in Austin to strengthen anti-steering laws and restrict DRPs, said about Carona's bill "It's going to be an interesting piece of legislation; look forward to seeing how it is worded. Stopping Allstate/Sterling but allowing DRP's is a narrow needle to thread."

Similar legislation was defeated last year in the California legislature. In Virginia, a bill (HB 2737) has been introduced with somewhat different language but the same effect. The Virginia bill states "No insurer shall refer an insured to an auto repair business that they have a financial interest in." The Virginia bill wouldn't stop insurers from investing in collision repair shops, just from sending their insureds to them.