Wednesday, 31 July 2002 17:00

Bill to outlaw tied shops passes big hurdle in CA

The California State Assembly Insurance Committee has passed by a bipartisan vote of 12-4 the Senate Bill that would make it illegal for an insurance company to have a financial interest in a body shop. Having earlier passed the full Senate (29-16), the bill will be read and likely voted upon by the full Assembly between August 6 and the end of the month. If passed by the Assembly, it will go to the Governor's desk and could become law on January 1. 

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"We're looking for 41 votes in the Assembly," said California Autobody Association (CAA) Executive Director David McClune. "And we're working darn hard to get them. CAA is definitely the lead dog on this one." McClune went on to say that the organization needs body shop owners to contact their assembly persons immediately. "We've gotten this far largely because of a grass roots effort by our members. Over 100 CAA members have called and met with their assembly persons. It's the grass roots effort and the leadership of our lobbyist, Jack Molodanof, that's gotten us this far. We can't stop now, and we truly need everyone's help."

In the Assembly Insurance Committee, the opposition included Committee Chair Thomas M. Calderon ( Democrat from Montebello). Calderon was recently defeated in his primary-bid for State Insurance Commissioner. His campaign was heavily financed by insurance companies, Farmers in particular. Calderon's district, near Los Angeles, is a working class area that includes many body shops.

National issue
"This is a national issue," said Molodanof. "We're at the forefront in California, but it has national ramifications. Win here and we get national momentum. Auto body groups across the country are watching this and planning their own moves based largely upon what happens in California." Molodanof said that Allstate Insurance, concerned that expansion of its Sterling Collision Centers would be imperiled by the bill, has thrown its full resources into the fight to defeat it in the Assembly. "They have hired the largest lobbying firm in Sacramento (Kahl/Pownall Advocates) and are sparing no expense to defeat this bill. That's why the CAA's grass roots effort is so important." Legislators can be influenced by lobbyists, Molodanof pointed out, but "they listen more to the people who vote for them - if they hear from them."
Bill sparked by AAA-Caliber, Allstate-Sterling deals

The measure, known as Senate Bill (SB) 1648, was introduced by State Senator Jackie Speier (D-San Mateo). The measure was sparked when The Inter-Insurance Exchange, parent company of Automobile Club of Southern California, made a minority investment in Caliber Collision Centers, based in Orange County. If the bill should become law, the Inter-Insurance Exchange would have eight years to divest its holding in Caliber (modified from the original three years proposed by Speier).

The bill analysis, written by the Insurance Committee, states, "There is an inherent conflict of interest that imperils consumer protections when an insurer that pays for the repair of a vehicle has that repair work done at a facility from which it derives income as an investor."

Speier, who is the chairperson of the Senate Insurance Committee, contends insurer ownership in repair facilities could lead to the sanctioning of non-OEM parts. California law requires a repair facility to disclose when non-OEM parts are being used in the repair of a vehicle.

Speier said, "The anti-steering regulations (in California) are weak and provide no deterrence to an insurer coaxing insureds to shops that have a DRP (direct repair program) relationship with the insurer."

In addition, she said, "Insurer ownership would only serve as a greater incentive to steer insured [motorists] to shops owned by the insurer."

There is a precedent in California to limit ownership. Hospitals are not allowed to hire physicians, but instead have contractual agreements with them. Physicians are also not allowed to refer patients to labs they own or in which they have a controlling interest.


Committee notes Sterling coming to California

The legislative analyst for the Assembly Insurance Committee noted that there are 7,000 licensed auto body shops in California, and that last year, the Automobile Club of Southern California purchased a 19% interest in Caliber Collision Centers, which has 34 or 35 shops in Southern California. In addition, Sterling Collision Centers (Sterling), which is a wholly owned subsidiary of Allstate Insurance, plans to build collision centers in California next year. Currently, Sterling is operating in seven states outside of California. The analyst's report goes on to state:

"Allstate Insurance Company opposes this bill and argues that insurer ownership of auto body shops will not restrict consumer choice. Rather, it will provide a different option to consumers who choose to have their automobile repaired at an insurer-owned shop.

"Allstate further contends that the relationship between Allstate and Sterling is another way in which Allstate strives to meet the needs of its customer base. Specifically, the Allstate-Sterling relationship enables the insurer and the auto body shop to work in unison for the benefit of the customer by doing the following: 1) providing high quality repair with state-of-the-art technologies; 2) improving the cycle time by getting customers back into their automobiles in a more timely fashion; and, 3) streamlining the automobile restoration process and the claims handling process to create a seamless customer experience.

"Additionally, capital investment and insurer ownership of shops enables these shops to be equipped with modern technologies in order to ensure safer repairs, safer work environments, and a professional skilled workforce.

"Allstate also asserts that this bill creates an unfair market advantage in favor of a single insurance company, the Auto Club. Currently, the Auto Club is the only insurer in California that maintains a financial interest in an auto body repair facility."

SCRS slow to support bill

Aside from CAA, there are numerous consumer groups that have testified at the Senate and Assembly Hearings in favor of the bill. Other business groups, including the California New Car Dealers Association, have offered support. One group that was late in coming to the table was SCRS. "It took a lot of calls and pressure," said CAA's McClune, "to get SCRS to issue a statement in our support. They have insurance members. Maybe they were trying to be politically correct, but the way I see it is, if you're not in support of this, then you're in support of insurers owning shops."

Autobody News received a one paragraph press release from SCRS in late June: "The Society of Collision Repair Specialists does not support insurance company ownership of, nor investment in, collision repair facilities. These actions raise serious concerns regarding the consumer's right to freely select a collision repair facility, as well as the independent collision repairers ability to compete in a free and open marketplace."