Wednesday, 26 August 2009 20:24

Auto Body Fraud Hearing Flusters Chair Mary Hayashi

On Aug. 25, Mary Hayashi chaired a hearing of the State Assembly to investigate fraud in the auto body industry in California. The hearing is closely related to AB 1200, which narrowly failed on the Senate floor during a 19-17 “Aye to Noe” vote on Aug. 24. Even though the vote was 19 in favor, the bill needed a 21 vote majority to pass. The bill was approved  for “reconsideration,” which means it can either be voted on again, or it dies. This bill was also taken out of order. Insurance companies are lobbying very hard for this bill.

There were about 20 people at the hearing, including experts in collision repair who could have added to the discussion, but weren’t allowed even the customary two minutes to speak.

At the hearing BAR Chief Sherry Mehl testified that the fraud rate for auto body repair was about 2%, a number that clearly surprised Mary Hayashi. Two percent is very low, and certainly most industries have a significantly higher fraud rate than that. The testimony by Mehl threw the hearing into a disoriented state, generating additional questions that eventually caused many in attendance to question the integrity of Hayashi.

Chief Mehl also said that auto body complaints added up to 19% of all the auto-related complaints that BAR received, but Hayashi persisted in trying to interpret that percentage as the rate of fraud in the industry, a clear misrepresentation of the facts as presented by BAR.

Chief Mehl said that in the last 18 months, BAR has reinspected 1042 vehicles. Out of those reinspections, 2%  resulted in formal disciplinary actions, therefore there is a 2% fraud rate.

That doesn’t mean this is an absolute statistic. In fact, it seems low for any industry. If BAR is responsible for reducing the fraud rate to this level, then BAR deserves credit, but the likelihood is that the original percentage reported in 2003 was an artifact.

A key suggestion from the meeting was that somebody look at the relationship between the shops and the insurers. BAR regulates the contacts between the shops and the customer and CDI regulates the customer and the insurers, but the real problem lies when the shop has a problem with the insurer, and there’s no agency to regulate that process.

Chief Mehl testified that approximately 1800 complaints related to collision repair had come in to BAR, but she also said there are 8000 shops doing collision repair in California. That number is clearly too high, even if it includes unlicensed businesses and the actual is closer to 6500, but even with the lower number, the 1800 complaints are insignificant given the huge number of collision repairs done in California annually. Autobody News conservatively estimates this number at between 750,000-850,000 annually.

Questions raised included: “If 19% of the complaints are related to auto body repair, how significant is that in the overall number of complaints?” No one on the committee could even estimate how many repairs are done in California.

Assemblyman Roger Niello (R-Fair Oaks) engaged in a heated discussion with Chair Hayashi saying “We’re given the impression in this hearing that there’s a problem, but that’s contrary to the testimony.” Assemblyman John Perez (D-Los Angeles) also had a lot of questions and was trying to understand the statistics, saying “based on what we’ve heard today, why are we even having this hearing?”

Hayashi refused to answer that question, and, clearly flustered, could only respond “this is a huge consumer issue.” Shortly after that statement Hayashi abruptly declared “this meeting is adjourned.”

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