Calif. May Re-Introduce Insurer-Owned Shop Legislation

The California Autobody Association (CAA) has been waiting this year to see if Texas would be successful on their legislation prohibiting insurers from owning auto repair shops. On Friday, June 20, Republican Texas Governor Rick Perry signed into law Texas House Bill 1131, the Insurer-Owned Repair Facility Legislation.

The bill prohibits insurance companies from owning auto repair facilities in Texas. The bill was amended to allow facilities currently owned by insurance companies to remain in business if they meet certain criteria outlined in the legislation.

Last year, the CAA sponsored SB1648 (Speier) prohibiting insurer owned shops in California but was defeated on the Assembly floor. The CAA still reportedly has time this year to introduce legislation prohibiting insurers from owning body shops and is seriously looking at options. The CAA continues to oppose insurers from acquiring any ownership interest in auto body shops because of the reasons stated last year in the SB 1648 debate. The SB 1648 reasons for preventing insurer owned shops were reported as follows:

1. Inherent Conflict of Interest. Insurers have demonstrated a tendency to pressure shops to save money, cut corners and pursue the lowest cost of repair. This zeal to save money and cut costs will only fuel practices that undermines the integrity and safety of the repair. Insurer owned shops raises concerns whether consumers will receive the quality repairs necessary to restore their vehicles to a safe, quality and roadworthy condition. Insurer ownership creates the “fox guarding the chicken coop” scenario.

2. Creates anti-competitive behavior. The industry is a unique business where the shop looks to the insurer for payment of repairs. Allowing insurers to own shops would create an anti-competitive situation where the independent shop would be competing with its own customer, namely the insurance company. This creates unfair competition and monopolistic practices.

3. Provides Consumer with Less Choice. Insurer owned shops create anti-competitive behavior, which will eventually cause the insurer owned shops to crush competitors (Independent shops) in an unfair and monopolistic manner. We all know that monopolies lead to fewer choices and ultimately higher prices.

4. Preventing Fraud. The insurance companies have demonstrated intent to save money and cut costs, which have resulted in situations where the insurer is dictating the method of the repair and have forced shops to perform inadequate and inferior repairs. In 1999 an Illinois jury ordered an insurer to pay 1.2 Billion for cheating millions of customers by ordering shops to fix cars with low generic replacement parts. Insurer owned shops would only foster and exacerbate the need to save money and cut corners to recoup losses for damage claims.