Turf War Between Auto Insurers and Repair Shops Still Rages

A decade-long turf war between insurers and new car dealers over policyholder choice over repair shops is still simmering on the Senate floor.

An insurance industry backed measure that, on its face, appears to offer stricter protections for consumers from “steering,” the practice by insurers of pushing customers to use an insurer-backed repair shop, actually makes it easier to do so, opponents of AB 1200 argue.

Opponents, which, in an odd-alliance, include the California New Car Dealers Association and the Consumer Attorneys of California, say a paragraph in the four-page bill would expand the ability of insurers to steer.

The bill, car dealers write in opposition, is a “Trojan horse” that would allow insurers to “interfere with the consumer’s ability to choose their own body shop.” One third of the members of the new car dealers association have also operate repair shops.

Reading the bill, it appears to offer consumers stiff protections against steering.

“After the claimant has chosen an automotive repair dealer, the insurer shall not suggest or recommend that the claimant select a different automotive repair dealer,” the bill reads.

However, there is an exception to that prohibition contained in another paragraph:

“An insurer may provide the claimant with specific truthful and nondeceptive information regarding the services and benefits available to the claimant during the claims process pursuant to the policy. This may include, but is not limited to,

Information about the repair warranties offered, the type of replacement parts to be used, the anticipated time to repair the damaged vehicle, and the quality of the workmanship available to the claimant.”

Supporters say that is merely information to help a consumer make a more-informed choice. Opponents argue it is steering.

The measure is being carried by Assemblywoman Mary Hayashi, a Hayward Democrat who chairs the lower house’s Business and Professions Committee.  She defended the measure in an August 19 guest editorial in the San Francisco Chronicle, which appeared the same day as a guest editorial from Rep. Jackie Speier, a Hillsborough Democrat, slamming the bill.

As a state senator, Speier carried SB 551, the 2003 legislation to curb steering.

Hayashi wrote that her bill was the subject of a “disinformation campaign” by its opponents and that all the measure does is:

“Give consumers information about auto repair shops from a company they have entrusted to insure them in times of need. Insurers often have direct repair programs involving a network of auto repair shops that provide benefits such as warranties on repair work, guaranteed prices and the anticipated time to repair the damaged vehicle.”

It does not undo Speier’s anti-steering statute, Hayashi insists.  Speier counters that Hayashi’s bill will “roll back California’s consumer protections by allowing your insurance company to pressure you into choosing their shop even after you have selected where you want your vehicle fixed.”

Speier’s argument for her 2003 measure was that insurers cut deals with their preferred shops to use “after-market” parts rather than parts made by the vehicle manufacturer and other cost-cutting practices to lower the price of repair.

Insurers, auto body shops and other interested parties have been trying to define what constitutes “steering,” because Speier’s law is somewhat vague on what insurers can and cannot do and when they do it.

In theory, under the state’s steering law, when someone who is in an auto accident calls his or her insurance company, the insurer should ask, “Have you already made a decision on a repair shop?”

Some insurers do exactly that. The first question on the script State Farm employees use with accident victims is almost verbatim.

If the policyholder says they’ve made a decision, then the issue is resolved. That’s how State Farm handles it.

If no decision has been made, the insurer can then pitch their preferred shop.

For nine months in 2008, attempts to clarify the law through regulations were conducted with the Insurance Commissioner without result.

On August 24, Hayashi’s measure, backed by Senate Republicans and a handful of Democrats, fell two votes short of the 21 needed for passage. Under the senate’s rules, she has one more chance to win passage before lawmakers adjourn for the year on September 11.



  1. Excellent post, help where you can learn about this issue for more?

    Comment by Insurance Master — 9.03.2009 @ 4:47 pm

  2. Best way to learn more is to go to the source. You can look up any bill before the legislature at http://leginfo.ca.gov/bilinfo.html

    AB 1200 can be found at http://leginfo.ca.gov/cgi-bin/postquery?bill_number=ab_1200&sess=CUR&house=B&author=hayashi

    Looks like it’s sitting in the senate at the moment. It didn’t pass but it’s been granted “reconsideration” which is common. That (roughly) means the author can revisit it later.

    Comment by Jane Netizen — 9.03.2009 @ 10:15 pm

  3. Most auto polices require the insurance company to pay for parts of “like kind and quality.” However, auto insurance companies, if allowed, will not pay for fixing cars with auto parts produced by the original auto manufacturer. Instead, the insurance companies insist that auto repair shops, in exchange for receiving the referral, use lower priced, and lower quality, parts from third party manufacturers.

    What is really at issue is money. The auto insurance companies can significantly boost their profits if they can steer consumers to auto shops that use cheap replacement parts for damaged cars. A hundred or two hundred dollars saved on each repair for every customer in California can amount to millions over the course of the year for State Farm and other auto insurers.

    The source of Hayashi’s bill as noted in the legislative analyst’s report is the Personal Insurance Federation of California. What is the PIFC? It is the political lobby of the California insurance industry.

    These are the same folks that have fought every industry reform, including Prop. 103. They also have a PAC and Hayashi has taken $2,600 in contributions from it this year. Other insurance companies Hayashi has taken funds from this year include Allstate, Farmers Insurance Group, and Liberty Mutual.

    Comment by Stephen Cassidy — 9.06.2009 @ 9:11 pm

  4. It is a very nice and good post. Keep up the good work.

    Comment by Auto Body Repair — 10.05.2009 @ 7:21 am

  5. Hi this jimmy Wilson, such a great point and nice post. Auto insurers and auto-body shops haven’t always had the most symbiotic relationships, and often they have seemed to be at odds with each other.

    Comment by Auto body shop Arlington Virginia VA — 1.22.2010 @ 11:30 am

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