Insurers Not Pleased with New California Aftermarket Parts Regulations

FEATURE: The Association of California Insurance Companies (ACIC), a subsidiary of the Property Casualty Insurers Association of America (PCI), said in a statement on Wednesday that the new aftermarket parts regulations approved in California “essentially require insurers to pay whatever auto repair shops demand” and that insurers “no longer have the ability to negotiate the most effective, less costly repair.”

The new regulations, originally released by the California Department of Insurance (CDI) in June 2012, received final approval from the Office of Administrative Law (OAL) and are to go into effect on January 30. Insurers will be required to comply on and after March 30, 2013.

In an interview with Online Auto Insurance News (OAIN), Armand Feliciano, ACIC vice president, hinted at possible legal action against the CDI saying that PCI and ACIC are “exploring options” and “If action is taken, it will at least partly center on whether or not the regulators have the power to implement such rules.”

Challenging state regulators in court is not a new concept for insurance associations. In 2006, the ACIC was part of a lawsuit filed against the California Department of Insurance over a newly enacted regulation dealing with premium calculations. The ACIC asked the court to declare the regulations illegal and to grant a preliminary injunction to prevent the CDI from enforcing the regulations.

Under the new aftermarket parts regulations, insurer estimates for auto repairs must not “deviate from the standards, costs, and/ or guidelines provided by the [estimating software]” and any insurer adjusted estimate must be either “an edited copy of the claimant’s repair shop estimate” or a supplemental estimate that would “identify specific adjustment made to each item and cost.”

“The new rules also require insurers that encourage the use of aftermarket parts to provide written warranties on parts that the insurers did not manufacture,” said Feliciano. “The enabling legislation that authorizes these regulations required manufacturers to warrant the aftermarket parts, not insurers.”

In addition, the regulations would require any insurer that specifies aftermarket parts to cease using any aftermarket part if the insurer has knowledge that the part is not equal to the OEM part and pay for the costs associated with removing and replacing the part with one that is equivalent.

Feliciano said the new regulations give auto body repair shops “a distinct advantage in preparing scope of work estimates, which could drive up repair costs.”

Feliciano told OAIN that, “Auto repairers have resorted to legislation via the regulatory process. We feel that some of these regulations that have been put into place are outside of what the CDI has the authority to do.”

Former president of the ACIC, Sam Sorich, discussed the new regulations in his law blog this week and explained some of the insurance industry’s concerns. Sorich is now an attorney with the law firm Barger & Wolen LLP in Sacramento.

“Insurers argued that the department lacked the authority to impose auto body repair shop regulations on insurers,” Sorich wrote. “Insurer representatives also contended that the regulatory provision that an insurer must warrant a non-OEM part is inconsistent with a Business & Professions Code statute which explains that non-OEM parts warranties are provided by the manufacturer or distributor of the parts. Insurers pointed out that the amendments would be harmful to the public because the amendments’ restriction on the use of non-OEM parts will lessen competition in repair parts and will lead to higher repair costs.

ACIC did not respond to a request for comment by press time.

by Collision Week:

ICAR Press Release: Esurance Earns I-CAR Gold Class

I-CAR announced that Esurance, a direct-to-consumer insurance company that writes policies in 34 states, has earned the I-CAR Gold Class Professionals designation at the corporate level.

Esurance was first recognized as a Gold Class business in 2009 and is now recognized under today’s more comprehensive Professional Development Program (PDP) training requirements. Insurance businesses can earn the Gold Class designation at a corporate level, as Esurance has, or at an individual business location level.

John Van Alstyne, I-CAR CEO & President said, “I-CAR is thrilled that Esurance has achieved Gold Class status. This shows not only a commitment to training and employee development, but also a commitment to performance of complete and safe repairs for Esurance customers.”

Joe Laurentino – Vice President, Material Damage for Esurance said, “We are pleased to join this elite network of Gold Class businesses. The training provided by the PDP will benefit our appraiser staff and most importantly, Esurance customers.”