Damage Report January 2013
|DOI Dictates New Rules For Insurer DRP-Style Programs: Perhaps Broader Implications Ahead
AASP’s complaint filed with the Auto Damage Appraiser Licensing Board (ADALB) that cites alleged violations in the MetLife Home +Auto Platinum Auto Service program did not advance in a positive manner at the most recent meeting of the board. In fact, several of the alleged violations cited in our complaint were dismissed out of hand by Atty. Robert Whitney, who serves as the Chief Legal Counsel for the Division as well as Deputy Commissioner of Insurance. Unfortunately, the board seemed to offer only mild resistance to Atty. Whitney’s interpretation of how applicable laws and regulations could allow, for example, that insurer appraisers do not need to be physically present to assess damaged motor vehicles.
Attendees of the meeting most likely could conclude that the board has little to decide what is included in direct payment plans – the Deputy Commissioner emphatically declared that the DOI oversees the content of those plans despite those plans dictating appraiser actions – and that the DOI is determined to interpret the capability and implementation of newer communications technology as being what best suits the financial interests of insurers, seemingly regardless of the letter and intent of current laws and regulations. He and the Division are to be admired for their behind-the-scenes maneuvering and decision-making as well as their candor in publicly telling everyone that they, not the ADALB, have determined the future of insurer relations for millions of consumers and hundreds of collision repair shops in the commonwealth.
While the Deputy Commissioner pronounced his interpretations to be primarily a positive and productive transformation of the “system” into the 21st century, the implications could be a true game-changer for shops and consumers. First, with so little required interaction with policyholders, insurers, under this new order, could easily abuse their position of dominance over the interests of their customers. The “tried and true” laws and regulations took one simple, and seemingly now forgotten fact into consideration; that is that insurers, left to solely protect their own interests, may not always do the right thing. The average consumer may not know he or she is being short-changed, but certainly the insurers know. The Deputy Commissioner and the Division appear to be accepting the high-minded words of insurers as a guarantee of policyholders’ financial protection. Certainly experienced collision repair professionals may not be so trusting.
All of the above is not to say that AASP, through its attorney, Jim Castleman, did not offer significant resistance to the Deputy Commissioner. Atty. Castleman clearly objected to some of the “edicts” coming down from the exalted mountain that is the DOI. There was a spirited clash of opinions and Jim left no doubt to those willing to listen to him that he felt the Deputy Director was wrong on several critical points.
Perhaps the most astonishing point in the meeting occurred when one of the board’s insurance industry representatives asked rhetorically if the Deputy Commissioner’s letter to the board was considered a “legal opinion.” Sadly, this question morphed into a motion to accept the letter, and the opinions contained in it, as a valid fact. Immediately, pointed arguments put forward by collision industry representatives, Tom McClements, Jr. and Carl Garcia forced insurance industry representative, Joe Coyne, to withdraw his motion. Had that motion been accepted, our complaint would have left virtually nothing further to discuss.
At this point in the meeting, Carl and Tom insisted that the board would need to closely examine whatever revisions to the current version of the MetLife plan are accepted by the DOI, and that the ADALB must be proactive in setting parameters and strict rules for appraiser conduct, primarily with respect to the use of video and photographs used in appraisals.
With the stakes so high for our industry, it has been disappointing to witness the DOI taking their position without any direct input from AASP. Certainly our industry’s two representatives have tried to make the most out of the few opportunities they have been afforded to affect the outcome of our complaint. But, the commissioner and his deputy never reached out to the association so that we could advise them of the real life implications of the plan, as originally accepted, on the entire marketplace. We have to assume that they engaged in direct discussions with MetLife, and, perhaps even other carriers on this issue. At the meeting, the deputy commissioner acknowledged that other carriers may be filing similar plans in the future. So, this process likely did not happen in a vacuum and the DOI’s decisions clearly did not originate only from official documents. Sure, the industry was represented on the board and Atty. Castleman did a fine job representing the association, both in his written communications with the DOI and the ADALB, and in his appearances at the board meetings. But, the DOI appears to have fallen victim to acting according to the “Golden Rule.” Essentially, they’ve told us that the insurers have the gold and they will make the rules.
Anticipating Major Implications for Our Industry
Though a very small consolation, the revisions in the filed plan will come as a result of the AASP complaint. Of course, we would have preferred that the DOI, through the ADALB, act as we requested in our complaint, and that the DOI issue a cease and desist order of this plan. Instead, Atty. Castleman will request a public hearing when the revised plan is submitted to the DOI and we hope that there will be a more public airing of the major issues that are involved. We expect that political pressure by our industry could be helpful and we will keep you informed of any action we may need from you.
What we have now is a situation in which the term “personal inspection” does not mean that a person – in this case, an insurance company appraiser – actually needs to be physically present to look at the vehicle with his or her own two eyes. The law was written in the time of Polaroid cameras – clearly the intent was that insurance appraisers and vehicles had to be “physically” within a few feet of each other. Perhaps if the law and regulation contained the phrase, “physical inspection,” then the insurers and the DOI would not have had enough of an opening to issue the decision with which we appear to be stuck. But, here we are, even though this decision seems to defy logic, by definition, the intent of the original law and regulation, and it appears to give an unfair financial advantage to carriers over their policyholders.
If this method becomes the new, 21st century way of doing business, then we need to examine the possible implications for the body shop owners in Massachusetts. It was mentioned at the meeting that the government’s acceptance of a lightly modified version of this plan would be a “job killer.” This fact was agreed to by one collision professional and one insurance professional on the board. There was no comment from the Deputy Commissioner. In fact, his silence on that issue was deafening.
How those jobs will be killed is the essential issue for each body shop owner. The current group of carriers offering auto insurance in our state will likely follow with similar plans as well. Also, it is likely that several other national carriers will now enter the state. After being a “closed market” for insurers for a couple of decades, the door has now swung so wide open that relatively high premiums, low vehicle repair costs (labor rate, paint and material capping, dictated use of imitation parts, etc.) and now scant regulation and oversight will attract carriers with truly high tech DRP-style programs into the state. This decision by the Deputy Commissioner now paves the way for all of this to happen.
Steering is likely to become more intense than ever for the collision repair shops and the carriers will definitely be playing this game for keeps. With the wave of the DOI’s magic wand of unquestioned power, the insurance companies are now the “kingmakers” of the collision industry. Insurers will determine whether your shop is successful or whether it fails – not the free market. Where steering just a few years ago, prior to the introduction of these new direct payment plans, would yield about an additional 15 to 20 percent penetration for insurers to funnel business to selected shops, we could see the 40 to 70 percent amounts that are typically achieved by the full implementation of these programs. Imagine the power that a carrier will have over “proper” repairs and pricing if 35,000 of every 50,000 claims were handled by a couple of hundred of their own selected shops who are contracted to essentially do business the way they are told? Perhaps worse than that will be the possible fate of one of those shop owners who may be so bold as to request something – such as the authority to truly make a safe repair or to be paid for necessary procedures – that is not to the liking of one of the kingmakers?
The effects on individual businesses could be quite different, especially when one takes into consideration the size, management, and technical expertise of shops. The fewer prudently managed and well equipped shops with 10-15 technicians or more could see business performance results that are vastly different from the hundreds of other shops that have less than 5 technicians and have lower repair capabilities due to equipment, training, and management limitations. As always, the different levels of success, as the insurers and, apparently, the DOI want it to be, could come down to which shops are tempted to become participants in these new-style programs and which do not. For some, it will likely be a matter of being busy at the expense of making a profit, and for others to squeeze a decent profit repairing what may become fewer and fewer vehicles. Either choice does not seem to favor independent body shops. But, if everything plays out like the Deputy Commissioner seems to desire, including the losses of hundreds and hundreds of jobs in Massachusetts, these may become the only choices shop could have. Welcome to the 21st century.