HD23 - Exclusive Agreements Between Insurance Companies and Repair or Replacement Facilities or Claims Processing Centers


Executive Summary:
Purpose of Study

The State Corporation Commission's Bureau of Insurance (Bureau) was requested by the 1997 General Assembly, pursuant to House Joint Resolution No. 542, to study exclusive agreements between insurance companies and repair or replacement facilities or claims processing centers (networks) and the effect these arrangements have on the ability of an insured or claimant to choose a repair or replacement facility.

Findings

In order to comply with the study request, the Bureau sent surveys to consumers, repair facilities, and insurance companies. The Bureau sent 110 surveys to insurance companies representing 95% of the automobile physical damage insurance marketplace in Virginia The purpose of the survey was to determine the extent of the companies' use of exclusive agreements and claims processing centers or networks. The insurance company survey also gathered general information on claims settlement practices, especially those practices relating to a claimant's right to choose a repairer. Based on the insurance company surveys, most companies will provide claimants with the names of repair shops at the time the claim is made. Scripts and training materials provided by the companies indicate that companies are aware of the provisions of § 38.2-517 of the Code of Virginia and attempt to comply with the law. All of the scripts which were reviewed ask claimants, at some point in the process, if they have a shop they prefer to use A large number of the scripts also describe the insurance companies' direct repair or network programs and the benefits these programs provide to the claimant. None of the scripts forbid the claimant from choosing a shop not in the insurance company's direct repair program or network Furthermore, based on a review of the contracts between the networks and the insurance companies, there are no provisions requiring the use of the networks' affiliated shops by an insurance company's claimant.

The Bureau also surveyed 400 repair or replacement facilities to determine how many facilities participate in exclusive agreements with insurance companies and the effect of the insurance companies' exclusive agreements on the facilities' business. Based on the shop surveys, it is apparent that the independent glass shops are almost unanimously opposed to direct repair or network claims facilities. The body shops seem to be divided in their opposition. It is also apparent that both the glass shops and the body shops believe that the repair climate is more competitive today than it was one, five, or even 10 years ago.

The Bureau also sent surveys to 500 consumers to determine whether or not the use of exclusive agreements or networks denied them the right to choose a repairer. A special telephone survey was also conducted consisting of a random sample of 80 consumers selected from a list provided by members of the Virginia Glass Association. The purpose of this telephone survey was to obtain participation from consumers using independent repair or replacement facilities. The consumer surveys indicated that most insurance claimants are not dissatisfied with the insurance repair process in general. In addition, the vast majority of insurance claimants indicated on the survey that they had no feelings of pressure, coercion, or intimidation during the claims process. However, 2% of the respondents indicated on the survey that they would not have selected the repairer recommended by their insurer. These consumers indicated that they would have selected a different repairer had they been allowed to choose.

A review of the other states' laws shows that Virginia takes a middle-of-the-road approach to regulating repair referrals. Most states, including Virginia, allow insurance companies to make referrals or recommend specific repairers, and Virginia is one of 13 states that prohibits insurance companies from engaging in acts of coercion or intimidation. In addition, a law in one state which prohibited insurance companies from recommending specific repairers was declared unconstitutional by a federal district court in 1994, and the laws in another state which prohibited or placed restrictions on networks were declared unconstitutional by a federal district court in 1996. Furthermore, Virginia's comprehensive and collision premiums are among the lowest in the country. According to the latest report published by the National Association of Insurance Commissioners (NAIC), Virginia ranked 50th and 45th respectively for comprehensive and collision premiums in 1995.

Based on a review of the consumer complaints received by the Bureau's Consumer Services Section of the Property and Casualty Division, there does not appear to be an indication that insurance companies are violating the provisions of § 38.2-5 17 by either requiring claimants or insureds to use certain repair or replacement facilities or by engaging in acts of coercion or intimidation to require such use.

Conclusion

Based on the results of the surveys and based on information received from the Consumer Services Section, most consumers do not appear to be dissatisfied with the insurance repair process nor do most consumers feel that they have been coerced or intimidated into using a specific repair or replacement facility. However, the General Assembly may be concerned about a perception on the part of some consumers that they do not have the right to select the repairer of their choice. Two percent of the consumer survey respondents did indicate that they would not have selected the repairer recommended by their insurer. Therefore, the General Assembly may wish to recommend that § 38.2-517 be amended to add a requirement that claimants be advised of their right to choose when any recommendation of a repairer is given (see Appendix 6 for possible language). This measure, combined with increased advertising efforts by glass and body shops, could allow repairers the opportunity to reach a larger market. The Bureau believes that through advertising, glass and body shops may be able to influence more consumers into selecting a specific repairer at the time a claim is made. This should help preserve the existence of small, independent businesses.

Furthermore, it is the Bureau's recommendation that, along with advertising, claimants need to be educated as to their rights regarding the repair of their vehicles. To assist with this effort, the Bureau produces the Virginia Auto Insurance Consumer's Guide in an attempt to educate consumers regarding coverages, shopping techniques, and claims settlements. The Bureau recommends that all body and glass shops obtain a supply of the free insurance consumer guides and make them available for their customers. Not only do the pamphlets outline the consumer's rights regarding insurance repairs, they also provide a complaint resolution procedure and a complaint form for the consumer to use when aggrieved by the claims settlement practices of an insurance company. By making more of these guides available at repair shops, more consumers will be aware of their right to select a repair or replacement facility of their choice. This should also help encourage consumers to advise the Bureau if they believe that they have been coerced or intimidated into selecting a specific repairer.