Advocates described a Rhode Island auto insurance reform bill necessary to curb real-world situations reported to a House committee recently.
House Bill 6324 will make three changes to Rhode Island’s unfair claims practice statute, General Laws 27-9.1-4.
Abandoned total notification
One element is due to how carriers handle total losses they don’t wish to keep.
House Corporations Committee Vice Chairman William O’Brien, D-North Providence, told a committee hearing May 20 he sponsored House Bill 6324 following a experience with a constituent. The insurer totaled the constituent’s vehicle and “just abandoned the car in the auto body place,” O’Brien said. The vehicle had tallied up $1,000 in storage fees “the insurer was accountable for,” O’Brien said.
“That was the key reason I sponsored this bill,” Rep. O’Brien said.
One House Bill 6234 requires an insurer to alert customers the carrier has totaled a vehicle but doesn’t need it.
Rhode Island considers a vehicle totaled when repairs reach 75 % of value, though a consumer has the choice to accept a total loss anytime.
Rhode Island’s current unfair claims practice law 27-9.1-4 says some insurance company who doesn’t wish to have a totaled car “must notify the owner of the vehicle in writing from the requirements of obtaining both a salvage title and a reconstructed title.” It indicates the carrier isn’t keeping the vehicle, but it doesn’t show that fact.
HB 6234 would add a requirement that an insurer “obtain, on paper, the owner’s consent and acknowledgement the insurer is not retaining the salvage and can include an argument from the owner’s obligation and potential costs to get rid of or otherwise retain the salvage.”
This part might be simple to pass.
“We've no objection to the total loss notification provisions,” National Association of Mutual Insurance Companies Northeast regional V . p . Rory Whelan told the Corporations Committee on May 20. His group opposed the other two changes produced by the balance, he said.
Paint materials charges
Another area of the bill expands on an existing requirement that an insurer must “compensate a car repair shop for documented charges as identified through industry-recognized software programs or systems for paint, body and refinishing materials in auto body repair claims.”
Under HB 6234, this language would suggest that some insurance company must “compensate an auto repair shop for their documented charges as identified through the most current form of automotive industry-recognized software programs or systems for paint, body and refinishing materials in auto body repair claims, including, but not restricted to, programs for example Mitchell’s RMC, PMC Logic, Paint, Micromix, or perhaps a paint manufacturer’s programs. An insurer shall not discount documented charges by failing to make use of a system completely, including an automotive industry standard markup.”
Rep. Robert Craven Sr., D-North Kingstown, reported that body shops have a “general frustration” with carriers and described insurer practice when trying to elude auto insurance law with nitpicking.
The Legislature requires insurers to cover paints authorized for the repair, according to Craven. He asked lawmakers to consider a situation where some insurance company agrees, “‘Yes, we will pay out for that paint,'” but will not reimburse tape. When challenged the tape belongs to a splash of paint, the insurer retorts, “‘No, that’s not exactly what the General Assembly said.'”
Rhode Islanders are fortunate repairers often will consume the costs, but “it’s not fair” and it was “irritating to see people ripped of with this kind of nitpicky practice.”
The body shop and Legislature outline what’s necessary, and insurers “start cutting around the edges,” Craven said. He explained it was time insurers were told to stop.
This wasn’t an issue with all insurers, “just some of them,” Craven said.
American Property Casualty Insurance Association state relations Vice President Frank O’Brien argued the Legislature shouldn’t enter into the “nitty-gritty,” despite Craven’s allegation insurers were doing precisely that.
“What lengths is the General Assembly designed to get into the weeds throughout these items?” Frank O’Brien asked. He explained most the unfair claims practices statutes already deal with car insurance behavior.
Craven known as the legislation a “consumer bill.” A consumer bought a car, the automaker describes how to repair it, and “it’s not being taken care of by the insurance provider.”
Casale's Auto Body President Thomas Casale told the committee that bill and HB 6235, which was also heard by the panel May 20, “will help clarify constant problems within our industry.”
He said the paint materials calculation software has a line item for markup.
“The insurance coverage companies not use that line, understanding that they're necessary to,” Casale said. They “purposefully” aren’t using the appraisal system to the “entirety.”
Frank O’Brien said “not many” insurers were refusing materials today and “a number of other do outlay cash.”
Frank O’Brien said the carriers that refused to reimburse customers felt such items were “standard overhead.”
He said more auto body shops are attempting to “slice and dice, if you will, the services” and itemize things “traditionally included in general overhead.” Yet he said “a number of other do pay them.”
According to January 2021 “Who Will pay for What?” polling by Collision Advice and CRASH Network, eight from the nation's largest insurers reimbursed invoicing system charges over fifty percent of times shops billed for them.
In 2021, only 19 percent of repairers responding to a “Who Pays?” question said they billed for materials having a calculator/invoice method. When the researchers asked the same question in January, 27.5 percent of shops replying said they used an invoicing system instead of using the traditional method of billing: multiplying refinish hours by an arbitrary labor rate.
Randy Bottella, owner and operator of Reliable Collision, challenged the idea such materials were overhead.
“That’s not the case,” he explained. They’re materials used on a specific vehicle, for example primer, body filler, and buffing pads, he explained.
“That’s where those originate from,” he explained.
Frank O’Brien said they known as the measure a “‘blank check'” piece of legislation. HB 6234 didn’t define industry standard markup on materials or how this would be established, he explained.
“No state in the united states has legislation such as this,” he explained.
Bottella said the balance used the industry standard concept because “no way” would shops impose a specific figure. But he explained the markup tended to be 25 %, and all sorts of paint and materials software included a location to incorporate a markup.
“It’s supposed to be put in,” Bottella said, however, many insurers refuse to accept it. However, the majority of insurers reimburse markup, and “we’re perfectly fine together.” The bill is meant to solve the “outliers” who “won’t adhere to the law,” he said.
Frank O’Brien also pointed out the specificity of the statute in relation to software brands. “It’s unusual for any statute to list specific manufacturers that their goods are meant to be used,” even as examples, he explained. He said this could normally be delegated to a regulator to avoid barring other competitors.
“It’s too broad,” Rep. Robert Phillips, D-Woonsocket, said.
Bottella said the list was necessary because many insurers only recognize one materials system — which calculates a blended average instead of reflecting the particular items used in the repair.
Bottella said their state Division of Insurance refused to help.
“We don’t get any relief from the division that should be regulating this,” he explained from the agency within the Department of Business Regulation. The division says it doesn’t get involved in money issues and “won’t even hear these things.”
Bottella called mtss is a “big problem” which sent body shops seeking relief from the Legislature.
The Division of Insurance hasn't yet responded to a Thursday request discuss Bottella’s description as well as for perspective on whether it could, as Frank O’Brien suggested, regulate the list of paint materials calculators insurers must use.
Sublets
Frank O’Brien said the APCIA was “much more concerned” using the final passage added by the bill, language regarding sublets. Based on HB 6234, it might be an unfair claims practice if the insurer was:
He said insurers are OK with most of the operations described within the section. “It offers an extensive selection of services, a few of which we do concede are essential,” he said. But he explained the passage was an “unbalanced loophole that one could drive an armored car through.”
He said adding a business standard markup “which could be 25 percent or more” might “make costs in Rhode Island explode.”
But eight of the nation’s largest auto insurers regularly pay a 25 % markup on sublet, according to summer 2021 “Who Pays?” polling of some hundred shops by Collision Advice and Crash Network.
Insurers don’t sell insurance at cost either. The latest National Association of Insurance Commissioners data found private passenger auto insurers only posted a loss of revenue ratio of 64.6 in 2021, which means only about $0.65 of each and every premium dollar collected was really spent reimbursing customers. They spent another 10.8 cents on loss adjustment expenses.
The other 34.6 cents of each and every dollar introduced on premiums visited items like overhead and marketing.
O’Brien said the legislation included “most egregiously, an industry standard markup loophole.”
Rhode Island state Rep. Barbara Ann Fenton-Fung, R-Cranston, said her vehicle had work sublet during a repair at Bottella’s shop. She remembered the procedure was “expensive” and “took a long time” and asked how frequently insurers refuse to cover it.
Bottella said some insurers present “no issue” with your labor. Others won't cover what the OEM states must be done.
He suggested the requirement for a markup here stemmed from the “huge process” a repairer undergoes when they sublet labor, steps including shipping and retrieving the vehicle and interacting with a dealer.
He said vehicle complexity meant shops couldn’t have all from the necessary equipment available in-house.
“I respect that,” Fenton-Fung said. She asked if the Insurance Division have been unhelpful on such issues.
“They are saying they wont get involved in it, they don’t handle it, they reject the complaints,” Bottella said. “It’s been a continuing thing for any very long time.” He said repairers “need something very concrete” to see enforcement.
Whelan argued the bill created an “inequitable standard” by permitting any charges which are “simply documented.”
“Charges should be reasonable,” he said. The term “reasonable” is typical in the unfair claims practices, but it’s not based in the new language added by the bill, he stated.
To avoid lawsuits as well as for fairness’ sake, the statue should “encourage a dialogue” instead of “tilting the scales” in favor of body shops, Whelan said. He asked lawmakers to “take pause” and consider some qualifier.
