Legislation related to OEM procedures, labor rate surveys and DRP network promotion produced extensive discussion Monday about how exactly direct repair programs operate in Texas.
The House Insurance Committee conversation Monday included a representative for various major insurers declaring their DRP shops are told “‘do what must be done'” for any repair, a description of the DRP forcing shops to consume supplements and confusion over DRP shops’ place in the proposed rate surveys.
HB 1131 would require insurers to follow OEM repair procedures and P-pages with the exception of parts, though any alternative components must meet the bill’s meaning of “like kind and quality.”
The bill also requires a neutral 3rd party to calculate prevailing rates using posted charges, also it places restrictions on incentives and comments some insurance company will make about a particular shop.
For now, the bill remains pending before the committee following its hearing Monday.
‘Do what must be done’
Committee member Rep. Scott Sandford, R-McKinney, described his recent auto claims experience, including receiving telephone calls from direct repair program body shops after filing. Sanford said they gave the impression he would need to go out-of-pocket for implementing another facility.
HB 1131 would block insurers from forcing a DRP “in order for that beneficiary to obtain the repair without owing any out-of-pocket cost other than the deductible.”
Sandford asked Texas Coalition for reasonable Insurance Solutions Executive Director Beaman Floyd about DRP networks. His organization includes State Farm, Allstate, USAA, Farmers, Nationwide and Texas Farm Bureau Insurance as members.
Asked why a repairer would want to be in a DRP, Floyd cited “efficiencies” in how shops are paid and “shared computer arrangements” which permit estimates to move quickly.
Floyd said insurers have discovered relationships with DRP shops really are a “good customer service arrangement” because many people, “including me” don’t have a body shop of preference.
“I don’t … know anybody who’s for the reason that business,” said Floyd, the insurance coverage industry representative.
Sanford asked if “financial arrangements” like discounts to insurers existed within the DRP agreements.
“All of my companies has stated in my experience they do have guidelines and they do use expectations of estimates of how very different things will cost,” Floyd said. “But after the day, each one of the claims people … said, “‘Here’re our guidelines. Do what needs to be completed to get the car done.’ … That’s an over-all standard.”
Sanford said the insurers would then “return and review” but did not elaborate.
Sanford asked if parts were mentioned in DRP agreements. Floyd said most contracts include using both OEM and aftermarket parts “as will best suit the repair and getting the task done.”
He said TCAIS was also asked if shops had “fixed percentages or incentives” for using aftermarket parts.
“The answer from all of my companies was ‘Definitely not. We have no such thing,'” he said. “… It’s a ‘Exactly what do you need to do to get the car fixed? Figure it out.'”
But he explained insurers will speak to a repairer they think is “driving prices up” or “way to avoid it of a economic norm.”
Asked by committee member Rep. Dennis Paul, R-Houston, if TCAIS were built with a trouble with requiring OEM procedures, Floyd said “no, we have a trouble with the fact that the bill seems to lead inexorably to some very restricted oligopoly … on parts. Since the procedures including parts are intermingled together.”
Floyd then continued to mention direct repair program shops. “We’re actually quite stringent about their technology, and the type of repairs and what they have to do,” he explained.
“It doesn't behoove us to have substandard repairs,” Floyd said. “And the idea of cost control in that space isn't antithetical to quality, we don’t think.” His insurers didn’t are thinking about creating a monopoly on parts or “particular shops.”
Counterpoint
But Auto Body Association of Texas board member Chad Kiffe said that as gm of a body shop, he knew firsthand how insurers “dictate to us on how to fix a vehicle.”
“It is very hard to run a business when you have the insurer trying to tell you how you can fix a vehicle, what parts to use, where to buy the parts,” Kiffe continued.
Kiffe also painted lawmakers a less rosy picture of DRP life. “Some aren’t as bad as others,” he said of DRP programs. Others demand a shop write a quote “within 2 hours of having the vehicle.” If the shop discovers more damage, instead of a supplement, “they have to absorb those costs. So how exactly does that offer the customer’s safety?”
CCC data found 60.9 % of repairable vehicle claims in 2021 had supplements, typically representing 18.7 percent of the repair cost. The average repair bill was $3,421, meaning a shop as Kiffe described it might be eating nearly $640.
“Body shops want to do what's right,” Kiffe said, but financial pressure on the business meant “they’re gonna scrimp,” he explained. This is often concealed from customers, he said, describing it as an instance of “lipstick on the pig.”
Kiffe said he'd been in a DRP before. “There’s concessions you have to give,” he explained.
He said shops are judged on three things: “Fix it cheap. Fix it fast. And keep that customer informed.”
Asked by former body shop owner Rep. Ramon Romero, D-Ford Worth, if NAMIC insurers required their DRP shops to absorb any changes to the estimate, National Association of Mutual Insurance providers Southwest region V . p . Jon Schnautz said he couldn’t speak to if that was in any DRPs, but he could seek advice from NAMIC members.
Labor rate surveys and DRP shops
American Property Casualty Insurance Association state relations V . p . Joe Woods attacked the neutral labor rate survey process described within the bill.
HB 1131 would define “revailing rate” as:
Woods told lawmakers this language excluded all DRP shops in the survey.
“You’ve thrown out competition by doing that,” he explained.
A representative for HB 1131 sponsor Rep. Travis Clardy, R-Nacogdoches, said the bill was “absolutely’ meant to include DRP shops’ retail rates. A store wouldn’t be excluded for the reason on the basis that it was a part of a DRP — “definitely not,” Clardy’s office said. The shop simply had to provide their posted rate, not their DRP rate.
“They are doing negotiate rates,” Woods said of DRPs. “… ‘We will pay X dollars.'” The insurer will place the shop on a listing of regional DRPs for purchasers willing to use one, he explained.
The Auto Body Association of Texas, which assists the bill, said its vision would also be to include DRP shops’ posted retail rates. Only their discounted rates established under individual business deals could be excluded.
“In any kind of survey we'd be following the posted door rates,” Executive Director Jill Tuggle wrote within an email Friday. “This is better because the DRP rate is basically a bulk discount that's decided by the two parties involved and has absolutely nothing to do with anyone else's rates. … I believe we'd want all shops' retail rates to be included in the survey. What we should are after is transparency. At this time, the insurers would be the only ones with ‘survey results’ on things like rates and prevailing common practice. Body shops aren't aware of the data or the findings. So essentially we are likely to adhere to these rates and practices under blind acceptance. But to answer your question, we would want all shops included. That will produce accurate results.”
So perhaps the wording of the bill could be clarified, however it appears the APCIA’s fears are unfounded.
Another exchange seemed to enhance the concept of including DRP rates.
Sanford asked if Woods DRP shops were excluded in the bill because of data being unavailable for that survey. Woods said no, and Sanford asked if network shops “would disclose their DRP agreements.”
“I suppose so,” Woods said.
But Romero drew focus on the possibility volume quid pro quo associated with DRP rate concessions.
He asked about what kind of business growth DRPs had seen to acquire the discount. Woods asked if he meant the number of DRPs and said he could find out. Romero inquired about loss or incident data over five years to trace the quantity of business insurers were or weren’t sending to DRPs.
Woods also insinuated the collision industry would violate antitrust laws and collude on price were the bill to pass.
He said DRP shops negotiate a rate “which is destined to be less than what any body shop out there under this bill would charge, since the Texas Auto Repair shop Association could claim that their visitors may want to raise their prices. And they could all raise the prices. And that would just drive up the price of the average because the DRP shops are not counted in that average.”
There’s no organization named the Texas Auto Repair shop Association, and it’s unclear if Woods meant the car Body Association of Texas or was speaking rhetorically about a repair trade group generally. But we contacted ABAT for a response to the assertion.
“My own rebuttal to the insinuation that ABAT or perhaps a number of shops would violate Antitrust laws would be- let me know why would this law encourage that?” Tuggle wrote in an email. “If the insurers are already conducting rate and PCP surveys couldn't shops perform the same now? If their results on their articles are not skewed or doctored now then that should be a present concern? Interesting that it is only a concern under the circumstances that we're permitted to see the survey results or ask it be conducted with a neutral party. To claim that our group would break the law is really a question of morals, not new legislation. New laws don't stop or encourage people from breaking old laws and vice-versa. They're grabbing for straws.”
Inducements
Schnautz criticized the bill’s elimination of insurers’ abilities to promote DRPs.
In accessory for banning insurers from promising no out-of-pocket costs for implementing a DRP, HB 1131 prohibits insurers from:
The bill also restricts what insurers can tell claimants. They aren't permitted to “offer, communicate, or suggest by any means that a particular repair person or facility will provide faster repair times, faster service, or even more efficient claims handling than another repair person or facility.”
“The steering is very sophisticated,” Texas Watch Executive Director Ware Wendell told the committee. An insurer will inform shops that if they choose a DRP shop, “‘we are able to see it tomorrow,'” but if they like a different facility, it’ll go ahead and take carrier 7 days. “That’s not right,” he explained.
Though Woods observed insurers lacked the authority to need a specific shop. also, he described insurers marketing to consumers that “you receive a premium discount up front” for having a DRP facility.
Schnautz said insurers warranty DRP shops’ repairs, but under HB 1131, “you can’t offer any type of inducement.”
Only an appearance shop could provide a warranty, Schnautz said.
Schnautz said insurers also couldn’t talk about the advantages of choosing a DRP “which we believe will really undercut that.” He explained they felt DRPs represented a method which “overall, ought to be preserved.”
