Auto insurance: Kirby’s committee approves stronger consumer-protection

Legislation seeks separation between insurers, repair companies

Feb. 20, 2007

The state House Insurance, Financial Services & Consumer Protection Committee has passed two important consumer-protection bills.

House Bill 1066 prohibits an insurer from contracting with a third-party administrator to administer auto glass claims if the third-party administrator also directly or indirectly engages in the retail auto-glass business. House Bill 1113 directs that an insurer may not have an ownership interest in an automotive-repair facility, and that an insurer with such an interest must divest itself of it by July 2008.

Prime sponsor state Rep. Steve Kirby, D-29th District, said the two bills are related. “The purpose of one is to prevent the problem that we now find ourselves addressing in the other,” Kirby said when he introduced the bills to the committee, which he chairs.

“In a situation where consumers are mandated by law to purchase auto insurance from private, for-profit corporations, it becomes the obligation of the government to establish certain consumer protections in order to prevent potential abuses by those private, for-profit corporations,” Kirby indicated.

He told the committee that when insurance companies are allowed to have total control of all the money they receive in premiums and the money they pay out in claims, “that’s a recipe for consumer victimization, not consumer protection.”

Although insurance was invented as a method to pool money to cover people’s losses and make them whole when disaster strikes, Kirby said, “they’ve crept away from that notion and they’ve turned into these mammoth money machines whose motivation is profit instead of protection." They’re no longer about making their customers whole. They’re about collecting as much money in premiums as they possibly can -- and paying out as little in claims as they can get by with in order to maximize profits.”

HB 1113 attempts to prevent insurance companies from reducing the cost of claims by using sub-standard parts and inferior workmanship. “The lack of separation between these two business interests creates an inherent conflict of interest that could easily result in vehicles being put back on the road at questionable levels of quality and safety,” Kirby testified in a committee hearing on the measure.

Insurance-industry lobbyists have argued over the years that these legislative proposals will interfere with their ability to keep the costs of claims down, and that lower costs translate into lower premiums. But Kirby isn't buying it. “The reality is that their premiums and their profits continue to escalate even as their costs go down as they attempt to control and manipulate the claims process,” he said. “This is a train wreck waiting to happen and it’s already starting in other parts of the country. We need to stop it before it happens here.”

In HB 1066, Kirby saw an opportunity to right a wrong in the administration of auto-glass claims by insurance companies.

“If I get a rock in my windshield on the way here and I call my insurance company with a claim, they give the number of a glass shop they use as a third-party administrator,” Kirby explained. "I know from personal experience that it is not clear that the insured person is entitled to take that business to a shop of his or her own choosing. In fact, in my case, I had to argue with the guy to get him to let me exercise my rights, and he purposely didn’t make it easy.”

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