The importance of auto insurance policyholders being able to invoke their right to appraisal and concerns about undercompensation as well as vehicle safety were brought before Texas lawmakers last week at a public hearing held by the House Insurance Committee.
Many auto insurance policies include an appraisal clause that allows policyholders to invoke it to have third-party appraisals performed when they disagree with their carrier’s appraisal of their vehicle. Low appraisals often result in total losses on vehicles that could have been repaired. The carrier and the policyholder hire an independent appraiser and if the appraisers cannot agree, an arbitrator is chosen to make the final decision.
Melissa Hamilton, public counsel at the Texas Office of Public Insurance Council (OPIC), told the committee that the valuation clause was the general norm for years in auto insurance claims litigation until 2014, when a The major insurer, which she did not name, sought approval from the Texas Department of Insurance (TDI) to remove the clause from its policies. Approval was granted in 2015. Only one other insurer, also unnamed, has sought approval to remove the clause since then in 2021, to which OPIC filed an objection with TDI. The insurer’s claim was denied in July for failing to respond to TDI’s questions, she said.
Over the past few years, there has been “this growing tension between insurance companies and body shops and at the heart of it all is what it takes, how much, to get a vehicle properly repaired? How much does a vehicle repair cost? It’s not to point fingers,” Hamilton said. “I honestly believe that both parties, both the insurance companies and the body shops, have very valid concerns and points.”
She added that appraisals cost policyholders and insurers money and take time, but they are still a viable option that incentivizes bodybuilders and hauliers to negotiate. OPIC found in its research that if an assessment clause was not in their policy, consumers would have to go to court, but their cases generally do not involve enough money for lawyers to take their business, according to Hamilton.
Hamilton noted that the right to an appraisal is only one piece of the pie, with the bigger issue being what it takes to properly and properly repair a vehicle from genuine parts versus similar parts and quality and the role of preferred body shops versus independent shops.
Committee chairman Dr. Tom Oliverson (R-District 130) said he saw an opportunity to conduct a study of nearly eight-year-old data from the insurer that removed its valuation clause.
John Schnautz of the National Association of Mutual Insurance Companies (NAMIC) said that the carrier that removed the right to assessment only removed it for partial loss claims and that the other company who had requested permission to delete the clause wanted to do the same. . He thinks allowing freedom in the form of policies would not prevent insurers from doing the right thing, as they could still be sued if they do the wrong thing, he said.
“I think the concern of some companies here…and it’s in the company filing that put it out, they talk about the reason they want to do this is they see more requests appraisal where the request is really coming from the appraisal department on an assignment and they’re concerned that it will turn into a situation where you have the fringe of a repair market leading to costs that everyone ends up out of having to pay,” Schnautz said.
Representative Celia Israel (D-District 50), a member of the committee, asked Schnautz if he thinks “it’s worth looking at anything that has to do with security.”
“Texas drives more,” she said. “Texans drive faster. Texans drive more dangerously. It’s a trend. It’s a bad trend. … We get caught up in a discussion about profit and we forget the fact that there are people buying a car that could have had an accident and the sensors weren’t fixed and nobody knows. There are bad products called vehicles and people buy them because they have to get to work.
Schnautz replied, “The insurance industry is always at the table on security issues.
“I’m skeptical of claims that what the insurance agency is doing here is simply prioritizing the absolute lowest common denominator to sacrifice safety, because I don’t think our member companies are doing that,” he said. -he declares. “The idea that it’s ‘just slap it and put them back on the road and we don’t care what happens’, I don’t think the reality of the situation supports that. Insurers have to many incentives to keep their customers happy and safe and back on the road.
Auto Body Association of Texas (ABAT) President Burl Richards claimed otherwise in his testimony. He stated that to his knowledge, there is no insurance policy requiring state insurers to return damaged vehicles to pre-accident or loss condition, and no law requiring that wording appears in the policies.
“When you have that void in a policy, you have insurance companies deciding how to dictate how those vehicles are repaired,” Richards said. “…You have insurance companies whose policies allow them to dictate repair, therefore there is no negotiation.”
For example, State Farm policy states that they determine the going rate, what is fair and reasonable and how vehicles will be repaired, he added.
“The appreciation [clause] is the answer to many of these woes. …Assessment is a great way to have the claim reviewed by an impartial third party [and] settle the complaint. On the other hand, I hope everyone will understand, the insurance company is not responsible for this repair. … It’s on me. I did the repair so now you’re stuck with repairmen saying, ‘OK, am I doing it for free because it’s the safest; That’s what you should do? Should I charge the difference to the customer? Or should the client contact a lawyer? But when you can go through the assessment process, it really speeds up the whole process.
Auto Claim Specialists Managing Director Robert McDorman explained, “Assessment is about getting it right. The evaluation is to find the number. And it’s “strictly 100% a matter of safety,” he added.
“TDI recommends an evaluation,” McDorman said. “It’s really interesting in states where appraisal is mandatory, how the loss is so much closer to law. On eight out of 10 claims that come to us for total loss, we’re able to increase that settlement by $4,200, so these are not small numbers.
He added that loss assessment should be automated, however, he cautioned that an automated system will never be perfect. The right to evaluation should be mandatory in all US states, McDorman said.
Consumer Federation of America Director of Insurance Doug Heller also pointed out that eliminating the right to assessment affects public safety. Appraisals act as a check and balance for insurers to determine how much to pay to repair a vehicle and provide a second opinion “which helps prevent dangerous errors and oversights in appraisal and post-accident repair.”
“When insurance companies make the wrong repair decisions, it can be a deadly decision,” Heller said. “It can mean that a car won’t crash the next time it crashes. It could mean that a driver, or maybe the next owner of that car is in serious danger because an insurance company either looked to cut corners or missed something and then refused to accept. or even discuss another expert’s assessment. The valuation process is a safeguard against corner cuts, underpricing and underwriter errors. »
TDI’s director of consumer protection, Cindy Wright, told the committee that she had extracted the number of consumer complaints filed with TDI from 2017 to the end of 2021 and of approximately 100,000 complaints, 544 were related to the assessment but did not have details of what the complaints entailed. . She noted that not all complaints are specific to auto insurance.
Mary Ann Baker, director of TDI’s P&C lines office, said she heard concerns from both sides about possible abuse of the valuation process. More insurers, she said, are interested in adding or modifying their clauses; some being just to add more provisions on how the process works. When asked if there are any legal or regulatory requirements for evaluators in Texas, Baker said that generally there are none, but most policies require evaluators and arbitrators to be competent and independent and some have additional requirements.
Texas lawyer and lobbyist Jay Thompson told the committee that the solution to the problem was for the legislature to change public policy.
“Do we need a law that says something; is the evaluation required or not? … I think it would certainly make it easier for companies to be competitive. … I think it’s easier for the regulator, as a sort of arbiter, to know what standards they’re going to use when approving or disapproving a [policy] form.”
Heller also provided some suggestions to the Legislative Assembly to improve the appraisal process: requiring the right to an appraisal process in auto policies for partial and total loss, requiring insurers to inform consumers that the right to an appraisal exists, ensure that when an arbitrator is to be independent of insurance companies, cap the amount that consumers must spend to hire an appraiser and/or an arbitrator, strengthen the time limit for invoking ‘a valuation clause to prevent the claims process from taking too long and to require insurers to submit data to TDI on the use of valuations, results and variation in the monetary value of claims.
The data would “provide the legislature and the public with more information about how the process is working and give you the opportunity to address any concerns that arise with the data,” Heller said.
The panel took no action on the assessment issue at the hearing.
Feature image: Texas State Capitol Building (Credit: Boogich/iStock)