The California Department of Insurance announced it has drawn approval from the state’s Office of Administrative Law to begin implementing regulatory changes the department sought to restrict the use of non-OEM replacement crash parts. 

These amended regulations, expected to become effective on Jan. 30, are intended to protect motorists from defective or inferior aftermarket parts and to strengthen insurer accountability in the claims process, California Insurance Commissioner Dave Jones said. The regulations require the following:

• An insurer must pay for the costs associated with returning a defective part and the cost to remove and replace the defective part with a compliant non-OEM part or an OEM (original equipment manufacturer) part

• The current insurer's warranty must be expressly stated in the repair estimate generated by the insurer

• An insurer must cease use of a part known to be non-compliant, and to notify the part distributer within 30 days

• An insurer must pay for an amount to repair the damaged vehicle to its pre-loss condition in a good and workmanlike manner, based upon the repair standards required by auto body repair shops licensed by the Bureau of Automotive Repair.

Ninety days after these regulations are filed with the Secretary of State, or March 30, insurers must be in compliance. 

"The amendments build on existing protections by requiring insurers to settle automobile insurance claims using repair standards described by the Bureau of Automotive Repair, and not the insurer's own standards of repair," said Commissioner Jones. "This also places greater accountability on the insurer when they require use of an aftermarket replacement part so that damaged automobiles are repaired properly and safely."

The California Department of Insurance (CDI) said it first proposed the regulatory changes in 2012 after investigating a number of complaints from consumers and collision repair shops. According to the department, the investigation led staff to conclude that the insurance industry was failing to protect clients from the use of defective or non-compliant aftermarket parts in the collision repair process.

CDI said it discovered instances of insurers calling for the use of defective aftermarket bumper reinforcements, hood latches and other safety-related parts that failed to comply with current repair standards. The department added that it also learned of “substantial costs borne by automobile repair shops and their customers associated with installing defective or poorly fitting parts required by insurers.” 

Such faulty repair work, along with the use of inferior aftermarket replacement parts, might pose safety risks and hasten vehicle depreciation, the department said. 

However, insurers in the state have called CDI’s assessment biased, arguing that the new regulations will hinder the insurance industry’s ability to keep collision repair costs in check.

Last summer, during a hearing about the proposed regulatory changes, the Association of California Insurance Companies (ACIC) testified that the proposed requirements would unfairly benefit body shops and OEMs. The changes would lead to higher auto repair costs and possibly higher insurance premiums for motorists, industry representatives said. 

“These regulations essentially allow the auto body repair shops to name their own price, charging whatever they want for auto repairs, and insurers will be required by these regulations to pay,” said Armand Feliciano, ACIC vice president, back in August 2012. “Insurers pay for approximately 90% of the auto body repairs in the nation. The current free market system provides checks and balances by allowing the parties to work together to determine prices for auto repairs and parts – these regulations will undermine insurers’ ability to manage costs and basically provide auto body shops a blank check. These regulations completely ignore the fact that auto body shops are vendors with a financial stake in the system, not consumers. It is not the role of the insurance commissioner to interfere in the free market system and propose regulations that will financially benefit one party – auto body shops – at the expense of policyholders.” 

Two months later, during a workshop on the proposed regulations, ACIC again argued against the changes. The association predicted that, if passed, the regulations would invite unnecessary litigation, slow an insurer’s ability to respond to customer needs, and unfairly force insurance companies to make trade secret information publicly available.