AB 1679: Reining in Insurance Department’s Regulatory Authority

Ian Adams
Associate vice president of government affairs for the R Street Institute.

After years of falling rates, the cost of auto insurance is now once again increasing across the nation. The problems of distracted driving and rising repair expenses are acting together to force rates up. Legislators in Capitol buildings throughout the country are directing their attention at the trend in an effort to ensure that their constituents have access to insurance.

Given that trend, it’s strange that the California Department of Insurance would seek to restrict competition in the automotive repair sector in ways that would drive rates up further still. The department’s actions makes sense only when seen for what they are: an unambiguous ploy to expand its regulatory power.

At the beginning of 2016, the CDI formally proposed new rules for auto insurers in accident repairs. One set of rules sought to curtail the practice of “steering,” where insurers compel insureds to use specific repair shops, by placing new restrictions on information insurers can give their insureds. The department also proposed mandatory standards for how insurers measure and set labor rates for auto repairs. Both sets of regulations recently went into effect.

Earlier this year, Assemblywoman Autumn Burke, D-Inglewood, introduced A.B. 1679, legislation that would repeal the steering regulations altogether and modify the terms for the labor-rate surveys. The legislation clearly is needed to help control rising premiums. As the Assembly Insurance Committee concluded in its analysis of the labor-rate rules, they “will inevitably raise the price for automobile body repairs paid by insurers, thereby increasing insurance rates as these increased costs are passed on to policyholders.”

When the bill was heard in committee, the insurance department sent a representative to testify against it. But the substance of the department’s opposition remains mysterious. Steering already long has been prohibited by statute. The CDI’s regulations simply limit insurers’ ability to communicate almost anything with their insureds about repairs. Similarly, California’s Unfair Practices Act already protects consumers from mistreatment in insurance contracts in ways that would appear to make the labor-rate rules moot. Rather than consumer protection, the department’s goal appears to be to interfere in any business between repair shops and insurers.

The Insurance Committee found it “difficult to see where the DOI has authority to ensure any level of income to repair facilities.” But the department has been emboldened by recent judicial rulings that gave additional deference to its authority to interpret pieces of the state’s insurance code. Like many regulators granted quasi-legislative authority, the department is eager to expand its power to achieve its own political aims. In the case of the CDI, it doesn’t help that the department is led by an elected official. This is the legacy of California’s hopelessly out-of-date, yet reform-resistant Proposition 103 initiative.

Were the department more respectful of the rule of law and balance of powers, it would see the Legislature’s eagerness to undue recently promulgated regulations as a rebuke of its policy judgment and maybe take it as a sign to revisit its conclusions. In that universe, the CDI would recognize that its duty is to execute the will of California’s elected representatives and the people they represent.

That’s not the world in which we live. Instead, the Legislature will be forced continually to reassert its primacy over the CDI or risk completely ceding power to unelected bureaucrats. On one level, A.B. 1679 is an effort to contain insurance costs and policyholder premiums. But it’s also another battle in the department’s larger campaign against the will of the people of California. There can be only one appropriate outcome.

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