N.C. Legislative Session Ends with Several Bills Lingering

The North Carolina legislature ended its 2003 session recently without resolving several reported controversial bills, but did pass measures that restrict insurers use of credit and alternative automobile crash parts.

The Senate is scheduled to return Sept. 15-19 to consider medical
liability reform and economic development. The House is scheduled to return May 10, 2004, according to the National Association of Independent Insurers (NAII).

An aftermarket parts bill passed that will have some impact on the
property/casualty insurance practices in the state. Existing statutes require a company to make certain disclosures to a policyholder or claimant upon its recommendation of a particular motor vehicle repair service. The new language would also require companies to disclose to the claimant that the carrier has a “financial interest” in the particular service recommended. The bill also clarifies that a carrier does not have the power to require a claimant or policyholder to repair the vehicle at an “insurer-owned motor vehicle repair service.”

“The alternative parts market offers a less expensive version of cosmetic crash parts, and North Carolina’s leading auto insurers, confident of aftermarket quality, back these parts with lifetime guarantees,” said NAII Senior Counsel Greg LaCost. “Lawmakers should be careful not to threaten the free enterprise system, as it could likely increase North Carolina consumer prices.” According to the August, 2000 Auto Insurance Report, N.C. ranked 41st lowest in the nation for auto insurance rates.

The bill further requires that the insurer disclose to the claimant in writing if an estimate has been prepared based on the use of automobile parts not made by the original manufacturer, but that are at least equivalent in terms of fit, quality, performance and warranty to the Original Equipment Manufacturer (OEM) parts they are replacing. The bill makes it a crime for repair service organizations to use non-original parts on a vehicle when the invoice stated
an original repair part was used, and victims are required to report fraud to the insurance commissioner. If signed by the governor, the bill becomes effective on Jan. 1, 2004.

A credit bill passed in early June and has been signed into law. It prohibits credit history from being the sole basis for terminating insurance coverage, ceding an automobile insurance policy to the reinsurance facility, or subjecting a policy to consent to rate. But insurers can use credit -based insurance scoring as the sole basis for discounting rates.

“The bill was intensely lobbied by NAII and the industry, and several positive changes were made that protected insurers’ use of this important tool,” LaCost said. “Originally, the bill was a 90-percent prohibition of the use of credit in rating and underwriting. While the NAII does not support heavy restrictions on credit, we believe that the changes were a ‘win’ under the current political structure in North Carolina.”

SB 469 will be up for review next year, which places certain conditions on exclusive agency contracts for the sale of insurance or financial services. The measure makes it an unfair trade practice for p/c insurers to have a provision in their exclusive agency contracts with their agents requiring the agents to sell a certain amount of life insurance or financial services.

“Absent any harm to the public, it is not good public policy for the N.C. General Assembly to dictate what can and cannot be in an agency contract,” LaCost said. “No public harm exists for p/c insurance agents to also offer life insurance so long as they are licensed and trained to do so. The bill deals with the relationship between the company and its agent, and no valid public purpose for this legislation exists.”

HB 986, also up for consideration next session, would prohibit a newly
licensed insurer issuing a policy covering damage to a motor vehicle in N.C. from having a continuing financial interest in any repair service in the state. HB 1152, another bill to be heard next year, would ban an insurer from authorizing or requiring the use of non-original crash repair parts for motor vehicle repairs without the consent of the policyholder or claimant.