Circular Letter No. 16 (1997).
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004
Circular Letter No. 16 (1997)
November 3, 1997
T ALL INSURERS LICENSED TO WRITE MOTOR VEHICLE
PHYSICAL DAMAGE INSURANCE IN NEW YORK STATE
RE: PAINT AND MATERIAL COSTS REIMBURSEMENT
A joint industry committee has been addressing issues of concern
between auto body repairers and insurers for the past several years. Both the
Insurance Department and the Department of Motor Vehicles have participated on
this committee and efforts have been made to reconcile differences between the
two industries.
One of the issues of concern to motor vehicle repairers has been the
perception that the methods utilized by insurers to determine allowances for
paint and material costs were out of date and, in certain instances, did not
even reflect the cost of the paint and material. Insurers in New York State had
generally estimated the cost for paint and materials by paying an hourly rate
multiplied by the number of hours required to paint the area. However, repairers
noted that the actual costs of paint and materials have increased over time as
the colors have become more varied and difficult to reproduce. In addition, the
time it takes to apply the paint varies based upon the color used and the number
of stages of paint, clear coats and other refinishing materials required to
complete the repair properly.
As a result of those concerns, studies were conducted, under the
auspices of a subcommittee, to ascertain the costs of painting motor vehicles as
part of the repair process. The studies demonstrated that paint costs could be
more precisely measured using a manual that recognized variations in paint cost.
The subcommittee concluded that the use of a published guide would be an
improvement over the methods that were being used to determine this allowance.
Insurer representatives on the committee generally indicated a willingness to
utilize a separate paint manual. However, both insurers and auto body repair
shops were unclear if they could use two manuals to determine repair costs.
Upon a recommendation of the committee, the Department of Motor
Vehicles amended the Commissioner's regulations to provide that "A manual may be
used if it is objective and has wide acceptance in the industry. One manual may
be used for mechanical repairs, one for body repairs and a different one for
paint and refinishing materials." [15NYCRR 82.8(e)] . The amendment clarified
that more than one manual could be used. It was promulgated without any
objection.
Since the costs of paint products vary widely, methods traditionally
used by insurers to provide allowances for paint and material costs may, in some
instances, be inadequate or excessive. Inadequate allowances might result in
repair estimates that do not provide an allowance that is sufficient to restore
the vehicle to its condition immediately prior to the loss as required by
Insurance Department Regulation 64,
[11NYCRR 216(b)(1)] and could subject insurers to administrative penalties for
engaging in unfair claims settlement practices.
Insurers are expected to provide repair allowances that are sufficient
to restore damaged vehicles to their pre-accident condition. The Department will
be monitoring insurer claim practices to ascertain that allowances for the
various aspects of the repair process are sufficient. As complaints are made,
either directly to insurers or through our Consumer Services Bureau, and as
reviews take place during Insurance Department market conduct examinations, we
expect insurers to justify their allowances.
This Circular Letter should be acknowledged in writing no later than
December 15, 1997, to Mr. Richard Nebb, Associate Examiner, Property and
Casualty Insurance Bureau, 25 Beaver Street, New York, NY 10004.
Very truly yours,
Mark Presser
Deputy Bureau Chief
Property and Casualty Insurance Bureau