Insurance department proposes managed-repair discounts, seeks to limit crop rebating in 02/1974

John Godfrey, North Dakota insurance commissioner, told the Industry, Business and Labor Committee that bill 02/1974 — the product of an interim study — is intended to "put some downward pressure on those rates." He said the bill contains several provisions the department supports, but highlighted two sections that had generated committee questions: a managed-repair program for first-party claims and changes to rebating rules for commercial policies.

The bill would allow insurers to offer a reduced premium or other incentives in exchange for a policyholder’s agreement to use a contractor in the insurer’s preferred network for first-party repairs. "Think of it as your good student discount, your multi policy discount," Godfrey said, describing the managed-repair provision as another discount opportunity for consumers. Deputy Commissioner John Arnold told the committee the engrossed version includes disclosures and an option for an insured to request an alternate contractor, but the department has proposed an amendment to tighten that provision so a purchaser of the managed-repair plan would be required to use the program contractor for first-party claims.

Representative Casper and other committee members pressed department staff on the practical effects of that requirement. Casper asked what happens if a recommended contractor does poor work and who would be liable; Arnold said he did not have immediate language describing liability and offered to research whether additional policy language was needed. "Where is the liability to the insurance company to make it right in this bill?" Casper asked. Casper and others also pressed whether disclosures would identify the contractor or contractors covered by the plan; Arnold said the planned disclosures include "the process for repairs" and that the department could add clarity identifying contractors.

Several members raised concerns that steering first-party work to a preferred list could harm smaller shops. Senator and representatives on the committee noted that in the auto-insurance market many repair shops already participate as "direct repair" or preferred shops and that those shops typically offer guaranteed repairs. "One of the advantages of the direct repair shop ... is guaranteed work," a committee member said, adding that consumers often prefer the hassle-free option of a preferred shop. Multiple members recounted existing industry practice where preferred shops provide warranties and insurers sometimes cover costs above a third-party estimate when the policyholder uses a recommended shop.

On rebating, the department and Commissioner Godfrey said the bill originally included broader changes intended to give "large commercial risks" more flexibility in negotiating premiums and commissions. The department reported negotiating with industry and said the complaints it receives about rebating are concentrated in crop insurance. Godfrey and Arnold asked the committee to strike the crop-related rebating language that had raised objections from the agents’ trade group and to decide whether to exempt large commercial risks from rebating rules. Arnold said the department had an amendment prepared to remove the crop provision and could revert other rebating language to an earlier version if the committee preferred.

Committee members asked for clarification about how the proposed bill would treat commercial negotiations that sometimes involve adjusted commissions or credits for large buyers. Department staff said they intend the changes to let sophisticated commercial buyers and brokers negotiate terms without routine department involvement and cited examples of large, specialized commercial placements where buyers have legal and broker resources.

The department also asked to modify surplus-lines language: it recommended removing a burdensome "diligent search" requirement for surplus-lines placements and replacing it with a lighter-touch or documented-market-knowledge requirement so agents need not run repetitive searches when they already know market availability.

At the close of the discussion, Godfrey and Arnold agreed to prepare a revised drafting mark that removes the crop rebating language, reinstates the department’s managed-repair amendment from its original testimony, and addresses surplus-lines search language. Arnold said the department would email the amendment and could provide hard copies later the same day. No formal vote was taken during this hearing; the committee signaled support for receiving the revised amendment and postponed further action until the markup was circulated.

The committee’s debate emphasized three open issues the members said they wanted clarified before any final action: (1) whether buyers who choose a managed-repair policy would have adequate remedies if a chosen contractor performed poorly, (2) whether excluding the insured’s right to select any contractor would unfairly disadvantage smaller contractors, and (3) whether the committee wants to exempt "large commercial risks" from rebating restrictions or keep tighter controls. Department staff committed to return with draft language reflecting the committee’s guidance.

The committee recessed after the exchange and scheduled follow-ups once the department circulates the revised amendment.