The Minnesota Department of Commerce accused State Farm Insurance Thursday of manipulating the auto-glass marketplace in the state and refusing to pay its policyholders a fair price to repair or replace glass.
Commerce Commissioner Jim Bernstein said State Farm set a price for auto glass -- about 55 percent off the list price -- and paid that price to glass shops in its network.
On "at least 1,832 occasions," customers and glass shops were paid less than a fair market price, and several hundred customers were told they'd have to pay the difference if they went to a more expensive, non-network shop, he said.
"Because it is the biggest kid on the block, State Farm thinks it can set any price it wanted for auto glass, and then make it difficult for policyholders to choose a shop that doesn't accept its pricing structure," Bernstein said.
State Farm issued a brief statement, saying it "is very committed to providing its policyholders with prompt and fair handling of their automobile glass claims." The company said it would review "the points outlined in the commissioner's news release" and would address specific issues during a later hearing.
State Farm, the largest auto insurer in the state and the nation, collected more than $591 million in premiums from Minnesota auto policyholders last year.
The company will be required to appear before an administrative law judge to answer allegations that it engaged in unfair trade and claim-settlement practices. A pre-hearing conference is set for July 31.
Mark Kulda, spokesman for the Insurance Federation of Minnesota, said State Farm's system of handling auto-glass claims is unique, "so this doesn't impact any other company."
The Minnesota Independent Auto Glass Association, applauding Bernstein's action, said the pressure on glass companies to follow State Farm's lead by dramatically reducing prices could compromise safety or drive some shops out of business. A windshield provides up to 60 percent of a vehicle's structural integrity and is critical in protecting passengers in a crash or rollover, the association said.
Bernstein said the Legislature has taken up the auto-glass issue in two of its past three sessions and preserved the principle that consumers have a right to choose an auto-glass shop.
But glass-shop owner Marc Anderson said the Legislature's changes in state law this year will allow prices to go so low that glass companies might be forced to use inferior materials and less-qualified installers. "We're going to have to go back to the Legislature next year because the price problem is compromising safety," he said.
In September, State Farm, without admitting wrongdoing, signed a "cease-and-desist order" and agreed to pay a $75,000 civil penalty for allegedly failing to pay its auto policyholders' chosen vendors.
The Commerce Department also alleged that State Farm failed meet deadlines for acknowledging claims, accepting or denying them and making payment; failed to tell customers about their right to demand arbitration; and failed to turn over to the department complete files for 2,000 auto-glass claims.
-- Donna Halvorsen is at firstname.lastname@example.org .