Repairers in Massachusetts waiting for labor rate relief will have to wait a little longer. A special commission formed to study the need for higher auto body labor rates recommended that the state legislature re-examine the issue in June to see if recently enacted regulatory changes in the insurance market will result in higher rates.
The Special Commission on Auto Body Rates was formed last year through a special section of the state budget. In January 2007, the Massachusetts chapter of the Alliance of Automotive Service Providers (AASP) and the Central Massachusetts Auto Rebuilders Association (CMARA) introduced a labor rate reform bill in the state legislature, and language from that bill was included in the final version of the state’s Budget Conference Report signed by the governor.
The commission was charged with determining how many repair shops had closed in Massachusetts since 2000; to study existing rate setting practices; and to examine the costs and benefits of developing a tiered rating system for auto body shops.
The 11-member commission included members of the state Senate and House of Representatives, and three representatives from the insurance industry, two from the repair industry, and one person from an auto dealership.
“We were able to get this issue on the table, and we motivated a lot of shops to get out and get involved at the statehouse,” says Rick Starbard, president of the Alliance of Automotive Service Providers (AASP) Massachusetts/Rhode Island and owner of Rick’s Auto Collision in Revere, Mass. Starbard served on the commission. “I have respect for everybody on the commission. Did I think we were going to sit in that room and all be on the same page? No. That’s why at the end of the report you see two different sets of conclusions from the insurance people and the repair side.”
After two well-attended public hearings, the commission convened to develop its recommendations, which were released at the end of December.
The commission recommended that once labor rate data through June 30, 2009, is available, the general court will review it to determine what effect the implementation of “managed competition” (the name given to recent deregulation of the insurance industry in the state) has had on labor rates. Once that data is evaluated, the general court will then consider whether alternate methods are necessary “to ensure that the labor rate insurers pay to auto body shops for repair of damaged motor vehicles is fair and reasonable…”
Representatives from the repair and insurance industries will meet bi-monthly until June to compile data related to labor rate and the tiered shop classification system, and discuss accountability and quality issues.
That “wait and see” approach comes as a disappointment to shops in Massachusetts who feel that action needs to be taken immediately on the labor rate issue, but repairers who participated in the commission say that the group initially planned to give insurers a year or more to evaluate rates.
“The insurers position was that we just got ‘managed competition’ last year, and put the expedited repair process in place,” says Tom Ricci, president of CMARA and president of Body & Paint Center in Hudson, Mass. “We still don’t know what the ramifications of that will be, in addition to the repeal of the cost containment issue in September. They wanted time to allow the market to adjust.”
The “cost containment issue” refers to constraints placed on insurers under the old regulatory system that required insurance companies to control costs and expenses in order to reduce premiums.
State guidelines adopted in 1988 ordered that “carriers must have a plan to demonstrate their efforts to resist labor rate increases or to lower rates whenever possible.”
According to the insurer conclusions listed in the report, “The effect of these significant, fundamental changes has not as yet matured and undoubtedly more reforms will follow as a result of the deregulation of the auto insurance rates. This will happen, however, only if further distorting regulation can be avoided, such as a government-set body shop labor rate.”
“They’ve been able to use cost containment as a scapegoat,” Starbard says. “Insurance companies have been able to give their employees raises, pay for new computers, pay for increased healthcare costs and cover increased expenses in every other area, but they couldn’t raise labor rates? That doesn’t seem like a reasonable argument.”
Average labor rates in Massachusetts are approximately $35 per hour, or 23 percent below the national average — something that even insurance companies in the state admit needs fixing.
Insurance industry representatives have pointed out that repairers in Massachusetts bill more labor hours on average than their counterparts in other states. They have also argued that an increased labor rate would cause premiums to increase an estimated $100 million, based on figures from a report issued by the Automobile Insurance Bureau (AIB) of Massachusetts. Spread across each policyholder in the state, that would amount to just over $2 per month increase in premiums.
During the public hearings, insurance companies also said that an increase in labor rates could potentially lead to an increase in total loss vehicles because of higher repair costs.
The final report does not provide any recommendations for the voluntary shop classification system outlined in the original bill. Based partly on guidelines developed by the Collision Industry Conference (CIC), the shop classifications would rate shops based on training and technical capabilities, and would impact the rate at which insurers paid them.
The labor rate bill has been re-filed, and repair groups in the state hope to keep the pressure on legislature and insurers to address the labor rate problem. “It’s now our job to stay focused and gather information so that by June we’ll be ready,” Ricci says. “If we make the noise we made last year, we should hopefully get some reaction.”
“We can’t sit here and wait for insurance companies to graciously give us a buck or two an hour,” he adds. “We’ve had the same labor rate here for eight years, and it was virtually unchanged from 10 years before that.”
One concern is that insurers will raise rates marginally between now and June, and then let them stagnate again once lawmakers are now longer paying attention to the issue.
“I expect there will be a significant change in the rate, and insurers will say that the free market is now working and the state doesn’t need to do anything,” Starbard says. “We’ve done everything we could to make sure everybody was aware that the free market will not work as long as the insurance industry is allowed to wield control. That’s why we feel there’s still a need for legislation. Even if the rates move by the middle of the year, there’s still no mechanism in place to keep them stagnating for another 15 or 20 years.”
