Rhode Island repairers win long fight for standardized prevailing rate survey procedures

Rhode Island may be the nation’s smallest state, but collision industry representatives say they have won a huge victory by achieving a uniform prevailing labor rate survey process overseen by government authorities.

“Every shop gets the same survey,” reports Jina Petrarca-Karampetsos, a lawyer and lobbyist working on behalf of the Auto Body Association of Rhode Island (ABARI). Any insurance company with more than 1 percent of the market is now required to use a standardized form to conduct a tally of body shop labor rates. Facilities having a direct repair program arrangement with a particular insurer are excluded from participating in that company’s surveys.

“This makes them define and actually conduct a survey to justify their labor rates,” Petrarca-Karampetsos says, citing an ongoing pattern of disputes with the insurance industry over what constitutes an accurate prevailing market rate.

The first survey forms went out in February; they are due to be returned by June. The prevailing rates are expected to rise once the results are in, although specific predictions are on hold pending completion of the forms’ distribution and return process. “We’re just trying to work out the kinks,” according to Petrarca-Karampetsos.

It’s been a long battle to reach this point, she says. As the legislative proposals were being formulated the association took notice of the rate survey problems being endured by shop owners in California, which motivated ABARI to consistently push for a tougher stance regarding the methodologies involved.

“The association has been working with the legislature for years and years,” she recounts. “It’s been at least a decade of educating the legislators, and finally we got some attention.”

In June of 2006 an ABARI-backed survey bill was vetoed by Gov. Donald L. Carcieri, only to be overridden by the General Assembly after much convincing from body shop owners. “We have a bunch of dedicated association members who year after year have gone to the legislature to explain and explain,” Petrarca-Karampetsos says.

Rhode Island’s legislative makeup is about 70 percent Democratic. The governor’s office has been held by Republicans for several years. ABARI’s efforts are aimed at acquiring bipartisan support and sponsorship.

“We have found people willing to listen on both sides of the aisle,” she explains. “I am convinced that this is because the current system is so broken that it is very hard for anyone to deny the seriousness of the problem regardless of one’s political philosophy or leanings.”

ABARI’s membership is comprised of some 75 independent shops – you can’t join if you belong to a DRP. Many of the members are highly motivated to stand up for what they believe is best for the collision industry. “Rhode Island is such a small state, so it’s very easy to get swallowed up” by the power and influence wielded by of the insurance lobby, Petrarca-Karampetsos observes.

“We have a great group of members who are dedicated to the cause, and they do not get discouraged by the process,” says ABARI President John H. Petrarca, owner of Providence Auto Body.

“Laws are not created or changed overnight. Most of our association members understand that it takes years of fighting and educating to get anything accomplished in government,” he points out. “Also, I believe that because Rhode Island is such a small state, we feel the effects of insurance company squeezing faster and stronger than other markets, which has lead to an increased urgency for change.”

The prevailing rates issue has long been a particular concern, and ABARI’s “relentless lobbying began the process of educating our General Assembly of the very dangerous road down which our state was headed,” says Petrarca, who is Petrarca-Karampetsos’ father.

“In Rhode Island any bill that is introduced to the General Assembly must be given a committee hearing if one is requested. Therefore, ABARI used every opportunity over several years to testify regarding the real DRP-insurance company relationship, how that relationship is illegally allowing insurance companies to price-fix, and how the stagnant labor rate affects the quality of repairs and places consumers in a dangerous position,” Petrarca reports.

“Further, we demonstrated that if something was not done quickly, between the stagnant labor rates and rampant steering many small businesses would be forced to close, causing hundreds of people to lose their jobs. The legislature finally agreed that something needed to be done,” he notes.

According to Petrarca, numerous insurers doing business in Rhode Island were sending crash victims letters stating that the prevailing labor rate in the state was $38 an hour, and the company would not be responsible for any charges over that amount.

When asked at hearings about how these prevailing labor rates were computed, insurers were unable to produce evidence through surveys or studies – “never providing any proof,” Petrarca contends.

However, when legislators heard that the purported prevailing labor rate being cited was $32 an hour in 1987, and is now only $6 higher some 20 years later, “They hesitated to believe it was the ‘market-rate,’” he says.

“We had to educate everyone to get these bills passed,” Petrarca continues. They went to Carcieri, who ended up rebuffing them with a veto, along with approaching officials in the Department of Business Regulation (DBR) “to educate them of the severe problems with the industry,” he explains. “We educated and alerted the attorney general to the problems facing the consumers. Finally, we encouraged all of ABARI’s membership to reach out to their legislators and bend their ears as often as possible. We were a constant presence at every new legislative session to have our bills heard. We have been persistently educating anyone who will listen for many years.”

Opposition to the concept

As ABARI’s legislative efforts were wending their way through the Statehouse, the insurance industry was stepping up its lobbying to derail the survey measures and quash the eventually successful override of Carcieri’s veto.

“We oppose the concept,” says Frank O’Brian, vice president of the Property Casualty Insurers Association of America, “but I’m sure the members are doing their best to comply with the regulations.”

O’Brian adds that he also expects collision repairers to fully adhere to the measure’s requirements. “The statute was pushed very hard by the auto body industry,” he notes, declining comment on whether insurers will seek a court ruling or embark upon further legislative action to rescind the survey program.

As ABARI was preparing, debating and amending its standardized survey form proposals, says Petrarca, “We looked to other states and studied the process in California.” They saw several flaws, as the methodology and reporting requirements in the Golden State’s measure were fuzzy at best and the surveys failed to exclude insurer-friendly DRP rates from the tabulations. “As such, we incorporated what we believed would lead to a fair and workable survey process” in Rhode Island.

Each insurer is to come up with its own rate based upon its own survey. There is no state regulated labor rate. However, the form to be sent to all shops by all insurance companies is a standardized document created by the DBR under the statute. The law mandates that insurers must pay the rate established by the survey.

In addition to administering the process, the DBR is responsible for enforcing the provisions. ABARI is poised to pay close attention to what transpires.

“Like everything else before, we must police our industry ourselves,” Petrarca points out. “As such, we will challenge the DBR if we find that they are not enforcing the requirements of the law. Regarding DRPs, the law states that the insurance companies must describe the formula they used and list the shops surveyed. Therefore, a record will be established to be challenged if necessary.”

The full text of Rhode Island’s statute and the survey form being distributed are available here.