In the December column, we discussed the effect of adding one to four more hours to each estimate and tools to do so. This month we are going to discuss why insurers fight so hard to suppress labor rates, and some different tools we can use to combat this.
Let’s say, for example, in ABC Auto Body’s market most insurance companies are paying $65 per hour for body and refinish labor with an average 40 estimate hours. How many dollars in labor sales is ABC collecting at an insurance-pay rate? $65 per hour X 40 estimate hours = $2,600. Let’s say in ABC’s market that most independent mechanical shops are charging $150 per hour. ABC also has several OEM certifications, new equipment, highly skilled/trained technicians with not only I-CAR Platinum, but specific OEM training, excellent customer service, and a first-class facility. What if ABC figured out they needed to charge $130 per hour to achieve their business objectives no matter what repair process was needed (body, frame, mech, etc.)? The catch is they no longer add for not included operations like “safety inspections,” “corrosion protection,” “denib & buff,” “pickup & drop-off for sublet,” etc. You get my point. Now instead of 40 average hours of labor per RO, they only charge 30. Sounds insane, right? Here’s the math: $130 per hour X 30 hours = $3,900.
Did you get the math here? By doubling their labor rate and cutting their average estimate hours by 25%, they still received a 50% labor dollars increase. Otherwise, $2,600 + $1,300 = 50% increase. Now we understand why insurers push back so hard to go up just $2 per hour.
The tools to fight this
- Remember, if you download insurers estimates or accept an “Open Shop” assignment, their estimate rules/rates come with it. You MUST change their rates to your rates on every supplement, even on supplement three, four, and five. Make the insurer change it back. My name is still on my shop no matter what, and I am still THE owner! Also, along with downloading their “estimate rules,” you must watch out for their paint and clearcoat cap scams.
- Let’s take, as an example, ABC Auto Body’s market. Insurers are still paying $65 per hour and ABC’s door rate is a whopping $67. What’s the most ABC will ever get? $67! What do you think would happen if ABC raises their door rates to, say, $90? They would soon realize not one customer-pay job would get pushback at $90 per hour. Consumers know $90 is still a pathetic rate for skilled labor in the US. They would even find some insurers calling and stating, “We will not pay your $90 per hour but will only go to $72.” Their reply should be, “OK.” It’s a win for them, as its still $7 higher than they would have normally gotten.
- I am part of Mike Anderson’s 20 groups, and Mike stated, “You must focus more on selling customer-pays.” We used to avoid these jobs, due to the potential of easily doubling the initial estimate with hidden damage, safety inspections and calibrations, which could result in an upset customer. We found out that just educating the customer up front is where the gold is. Like many of us, we have had several $10-15k+ plus jobs at our door rates. And what a win they are. Lately, insurers have been rapidly raising premiums, and consumers are scared.
- As far as mechanical rates or the small (m 4.5) on the LH side of the labor time vs the big (M 4.5) on the RH side in CCC: Some insurers love to use the line from their 1980s playbook by stating, “We’re only paying body rate, because a body tech is likely changing the radiator and condenser.” The best way to handle this is to turn their logic back on them. “If we have our certified mechanic do bodywork, then you will pay mechanical rate to repair the fender, right?”
- Insurers are very good at instilling fear in the shops that they cannot have any labor rate discussions. Here’s the deal, we can have limited discussions; we just can’t set any type of pricing (colluding) etc. Please consult your attorney first to confirm what you can and cannot talk about. FYI: Quite often, insurance executives talk with other insurance executives. Then the labor rate “surveys” are only privy between CCC/Audatex/Mitchell and insurers but not shops. I wish someone could explain to me how this is even legal.
- Do you know what your “effective labor rate.” is? If not, you need to find out and track it monthly on a graph. Up is good; flat or down is bad. The effective rate is defined as an average of all your rates added up (body, ref., frame, mech, detail, structural, etc.).
- Show your customers examples of other insurers paying a higher labor rate than their carrier when scheduling and why they will need to pay the difference at pickup.
- Input your shop’s rates on www.laborratehero.com and use it to show insurers your market’s rates.
