Massachusetts repairers await decision on labor rates

Jan. 1, 2020
After two public hearings, one of which lasted more than six hours, collision repairers in Massachusetts are waiting to find out if the legislature will take steps to raise the state’s lower-than-average labor rates. The Special Commission on A

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After two public hearings, one of which lasted more than six hours, collision repairers in Massachusetts are waiting to find out if the legislature will take steps to raise the state’s lower-than-average labor rates. The Special Commission on Auto Body Rates, established earlier this year, is due to issue a report by the end of December that could recommend a rate increase.

“We need to see long-term reform of this problem, not just short-term relief,” said Peter Abdelmaseh, executive director of the Massachusetts chapter of the Alliance of Automotive Service Providers (AASP), the group that introduced the original labor rate bill (House Bill 1085) into the state legislature in January of 2007 in conjunction with the Central Mass. Auto Rebuilders Association (CMARA). In early July, language from the bill that established the Special Commission was included in the final version of the state’s Budget Conference Report and signed by Gov. Deval Patrick.

At issue is a fundamental question about how body shops are reimbursed. Insurance companies believe market forces will set a reasonable rate, which can then be negotiated between the insurer and the repairer. But body shop owners claim that insurance companies have artificially depressed labor rates for years. If the commission’s report strongly favors the language of the original bill, then the legislature will be more likely to pass the measure.

“In Massachusetts there is no rule or regulation that governs the labor rate, but insurance companies have basically dictated what they will pay repairers,” says Steve Regan, spokesperson for the Massachusetts Auto Body Association (MABA). “You should be able to be paid what your posted rate is.”

Labor rates in the collision industry, which are generally based on prevailing rates, are historically much lower than those paid for mechanical work or for warranty work done at a dealership. Those low rates make it difficult for shops to turn a profit and attract employees, and a number of owners and technicians submitted testimony outlining how difficult it has been to maintain their businesses under the current system.

“I have no expenses left to cut, but when I project revenues at current hourly rates and expenses based on the trends of the past few years, my business will likely no longer be viable by 2010,” said Bill Bushey, owner of Arnold’s Auto Body Service in West Springfield, in prepared testimony.

Insurance industry groups submitted written and oral testimony at the hearings, claiming that an increase in labor rates could add up to more than $100 million in additional expenses, and will ultimately lead to higher premiums.

Characterizing the proposed rate hike as a “major step backwards” in auto insurance reform, American Insurance Association (AIA) northeast region vice president John Murphy told the commission that “Auto insurers can and do negotiate favorable labor rates for repairs. Those efforts have a positive impact on repair costs which, in turn, have a positive impact on containing overall insurance costs.”

However, as Regan pointed out during the hearing, figures from a report issued by the Automobile Insurance Bureau (AIB) of Massachusetts indicate that the cost to insurers to raise rates to the national average would be close to $100 million. Spread across each policyholder in the state, that would amount to a just over $2 per month increase in premiums.

Even the insurance industry admits that labor rates in the state are unusually low, hovering around $35 per hour. That’s 23 percent below the national average, and 21 percent below neighboring New England states (according to the AIB report), and rates for mechanical work are typically double the body shop rate.

“We do acknowledge that the labor rate in Massachusetts is low,” says Brianne Mallaghan, director of public affairs for the AIA. “However, we believe it’s important for the commission to examine all the factors involved in the reimbursement process, not just the hourly rate comparisons.”

Insurers at the hearing also claimed that Massachusetts shops take several hours longer to complete repairs than their counterparts in other states, based on data released by CCC Information Services several years ago.

Abdelmaseh said that the average labor hours per claim might be higher in the state because repair shops are less willing to eat the cost of services that DRP shops in other states may not charge for.

“Our guys may be better at writing estimates and supplements because the rates are so low,” Abdelmaseh says. “These repair processes are all in the books and approved by the insurers when they sign off on the estimates.”

Shops could be rated

A significant portion of the original labor rate bill outlined a voluntary classification system that would distinguish shops based on their equipment, training and certifications. Shops in the “A” category would receive 100 percent of the established labor rate, while “B” shops would be paid at 90 percent of the rate. “C” shops would negotiate their rates as they always have, as would shops that don’t participate in the inspection program.

Critics of such licensing programs have described them as an additional tax on shop owners designed to squeeze smaller shops out of the market, but Abdelmaseh says such a system would encourage shops to update their training and technology, so they could be paid accordingly.

“We feel it’s important for shops to be paid on merit,” Abdelmaseh says. “If we don’t move forward with the idea that shops can be paid different rates, then we will all be painted with the same brush and be paid at the lowest end of the spectrum. Body shops are grossly underpaid compared to mechanical, and that’s true in all 50 states.”

“Whether we get the present labor rate bill passed, or some other piece of legislation, those hearings have had the net effect of convincing the legislature and the executive branch — and even the insurance companies, to a great extent — that something needs to be done,” Regan says. “Repairers here cannot continue to be paid the lowest labor rate in the country when they have the highest cost of living in the country.”

As for insurance industry claims that market forces will naturally correct the imbalance, Abdelmaseh says that that can’t occur as long as insurers are holding down rates.

“The market isn’t working, because there really is no free market involved,” Abdelmaseh says. “There are no negotiated rates, and anybody who thinks there are is being foolish. The real market can’t exist in our industry as long as insurers act as third-party payers. Therefore, the government has to be the fourth party involved to protect the consumer and the repairer from the insurance companies. We aren’t looking for locked-down rates. We need the government to nurture this industry back into a free market by setting a floor.”

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