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Texas, California legislatures eye labor rate surveys

Thursday, May 4, 2017 - 07:00
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Labor rate surveys are frequently controversial – insurance companies typically provide the survey data, but exactly where the data comes from and how the rates are calculated is often not clear. In both California and Texas, repairers and insurers are battling in the state legislature about how those surveys are conducted and what they mean for future claims.

In April, the California Assembly Insurance Committee unanimously supported Assembly Bill 1679 that opens up a number of potential loopholes for insurance companies when it comes to steering and labor rate survey data that was supposed to be addressed by new state Department of Insurance (CDI) regulations.

The bill has been sent to the Assembly Committee on Appropriations for a hearing.

The new CDI rules took effect earlier this year, and made it illegal for insurers to mandate that repairs be made at specific shops or to suggest an alternative shop once customers had already chosen one for their repairs. It also imposed a six-day time limit on inspections and limited the amount of travel required of vehicle owners to have the inspection done.

The new rules were put in place because of continued complaints about steering practices even after the state passed strong anti-steering legislation in 2010.

The labor rate survey regulations, which went into effect in February, provided a standard way for insurers to conduct surveys (but without requiring them).

The new bill grants a rebuttable presumption of good faith for labor rate surveys that don’t follow the standard, eliminating the regulatory risk for insurers that may use survey methods that could be manipulated or abused. It also removes anti-steering protections by eliminating some of the inspection requirements and allowing carriers to require a second estimate from a shop they select. Insurers would also be able to promote DRP shops even after a customer selects their own shop.

The bill also allows insurers to withhold some labor rate survey information from the CDI.

Insurance groups claim that the labor rate regulations would lead to much higher repair costs that would have to be passed on to consumers. According to the Association of California Insurance Companies (ACIC), the regulations would have forced insurers to pay rack rates, which they claimed were “randomly” set by repairers.

As an example, according to the ACIC, a large shop in the Bay Area raised its rates for mechanical labor from $71 to $116 per hour after the rules change.

“These new CDI regulations are magnifying the crisis California is facing from more frequent accidents and higher repair costs.  The price tag of these regulations could add an additional $280 to $300 million in higher auto repair costs, which could hit California drivers in their wallet,” said Rex Frazier, Personal Insurance Federation of California (PIFC) president. “There is an epidemic on our roads with distracted or impaired drivers and pedestrians traveling on congested and poorly maintained roads. These conditions are already creating a deadly and costly environment. Now we are faced with additional repair costs from these new regulations that will simply compound the skyrocketing repair costs.”

According to data from Mitchell, California’s auto labor rate has increased by 15 percent in 10 years, and is the 9th highest in the country at $55.48.

However, CDI pointed out last year that many surveys are inconsistent or unreliable, which affects reimbursement when it comes time to pay claims. Some surveys relied on artificially large geographic areas or outdated data, for example.

Meanwhile, the Texas legislature is considering a bill (HB 3804) that would use a third-party labor rate survey instead of insurer-provided surveys. It also establishes stronger anti-steering language. The bill passed the insurance committee in April and will be put before the assembly for a vote later this year.

The Auto Body Association of Texas indicated it favored the use of the National Auto Body Research (NABR) surveys for performing the third-party survey work.

NABR has conducted a number of state labor rate surveys (including surveys for both California and Texas). In Texas, the group calculated an average body labor rate of $50/hour, and a mechanical rate of $94/hour.

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