In previous months, we published several articles concerning AB 1679 and its impact on the collision repair industry.
In our June issue we published the first of several articles about AB 1679: CA Body Shop Owners Call AB 1679 a Potential Disaster for the Industry, which gained widespread attention. In July, we printed a follow-up story, CAA Says California Insurers Could Use Sneaky Political Tactics to Push AB 1679.
In that first article, insurers responded with a letter from the FAIR Coalition, a group consisting of 25 different organizations in California (including many sponsored by the insurance industry) outlining why they support AB 1679.
Below is a point-by-point analysis and rebuttal to statements made in the letter, devised by CAA Legislative Chairman Monte Etherton, President of Fender Mender Collision Repair in Encinitas, CA.
Blaming hardworking body shops for “the rising cost of car repairs” is like blaming doctors for the rising cost of prescription drugs. Why? A pair of headlamps for mid-range cars such as the Accord, Focus, Camry and Camaro models cost from $1,800 to more than $2,500, but a Los Angeles area body shop would only be paid $18 to install one. Insurers using bogus labor rate surveys (which would continue to be allowed under AB 1679) want to force shops to charge even less. That same headlamp installation at a new car dealership (where pricing is not subject to insurer surveys) would cost $45.
The California Department of Insurance documented that its Standardized Labor Rate Survey regulations will produce an increased cost to insurers of $1.15 million, or pennies per policyholder. Insurers state it’s a “windfall” for shops that will cost insurers and consumers $280-$300 million. This claim is unfounded, and insurers have yet to come up with a reasonable basis for any significant cost increase.
Five major insurers have conducted CDI Standardized Labor Rate Surveys this year, yet none have been submitted to CDI as required by law. If the insurer’s “windfall” prediction was true, surely those surveys would prove it.
Analysis & Rebuttal
FAIR Coalition: "We are in support of AB 1679, because it provides an alternative, and less costly, approach to the California Department of Insurance’s (CDI) sole method of conducting an auto labor rate survey as set forth in the recently adopted regulations.”
CAA's response: There is no known reason why random insurer survey methods would be less costly than the CDI’s standardized survey. However, if not done properly, random survey methods would be costlier due to CDI and insurance costs from responding to consumer and shop complaints.
The reason CDI offered a “sole method” of conducting labor rate surveys was to alleviate problematic inconsistencies between insurers’ surveys. Previously, each insurer that chose to conduct a survey would manipulate the data in their own way, so each arrived at a different “prevailing rate” for each geographic area. This results in the same shop performing the exact same repair for different prices depending on the insurer and their survey, even though there is no contractual relationship between the insurer and the shop.
FAIR Coalition: “AB 1679 also clarifies the type of information a consumer is entitled to receive during the claims process and eliminates CDI anti-steering regulations that are inconsistent with existing law.”
CAA's response: Insurers want to repeal all anti-steering laws (which include the consumer’s right to select the repair shop) by legalizing the brow-beating and half-truths CDI regulations prohibit. The sole purpose of this “information” is to steer the consumer into insurers’ discount repair program (DRP) shops. Insurers also want to delay inspections and approvals of non-DRP repairs in order to teach customers an unsaid lesson: If you don’t choose our DRP shop, the claims process will become much more difficult.
FAIR Coalition: “Insurers survey auto body shops to establish a reasonable market rate for car repair costs.”
CAA's response: Most insurers (and consumers) simply pay the labor rate the shop charges. Only a few insurers (e.g. supporters of AB 1679) attempt to unilaterally set a price cap for auto body labor by using a labor rate survey. The fact is this: There is no contractual relationship for any pricing between thousands of independent California body shops and the insurers that conduct labor rate surveys. Bureau of Automotive Repair (BAR) regulations require the body shop contract with the vehicle owner to repair the car by the shop’s estimate, and the insurer owes the vehicle owner for the loss under the terms of the policy.
FAIR Coalition: “It is critical for consumers that insurers can ensure these surveys reflect the actual prevailing market rate.”
CAA's response: Actual market rates will never be reflected in the bogus labor rate surveys AB 1679 will continue to allow. It is more critical to consumers that insurers pay a fair market labor rate for consumers’ car repairs and ensuring those repairs are completed to OEM standards of quality and safety.