Tuesday, 31 October 2006 17:00

BAR regs define scope of labor rate surveys

New BAR regulations have reduced the importance of labor rate surveys, relegating them to little more than resource documents and preventing insurers from using them to artificially set the rate they will pay. The new regulations were hammered out after the California Department of Insurance held two days of hearings in an effort to define the parameters of auto body repair labor rate surveys conducted by the insurance companies. 

In attendance were representatives of the CAA, ASA and CRA as well as many insurers. There were only two shop owners at the hearing. If the new changes are accepted, the labor rate survey as a determinant of shop labor rates will soon be a thing of the past.

The amended definition of an auto body repair labor rate survey is "any gathering of information, from auto body repair shops regarding what auto body repair labor rate the repair shops charge, used to determine and set a specified prevailing auto body repair rate in a specific geographic area

"For purposes of a survey conducted pursuant to California Insurance Code Section 758(c) prevailing auto body rate means the greater of: (1) the mean average labor rate charged by auto body repair facilities in the specific geographic area or (2) the rate, at or below which, the majority of surveyed shops charge in a specific geographic area,

Amended language also prohibits insurers from using any discounted rate negotiated with members of its DRP as part of a labor rate survey to set the prevailing auto body rates in a specific geographic area. The insurer may include non-discounted or non-contracted rate of a DRP in its survey.

Change of purpose

The amended regulation relegates labor rate surveys to a resource document. The main purpose of a survey is to inform the public about the prevailing labor rate charges in a specific geographic area and to provide a starting point for negotiating labor rates with collision repair shops. A survey cannot be used to put a cap on or reduce the labor rate charged on an estimate or repair order.

However, there is nothing in the regulations requiring an insurer to pay more than the reasonable rate necessary to perform workmanlike repairs. The insurer is free to voluntarily negotiate with a repair facility for a specific labor rate. Furthermore, there is no requirement for an insurer to conduct an auto body labor rate survey at all.

If an insurer decides to conduct a labor rate survey, certain conditions apply.

To be a statistically valid survey, the insurer must survey all known auto body repair shops licensed to perform collision repairs by the BAR in a specific geographic area. All shops that respond to the survey, and which meet the necessary standards, will be used to determine the prevailing auto body rate in that geographic area.


In addition, the survey can only use labor rates of auto body repair shops licensed by the BAR to perform auto body collision repairs.

An insurer may only use labor rates in a survey reported by shops that meet specific standards ranging from meeting equipment requirements determined by BAR to proof of insurance - all of which are detailed in the regulation. 

(The fact that a shop does not meet these standards should not be construed as permission for an insurer to imply that the shop is inferior or should not be used by the claimant to perform repairs, but only that this shop's labor rate may not be used in a survey.)

All opposed

Three property/casualty trade associations are claiming that California policyholders would see their auto insurance premiums increase under the proposed regulations that the trade groups perceive mandate inflated payments to auto body shops for insured repair work, Testimony was provided at the hearings on behalf of the Personal Insurance Federation of California (PIFC), the Association of California Insurance Companies (ACIC) and the American Insurance Association (AIA).

"These regulations exceed the authority granted to the department," said Ken Gibson, vice president, Western Region of the AIA. He explained, "State law enacted in 2000 - which is the basis for the regulation - requires insurers to report labor rate survey results to the department. The law does not give the department any authority to dictate how the surveys are to be conducted."

"The proposed regulations far exceed existing law by attempting to establish a method for conducting the surveys. They also mandate a badly flawed scheme for calculating the prevailing rate by inflating the prices in the survey," said ACIC President Sam Sorich.

"The proposed regulations would force insurers to pay body shops their 'posted rates,' which are higher than the actual rates insurers regularly pay for work. These regulations are an unfair give-away to auto body shops and will result in higher costs for honest insurance policyholders," said PIFC President Rex Frazier."

"These regulations will force insurers to make calculations based on inflated rates, which would translate into higher repair costs. That may be good for the repair shops, but not for California policyholders," said the association officials.

However, language to the contrary is built into the regulation to prevent just such an eventuality.


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