Tuesday, 02 September 2008 08:49

Amaradio---Labor Rate Surveys are Flawed and Misleading

Written by Lee Amaradio, Jr.

Labor rate surveys were established as a starting point for negotiations. They are intended to create a floor to build upon, not a ceiling to keep prices artificially controlled. Today they are not serving any purpose other than keeping the cost down for the insurers. Insurers have even been bold enough to force the consumers to pay the rate difference when negotiations break down. It’s ironic because the code states that the burden of proof lies with the insurer, not the consumer.

    With the present survey system, the insurers have been able to create results that benefit them without regard to the needs of the repairers and the unique individuality of the collision industry. I haven’t  been able to find anything in the law or the insurance code that refers to any absolutes. As I read the laws, quite the opposite is intended. The laws and codes that are in place all point to only a starting point.
    For example, the survey system could be compared to examining a $1 bill and a $20 bill, saying that because they are both green, both are United States currency, and both have the picture of a president, they are worth the same. This is how inappropriate it is to say that all body shops should be paid the same labor rate.
    Going a step further, using a geographical area to determine the value of labor is equally ridiculous. How could it be reasonable for Northern California’s labor rates to be twice as high as those in Southern California? We are in the same state under the same regulations, governed by the same Department of Insurance laws.
    If you invested the most money and had the nicest, best equipped facility in your area, you would be penalized by the others that invested nothing in training or equipment. They would be paid the same for investing little. This could be compared to putting a nice restaurant next to a McDonalds and being forced to regulate your cost based on what they charge.
    If labor rate surveys are intended as a starting point for negotiations, why do we allow the insurers to use them to end negotiations? That the surveys have been skewed to favor the insurers should be no surprise since they are conducting them.
    Surveys were never intended to be used for price control nor were they ever intended to be used to lump all repair shops together. Labor surveys have even been used as the foundation for what we hear as “usual and customary” to control the repair process itself. There is nothing “usual and customary” in an industry that has no absolutes except cost.
    Imagine if the insurance industry allowed the collision industry to conduct the labor rate surveys and forced the insurers to honor them. This would be as fair as what The Department of Insurance has allowed to happen to repairers. Or at least allow the collision industry to conduct its own survey with as much weight as one submitted by the insurers.
    My research on labor rate surveys shows:
    1 .Surveys aren’t to be trusted; they must be approached with a critical eye.
    2. Surveys can be skewed to create  the desired results of the surveying party.
    3. Surveys can be damaging because they are deemed to be factual.
    4. Surveys are too subjective to be valid.
    5. Surveys in the collision industry should be abolished because the collision repair industry is too diversified for any survey to ever be accurate.
    When “cost control, without standards” is the driving force that dictates the repair process, it is the consumers who may be forced to choose between safety and cost.

Discounted rates instead of door rate
All shops are lumped together and many of the so-called body shops used to determine a geographical labor rate are not qualified to repair collision damage. Not only are they included in the surveys, the real collision shops are purposely left off.
     The insurers are well aware of the fact that they have misused the intended purpose of the survey. The California Department of Insurance is aware of the deceit involved with the entire survey issue. The Bureau of Automotive Repair (BAR) is aware of the lack of credibility with the entire survey process, so why do we still fall victim to these bogus surveys and honor them within our industry? Only a handful of insurers even have a current survey on file with the DOI.
     As an industry we need to disregard these surveys and stop allowing their misuse against us and our customers. A fair and reasonable labor rate must be determined based on individual shop statistics.
    Our industry should not adhere to this bogus labor rate regulating fiasco. Why is my labor rate determined by what some mobile bumper repair or detail shop charges? Until they start comparing apples to apples, labor rate surveys mean nothing. They are a bill of goods that we have accepted as the norm that would crumble when contested in court.
     Why do we even have labor rate surveys in our industry? The only other industry with a third-party insurer deter- mining fair and reasonable rates is the health industry.
    The labor rate survey was intended to establish a fair rate so insurers wouldn’t be overcharged. Now it appears that insurers have abused this right, so abolish surveys and conduct business without them.
    Insurers are well aware that these so- called surveys can be manipulated to create a reduced labor rate. It appears they have intentionally used their shops with the lowest rates and others have used only DRP rates. And the DOI is aware of the problem.
    So what should we do? Each shop should charge a fair and reasonable labor rate based on its own individual facility. Training, equipment and certifications should determine the labor rate. What you charge is up to your and no one has the right to say you are unreasonable without comparing your charges with several other shops that are exactly like yours in terms of training, equipment and facility.
    We should no longer honor any labor rate surveys because they are by and large  invalid. In my opinion, shops should set door rates and demand they be paid. If the insurer refuses to pay them I suggest that you charge the consumer and then direct them to the DOI complaint form and encourage them to file a complaint
    As collision repair professionals we need to insist the agency do its job. The purpose of the DOI is to insure fairness in the rate determination process. So unless you are comparing apples to apples with shops that have the same training, certifications, equipment and facility, surveys are absolutely meaningless.