Monday, 13 October 2008 11:44

CA Labor Rate Survey Rules Nearing a Conclusion

The California Department of Insurance is inching closer to releasing long-awaited rules to clarify how insurers may use labor rate surveys in adjusting claims. Draft rules have been presented to a working group of insurer and repairer lobbyists, including Richard Steffen representing the CRA. The department wants initial responses submitted to the department by October 10 with a showdown meeting set for October 17 at the department. Eventually the department will formally issues the rules, affording all interested parties (consumers, repairers, etc.) an opportunity to comment in writing.

The CRA is holding firm on these points:

    • Labor rate surveys that meet specific standards may be considered in adjusting the cost of repairs but they cannot be used by insurers to set a prevailing rate that represents a limit on what the insurer will pay. The CRA is adamant that insurers may adjust a written estimate of repairs by an ARD (automotive repair dealer), but insurers cannot write the initial estimate. The insurers may conduct and damage assessment, but that is a far cry from a written estimate by an ARD.

    • Labor rate surveys cannot include DRP rates or negotiated discount rates.

    • The sample size of the survey must be a statistically significant representation of a specific geographic area.

    • Labor rate survey must be limited to shops registered with the BAR and with equipment that satisfies requirements under CCR Title 16, Section 3351.5.

    • A labor rate survey cannot be the primary determinant in adjusting the cost of repairs which must take into account other factors such as repair processes required by the manufacturer and the expertise of the personnel qualified to perform these required processes.

    • An insurer-conducted informal labor rate survey cannot be used to adjust the cost of repairs. An informal survey would be one where a limited number of shops are surveyed. The insurer must disclose publicly who was surveyed.

    • Labor rate surveys submitted to the department, with limited exceptions, must be considered public information.

The CRA’s lobbyist Richard Steffen, who has participated in all working group meetings, offered the following insights: “The process is slow, tedious and important. The future of claim disputes can turn on one word. The CRA believes labor rate surveys should not include DRP or other discounted rates and that the survey should be representative of the rates of quality shops in a specific market area. Sounds simple, but finding consensus among repairers and insurers is a challenge.”

The department may issue two sets of rules that would allow two types of labor rate surveys. One survey could be used for public information purposes, but not to adjust a claim while a survey that satisfies a list of strict requirements could be referred to as a factor in adjusting a claim.