California Bill Calls for State to Take Over Labor Rate Surveys
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 With no existing standard for labor rate surveys, and some insurers accused of capping rates without      conducting a survey at all, this bill calls for the state to conduct its own survey to set fair rates statewide.

     A newly introduced piece of legislation in California is proposing to place the collision repair labor rate survey process in the hands of the state. The bill would require collision repair facilities to annually submit their shop's labor rates to the Bureau of Automotive Repair in the   Department of Consumer Affairs. The bureau would then produce an annual report organizing the average shop rates by ZIP Code, and transmit the report to the Department of Insurance. The bill would then require the Department of Insurance to use the bureau's report to resolve disputes with insurers over the reasonable cost of repairing a vehicle. The bill also requires the department to make the survey results available to the public on its Web site.

The Argument

      Insurers traditionally limit the amount they will pay a shop for labor to what the insurer calls a fair and reasonable rate, often requiring the vehicle owner to pay any amount in excess of the insurer's proposed hourly labor rate. The problem is that current California law allows  insurers to determine on their own what a fair and reasonable labor rate should be by surveying the industry, but repairers complain that in many cases, insurers are     arbitrarily determining what a fair rate is without conducting any type of market survey.
      At a California Senate hearing in November of 2005, California shop owner Gene Crozat testified that he filed 250 small claims cases against insurers for not paying his labor rate, which he maintained was fair and reasonable, but the insurers disagreed and refused to pay. In all but 16 cases, the judge found that his repair charges were indeed fair and reasonable, and ordered the insurance company to reimburse the consumer for the amount they spent to repair their car.
      Insurers complain that they are sometimes the victim of price gouging by shops because existing California law prohibits insurers from requiring consumers to use a    particular shop. This requirement, insurers say, would force them to pay whatever the going rate is at that shop if they were prevented from limiting the charges to what is fair and reasonable. How an insurer determines what is reasonable is at the heart of this legislation.
     The California Autobody Association has criticized the existing labor rate survey law saying that it is too vague. According to the CAA, no standard methodology is      required for conducting a survey, leaving insurers free to interpret the law, with the effect that some insurers are artificially capping labor rates. By introducing this bill, legislators now seem to agree somewhat with the repairers, and feel that in order to enforce the law in a fair and efficient way, a benchmark number must be calculated (using unbiased evidence collected from the free market ) in  order to judge what is fair and reasonable.
    

How it Works

      Every shop must participate. In order for a shop's labor rate to be included in the survey, 90 percent or more of the estimates used to calculate the shop's rate must be at least 90 percent of the shop's posted hourly labor rate in existence at the time the estimate was made.
      Repair estimates created for DRP repair agreement may be used provided the hourly labor rate actually charged is at least 90 percent of the posted hourly rate of the shop. If the shop changes its rates during the prior 12-month period, the rate reported to the bureau will be weighted by the number of months the different rates were in effect.
     The bureau will calculate the average labor rate for each ZIP code by adding the rate of all shops in that ZIP Code and divide by the number of shops in the ZIP code.
     The bill would require the bureau to occasionally verify the information provided by the shops and imposes fines and penalties for any shop that knowingly submits false information. The BAR may inspect shops invoices and other information deemed necessary to validate the reported labor rate.
     The bureau must submit the report to the Department of Insurance by January 15 of every year, and this data, as well as the names and addresses of all shops used to calculate the average street rates for a ZIP Code, shall be made available to the public on the Department of Insurance's Web site.

How insurers may use the data

     According to the bill, an insurer must presume a shop's hourly labor rate is fair and reasonable for purposes of claims settlement if the rate on the estimate is the same or less than the shop's posted labor rate AND the rate on the estimate is not more than 10 percent above the average rate for shops in the same ZIP Code.
     However, the legislation goes on to say that the newly proposed system may NOT be used to determine that a shop's rate is unfair or unreasonable. In other words, even if the rate on the estimate is more than 10 percent above the average rate for the area, it cannot be called unreasonable. The rate must still be evaluated based upon special characteristics of the proposed repair before determining that it is unfair.

     According to the proposed measure, special characteristics include, but are not limited to, manufacturer specifications for gaps between body parts, heating and cooling of metals during repair and whether or this adversely impacts the crashworthiness of the vehicle, paint matching, and assembly or disassembly of components and any other characteristics of the repair that might reasonably be necessary to put the claimant back into the position that the claimant was in prior to the loss.

Conclusion
     Introduced on February 23 by Senator Jackie Speier, SB1492 seems designed to protect all parties involved. The bill will not only protect shops against insurers attempting to set arbitrary labor rate limits, it will also protect consumers from economic damage when insurers make unfair settlement offers, and at the same time protect insurers against shops attempting to gouge insurers with unreasonably high labor rates. The bill has not yet been assigned to a committee.