Insurers, body shops at odds over repair costs

Would Rhode Islanders fresh off a car accident take their vehicles to a body shop classified by the state as “B” or second-tier in equipment and training?
Lawmakers are considering that and other questions this year in debate about the latest round of legislation proposed by Rhode Island’s body shops over how cars in the state are repaired.
Like two other repair-related bills filed this session, the proposal to create two categories of body shops is being fought by the insurance industry.
The lobbying grudge match between the two groups of businesses started more than a decade ago and in that time 17 laws have been passed with support of body shops working to professionalize and regulate their industry.
Insurers say the laws have driven increases in the cost of repairs and insurance premiums in Rhode Island faster than the rest of the country.
“This effort is one reason why Rhode Island is in the shape it is in today,” said Frank O’Brien on the Property Casualty Insurers Association of America, the insurance trade group that has led the counter-offensive against the body-shop bills. “You have a small cadre of business owners who are determined to protect their shops, notwithstanding unfavorable economics, and are willing to saddle the rest of state with the costs.”
The Auto Body Association of Rhode Island, a trade group representing shop owners, rejects the connection between the new laws and prices, saying the state’s insurance costs have always been high because of the number of people and cars packed between its narrow borders.
In testimony before the House Corporations Committee in March, both sides presented different packages of statistics sliced from different years of insurance claims to argue that Rhode Island’s costs have either remained uniformly high since 2003 or have accelerated beyond the pace of national increases.
The Auto Body Association report shows collision premiums actually declining between 2002 and 2010 and repair costs have only increasing 0.003 percent annually between 2004 and 2010.
In a rebuttal report, PCI said ABARI didn’t include the latest cost figures in its analysis and included only collision, not all vehicle-damage coverage, in its report on premiums. PCI said last year Rhode Island’s average body-shop collision-repair cost was 28.5 percent higher than the national average, compared with only 2.5 percent higher in 2003. The insurers say Rhode Island’s annual vehicle-damage premium rose 5 percent between 2002 and 2011, while premiums were flat over the same period nationally.
Like many of the auto-body bills passed since ABARI mobilized in 2003, the three bills proposed this year don’t address prices or reimbursement rates directly, but regulate how repairs are made and who can make them.
Proponents say they protect consumers and professionalize an increasingly technical industry, while opponents say they add red tape and erect barriers to competition.
In addition to the bill that would create a separate class of shops meeting an array of qualifications, another bill supported by ABARI would bar shops from using aftermarket parts (those not made by the original manufacturer) on any vehicle 30 months old or newer. It’s already illegal for shops to use aftermarket “body” parts, such as panels, on cars younger than 30 months, but this would extend the rule to all parts.
ABARI argues the rule protects customers from being slipped inferior parts, while insurers say it encourages more expensive repairs.
The third auto-body bill, sponsored by Rep. Stephen R. Ucci, D-Johnston, would prohibit insurance companies from requiring body shops to use rebuilt airbags or suspension parts in vehicles of any age.
Jina Petrarca-Karampetsos, spokeswoman for ABARI, said the organization does not support the airbag-suspension bill and declined to comment on it.
Petrarca-Karampetsos said the real animosity between insurers and body shops has been over insurance-company attempts to push labor reimbursement rates down by referring policyholders to “direct repair” shops who agree to their terms.
Labor rates for repairs that don’t involve an insurance claim are close to $70 per hour while insurance companies are reimbursing approximately $45 per hour, Petrarca-Karampetsos said. On why the industry is proposing two classes of shops, Petrarca-Karampetsos said cars are evolving so quickly, such as advanced electronics or aluminum body panels, many old shops don’t have the equipment or training to make repairs properly and customers should know the difference. She said the bill is based on a similar law in Nevada.
Petrarca-Karampetsos said because so much of what body shops do is paid for through insurance, the market is distorted like others where customers don’t pay for services directly and requires intense regulation.
“When you have an industry seeking to be regulated, something must be drastically wrong,” Petrarca-Karampetsos said. “When you have an industry where another industry has so much control, you try to gain some control back.”
Of the 17 bills enacted since 2003, O’Brien of the Property Casualty Insurers said there wasn’t one single measure responsible for increasing repair costs, but rather an accumulation of many small regulations.
He said the two-tier bill would inch the industry closer to having the state set reimbursement rates.
Perhaps the most hard-fought, recent legislative battle was over a 2012 bill to give body shops the right to sue insurance companies if they did not agree with the reimbursement rates being offered. That bill, passed in the waning hours of the legislative session, was vetoed by Gov. Lincoln D. Chafee.
Last year, lawmakers passed a bill that became law prohibiting insurers from designating a vehicle a total loss if the cost to rebuild is less than three quarters its market value.
O’Brien said some of the pressure for new laws is coming from the fact that Rhode Island has 246 body shops, but safer cars are reducing the number of accidents and potential repair jobs.
“At end of the day, what ABARI seems to forget is there is no free lunch,” O’Brien said. “When you keep adding requirements into the system, insurance companies pass them through and it has an impact on what everyone pays.” •

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