John Petrarca, owner of Providence Auto Body, says the labor rate paid by insurers for the work he performs has remained stagnant for the past 15 years, at $38 per hour – half his current posted labor rate of $76 per hour.
But under a law passed by the R.I. General Assembly in June, at the urging of independent auto body shop owners, that is likely to change soon.
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The law requires insurers to survey the independent body shops – those with which they do not have long-term contractual relationships – to determine a prevailing labor rate.
The survey form, designed by the R.I. Department of Business Regulation, also per the law, must be returned to the DBR for its review no later than June 1.
Auto body shops call the law “progress.” The insurance industry calls it “unnecessary.”
DBR officials testified against the measure when it was being considered, and Gov. Donald L. Carcieri vetoed it after it was passed, but both the House and the Senate overrode the veto.
On Oct. 2, the DBR issued Insurance Regulation 108, complete with a survey form to be sent out. Four days later, it followed with a bulletin listing the names of the affected insurers – any company with a greater than 1-percent market share.
“We were worried the statute would require us to set the labor rates,” said Joseph L. Torti III, associate director and superintendent for insurance at the DBR. Ultimately, he said, the law didn’t require the DBR to set the rate, but just to gather information.
The survey asks shop owners to state their posted labor rates for automobile repairs – differentiating, if applicable, between insured and uninsured customers, or special rates for car rental companies or the government.
Shop owners must also cite their documentation for the rates charged, and describe how they calculate their labor rates, including salary costs, overhead and a profit margin.
Petrarca said it is his “hope and belief” that the results of the survey will provide the information needed for insurers to set “a true prevailing labor rate” for auto body shops.
But the new state law doesn’t actually require the insurers to use the information once it’s gathered, even though it defines the prevailing labor rate as “the rate determined and set by an insurer as a result of conducting an auto body labor rate survey.”
Torti said the law is meant to give insurers information they could use to determine a rate. “It doesn’t mean they have to pay that rate.”
Based on the response from the insurers’ side, it’s unclear what will happen.
“We didn’t think the law was necessary,” said Stephen Zubiago, a Providence lawyer with Nixon Peabody LLP and a lobbyist for the Property Casualty Insurers Association of America.
“The law requires a lot of extra paperwork by the insurers,” he said. “Right now, it doesn’t affect what the insurer charges.”
Insurers believe the auto body shops are trying to use the law to set the hourly labor rates themselves, instead of letting the market set the rates, Zubiago said; they expect the shops will gather the survey results, then “go to the legislators and say, ‘This is what we should get.’ ”
Zubiago added: “Insurers believe in a competitive market. We get money through our customers, through premiums. If the shops get more money, that money has to come from somewhere” – so auto insurance premiums could rise as a result.
But that’s a moot point for auto body shops, which claim the current low rates make staying in business difficult, as health insurance and other operating costs continue to rise.
They say they also need higher rates to attract the next generation of mechanics into the field.
Low labor rates paid by insurers are keeping students from enrolling in auto repair courses at vocational schools, said Petrarca, who is also president of the Auto Body Association of Rhode Island. The result could be fewer mechanics to fix cars in the future.
As it is, Petrarca said, insurers tend to steer customers to “direct” shops – those with which they have standing contracts – rather than the independent auto body shops, because the direct repair shops are “required to give discounts.”
And that is why the auto body association also successfully lobbied to get two other pieces of legislation passed last summer:
The first requires appraisers to include on their appraisals a notice, in boldface type, informing consumers that they have the right to choose the repair facility they want to fix their vehicle.
The second requires Rhode Island auto body shops to display a sign notifying consumers that insurance companies may not interfere with the consumer’s choice of an auto repairer.
The insurance industry has argued that both those measures also were unnecessary.
But Petrarca said “this is an issue of consumer safety,” because cars that were supposedly fixed at direct repair shops are coming into his shop still broken and unsafe to drive.
The legislation that passed, he said, “is a product of many, many years of lobbying and evidence at different hearings.”
He added: “It was certainly very much needed.”
