Monday, 31 October 2005 17:00

CA DOI to address insurers labor rate surveys

Acting on complaints from the California Autobody Association (CAA) regarding the need for explicit specifications for determining autobody labor rates, the California Department of Insurance (DOI) has become the first in the country to propose regulating how insurance companies conduct surverys to determine the prevailing labor rate. 

The current Calif.ornia Insurance Code requires any insurer that conducts an auto body repair labor rate survey to set a prevailing rate in a specific geographic area to report the results of the survey to the DOI, which must make the information available.

The proposed amendment would require that the insurer conduct the survey in writing or maintain written records of the information gathered. The insurers must make the collected data available to the DOI upon request in the event the accuracy of the survey is questioned.

The term "prevailing auto body rate" would be defined as "the most commonly occurring rate" charged by shops in a particular geographic area, as opposed to average, or median.

Existing regulations require the insurer to provide a description of what geographic areas were surveyed, the methodologies used, and the prevailing rate established. The proposed amendment would also require the insurer to provide the labor rate charged by each particular shop surveyed, the total number of shops that responded to the survey, and the date the survey was completed.

No negotiated rates

The proposed amendment would also prohibit an insurer from including in its survey rates it has negotiated with shops in its DRP. The department recognizes that the use of these negotiated rates may result in an artificially low prevailing rate for a specific geographic area.

CAA spearheads reform efforts

According to CAA, one of the most blatant failures was that most of the surveys do not describe the formula or method the insurer used to calculate their rates, with the effect that some insurers are using non-compliant surveys to artificially cap labor rates.

According to CAA Executive Director David McClune, CAA believes that under Insurance Code Section 790 et al. (unfair trade practices) any insurer that conducts an auto body labor rate is presumed to have done so in an accurate, reasonable, and fair manner. Therefore, CAA believes that a statement be included in the regulations, stating that surveys, "shall be fair, accurate and reasonable."

Furthermore, CAA believes that an unbiased third party should conduct the labor rate survey, since there is an inherent bias when the insurer is doing the survey.

Only auto body shops that perform auto body and collision repairs should be included in the survey. Some labor rate surveys have included shops that do little or no auto body repairs.

Meet standards to be included

The survey should only include shops that meet or exceed "CIC minimum recommended requirements for a Class A Collision Center." Including auto body shops in a survey that do not have proper equipment or training is not fair and reasonable.

The insurer should be prohibited from using a labor rate from a non-direct repair shop in which that rate has already been negotiated with that insurer. In other words, many non-direct repair shops have negotiated a labor rate with the insurer for various reasons and the insurer should not be allowed to use a negotiated labor rate with a DRP shop for survey purposes.

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