Monday, 14 December 2015 18:03

Shops in LA and Around Country See Reduced Labor Rates After State Farm Rezones Markets

In July 2015, State Farm announced that it would be making "market refinements to its repair facility survey," which included "refining market boundaries used to determine prevailing competitive prices (PCP) to serve our customers and to better align with government defined market areas," according to State Farm spokesman Justin Tomczak. State Farm also warned that these updates could result in PCP adjustments and "periodic changes in PCP relating to updated repairer pricing and capacity information."

Since then, both DRP and non-DRP shops in various markets have seen labor rate reductions by as much as $5 per hour. Shops in LA are among the first to voice their complaints, and Alysia Hanks, executive director of the Louisiana Collision Industry Association (LaCIA), noted, "Shops were already hurting, and now with even more decreases, shops are having to let employees go because they can't afford it. The attorney general and the Department of Insurance in LA are aware of these issues, but we need to give them an avenue to take. Shops have to take action and refuse this injustice. I'm afraid a lot of shops will be hurt if the insurer gets away with this."

Hanks has received emails from multiple shop owners seeking advice. One non-DRP shop owner in Lafayette, LA, said, "State Farm has decided to increase the geographical scope of our market area. The result of this change has allowed them to decrease our market area's material rate. After having paid a higher rate since July, State Farm will now reduce material rates on each estimate and deny any subsequent supplemental increase requests. We told said appraiser this will result in out-of-pocket expenses for their policy holders to which he responded, rather unsympathetically, that this was State Farm's new policy and nothing could be done about it."

Another non-DRP shop owner, from Deridder, emailed Hanks that "State Farm lowered our [labor rate] last week from $55 to $50 - and they have also stated they are not paying for any items that break during an R/I operation. Unbelievable that they can do this..."

A DRP shop owner from Jennings, LA also reached out to Hanks after receiving word from a State Farm representative that their rates had been lowered by $2 per hour. "I was shocked to learn that rates could be lowered. Our rates had just risen at the beginning of the year by $1... This decrease in rates greatly affects my overall budget, especially my payroll budget. I fear the short-term effects of this will cause me to lose employees." In contrast, Hanks has also heard from some shops that have not been impacted by State Farm’s market rezoning, and one shop even reported receiving a slight increase.

Unfortunately, this issue is not isolated to LA. Tony Ferraiolo, owner of A & R Body in CT and President of the Auto Body Association of CT (ABAC), has also seen decreases in his area. He noted, "There is no one to hold the insurance industry accountable, so why not get even more greedy and lower rates until someone stands up and forces them to establish shops' true costs of labor rates?"

In her email to LaCIA members, Hanks stated, "I wish there was a magic word I could give you all to make this problem go away; all I can tell you is we are working very hard to fight this, but we need your help. We need you to be proactive in your stance against these charges. We need you to share with us what is going on.”

Hanks encouraged LA shops to file complaints about this issue with the Department of Insurance at www.ldi.la.gov/contact-us or by emailing Assistant Attorney General Stacie deBlieux at deblieuxs@ag.state.la.us.

Hanks urged, "We need you to reach out to the other shops in your area and make a stand not only for your shop but the whole industry. But more importantly, call the other shops in your neighborhood. I'm very certain there is another owner/manager sitting there with the same problems as you have, wondering if they really are 'the only ones.' You are not the only one, and you are not alone in this!"

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