Labor Rate Surveys
By way of background, a labor rate survey is a process that allows an insurer to determine a reasonable range of prevailing rates auto shops charge for labor to repair damaged motor vehicles. When properly done, a survey can be a useful tool for insurers to benchmark labor rates in a particular geographical area in order to pay a fair and reasonable labor rate. However, when improperly done, a labor rate survey can be used to artificially fix prices below market rates, forcing consumers to pay unnecessary out-of-pocket costs.
It is important to note that the vast majority of California insurers do not conduct surveys; do not see the need to conduct surveys and nonetheless do fine by paying the shops regularly charged rates.
For years, the California Department of Insurance (CDI) has combated insurers' abusive use of labor rate surveys, including taking disciplinary action and leveling fines against the most abusive insurers. The lack of standards in many of these surveys produced inconsistent, inaccurate and unreliable results. The CDI determined that regulations in this area were necessary to ensure consumers were protected. The recently enacted regulations were a result of a five-year process where all stakeholders (consumer groups, auto body shops, automobile dealers and insurers) were encouraged to provide feedback, identify concerns and provide data to support their assertions.
Specifically, AB 1679 allows insurers to:
· Include in the survey shops that do not meet the minimum equipment requirements set by the state BAR; also that do not have proof of garage keeper's liability insurance and workers comp insurance; in other words, insurers may use the underground economy to establish labor rates.
· Use DRP rates (negotiated rates with insurer in exchange for volume referrals) which will suppress market rates and skew results.
· Use an artificially large geographically area (entire county) that does not reflect the local market resulting in a statistically invalid survey.
· Use labor rates that are on shop invoices or third party software where the labor rate was forced upon the shop, further manipulating the survey results.
· "Cherry pick" and survey insurer chosen auto repair shops (20%) rather than all the licensed and properly equipped and insured shops in the local marketplace.
· Keep unreliable surveys results "secret" from public view, thus failing to hold insurers accountable.
· Make the unfair and unreliable surveys achieve a "rebuttable presumption" status under the law. Meaning that the "bogus" surveys will now be presumed to be statistically valid and not challengeable.