The executive director of the Massachusetts Insurance Federation told a special state commission that the auto body labor rate paid by insurers in Massachusetts hasn't risen in 30 years due to “market forces,” instead of rate suppression by insurers.
“The key to understanding this whole debate is it really does come down to a problem of supply and demand,” Christopher Stark told the 15-member Special Commission on Auto Body Labor Rates, which is considering whether legislative action is needed.
Stark told commission members that increased competition has led someone shops to enter into contracts with insurance companies, which the low labor rates which are a part of those contracts figure in to the industry’s resolution of the current labor rate, that has remained at $40 for the past three decades and is the lowest in the country.
Stark presented figures showing that since 2000, the number of accidents in the state have decreased by 22%, while there has been a 5% reduction in the amount of auto body shops in operation. That difference, he said, shows that the marketplace has become more competitive.
“You realize, there’s been lots of conversation today, Mr. Chairman, about the various relationships that insurers have with one of these auto body facilities. We don’t possess a government-set price at this time. This is actually the market setting these prices, partially still based on supply and demand economics of the commonwealth versus our surrounding states,” Stark said.
His argument prompted some bewilderment among representatives of the collision repair industry around the commission.
“So how exactly does [supply and demand] change up the labor rate? I need to understand that,” asked commission member Jack Lamborghini of Total Care Accident Repair in Raynham.
“Because when you have an oversupply of a service, there are going to be those who work in the market as there are today prepared to negotiate that price with insurers, as they have been doing,” Stark responded. “And the market today, through their agreements, which, you know, I believe we’ve discussed those agreements, do change up the remaining market.
“…[W]e have an oversupply, an ever decreasing demand because the safety from the vehicles increases,” he explained. “Which means you obtain that market suppression of rates. It’s not insurer suppression, it’s market suppression.”
Asked again to describe, Stark said, “[The] excess supply incentivizes folks arrive at insurers to work with them, to become preferred facilities, to barter their rates using the insurer. And then that prevailing rate adopts the calculations for the quote-unquote prevailing wages, as it’s been known today.”
Stark testified midway through the four-hour-plus hearing, providing the insurance industry’s perspectives on the pressures the repair industry faces. His 45-minute appearance followed testimony by repairers, who told the commission that auto insurers’ refusal to budge on the labor rate is responsible for real pain within the collision repair industry, threatened its survival and set the public at risk.
Many of those testifying urged the commission to aid H.1111, an invoice that will enhance the labor rate and tie it towards the region’s Consumer Price Index. The balance happens to be being considered through the Legislature’s Joint Committee on Financial Services.
Commission member Evangelos “Lucky” Papageorg, the executive director from the Alliance of Automotive Service Providers of Massachusetts , took problem with Stark’s argument.
“The argument that there’s too many shops in Massachusetts has no effect on what it really costs to operate a business in Massachusetts,” he said. “If there have been fewer shops, the price to operate those businesses – heat, insurance, property taxes, anything else making Massachusetts be the fifth highest [state] in the country to operate a company – wouldn't change. We would still need have a fair and equitable rate of reimbursement that would allow for being compensated enough to cover those costs and the increase related to them.
“And the insurance industry is one of those costs that shops are absorbing all the time – their insurance, worker’s comp insurance, all for the same labor rate,” he added.
Papageorg addressed the prevailing rate issue throughout a back-and-forth with fellow commission member Michael Nastari of Mapfre Insurance, who stated that some repair centers are prepared to will work for rental car companies in a lower labor rate than insurers pay.
“You get a benefit by having shops work at a price reduction, and then you attempt to impose that discount on other shops,” Papageorg said. “You…force non-referral, non-program shops to work in a labor rate.”
“We been told by one shop in the western part of the state, which, you know, if you are using the geographical definition, there’s no [other shops] near her, yet she’s constantly having to work on a labor rate that does not make sense at all,” he said. “The shops nearest her [in neighboring Ny and Connecticut] are becoming $55 an hour. Then why isn’t your organization in particular willing to negotiate?”
Papageorg urged the commission to view the problem “from the common sense standpoint,” rather than with the interpretation of statistics.
Addressing Stark, he said, “I’m asking you specifically, are you currently believing that it seems sensible that since 1988, to today, an interest rate of reimbursement taking into account all of the cost and rise in doing business here in Massachusetts, has increased a great total of $10 per hour? Does which make sense for you?”
“I disagree using the premise of your question,” Stark answered.
“It is a simple good or bad, Mr. Stark,” Papageorg continued. “Do you think that that rate of increase across 34 years, when you take into account all the other increases which have occurred in Massachusetts and all the other states, makes sense at all whatsoever?”
“Again, I’m going to return to when we take into account the total labor cost that is adjusted,” Stark replied. “This is – we have to see this holistically. We have to look at this as, do you know the insurers saying because they would view it in other regions along with other states company, that number fluctuates between our states, amongst our neighbors. We are not the cheapest, even just in this region, with regards to the total labor cost.
“And thus whenever you see that, when you look at the last 4 years alone, a rise of 10% over that time, that's significant. So I’m not just likely to say that, you realize, taking labor rate by itself. There are ways that that’s not calculating the total labor cost of what's going into simultaneously estimates.”
“Among the finest to point out that Mr. Stark keeps while using word 'holistic,'” Papageorg said. “You know, you’re utilizing a holistic approach, you’re gonna kill this industry. You’ve already begun killing this industry.”
The commission intends to hold another remote hearing on the bill. The date and time have not yet been decided, the commission’s co-chair, state Rep. James Murphy, said.