Massachusetts auto body repair centers and consumers alike are suffering from insurers’ failure to pay for a higher hourly rate for labor, several supporters of a number of bills that will enhance the rate told Massachusetts legislators on Wednesday.
The 95-minute live-streamed hearing before the Joint Committee on Financial Services raised concerns which are likely to be debated whenever a special legislative commission meets later this season. The labor rate issue has been discussed within the Statehouse for quite some time, called the topic of a previous commission in 2008.
Auto body shop owners told representatives and senators that they're reimbursed an average of $40 an hour for skilled labor, which they said is the lowest rate in america. They testified that insurers make use of a “prevailing rate” that’s according to deals created using a minority of Bay State repairers, and that their state needs to step in to manage the rate.
Some insurance industry officials who testified did not deny that the issue needs to be addressed, but all urged lawmakers to not impose “price fixing,” that they argued would inevitably lead to higher prices for consumers.
Labor rate unchanged for 11 years
“In 2010 after i opened my company, insurers were reimbursing consumers a labor rate of $40 an hour or so. Eleven years later, the same insurers are reimbursing consumers exactly the same labor rate of $40 an hour or so,” said Brian Bernard, owner of Total Care Accident Repair in Raynham, Mass. “Eleven years with a 0 % increase in that rate. In the same period, your insurance premiums have increased 48 percent.”
Bernard was one of many individuals who spoke in favor of a number of bills coping with auto body labor rates that the committee is considering. One of these simple, H 1111 proposed by Rep. James Hawkins, would require insurers to utilize a minimum rate equal to the rate at the time the insurance coverage Reform Act passed in 1988, adjusted for inflation. The speed would then be adjusted every year in line with the Bureau of Labor Statistics' Northeast Consumer Price Index, which is the inflation rate for that region that includes Massachusetts.
According to the U.S. Bureau of Labor Statistics, $1 in 1988 may be the equivalent of $2.36 in buying power in 2022.
Massachusetts State House
Bernard noted that, according to surveys made by National AutoBody Research , the real prevailing rate in Massachusetts is closer to $58 an hour or so. “Insurers are allowed to have contracts with repair shops. These contracts set below-average labor rates in exchange for marketing services, and reduced administrative burdens within the estimating process,” he said.
He said three technicians recently left his shop for unskilled labor jobs that pay more, and that two others began for shops across the state line in Rhode Island, in which the rate is higher. “Our employees are leaving the industry, they’re moving to other states, to possess jobs that pay during these careers, and it’s brutal for us,” he said.
Situation ‘absolutely ludicrous’
Brian Mountain, director of Collision 24 in Brockton, Mass., noted that the labor reimbursement rate has risen just 33% since 1988, while his insurance premiums have risen 261%, and the minimum wage went up by 270%.
“I’m expected to keep pace and buy equipment, after which train and pay technicians with different substandard reimbursement rate insurers are paying their claimants,” Mountain said. “I've had to resort to charging my customers hundreds of dollars to create up for that substandard rate of reimbursement to pay for to pay my technicians a fair wage.”
“Focusing on today’s vehicles with labor rates which are 3 decades old is absolutely ludicrous,” said Evangelos “Lucky” Papageorg, Executive Director from the Alliance of Automotive Service Providers of Massachusetts .
Papageorg said the problem has led to a decrease in the amount of qualified collision repair shops in the state, which he said forces customers to wait longer for his or her cars to be repaired. “That’s an increasing time period that individuals have to be in their vehicles, vehicles that are potentially unsafe to be on the roads in the first place, after which once the vehicles find themselves in a collision repair facility the repair times have been extended significantly since there is a true shortage,” he explained.
Insurance industry viewpoint
Christopher Stark, executive director from the Massachusetts Insurance Federation, described the problem among supply and demand. He explained that the quantity of physical damage claims has fallen from 606,000 in 2003 to 473,000 in 2022, a small amount of 22%, “as cars got safer.” Meanwhile, the number of repair centers within the Bay State has fallen from 797 in 2000 to 698 today, a loss of 5.5%.
“At its core, this is an excess of repair shops and fewer physical damage claims,” he explained. He did not address what effect those lowered claims had on insurance premiums.
Despite the mention of the demand and supply, there have been examples in the industry where insurers have been able to control or suppress rates in spite of rising costs. For instance, repairers have been subjected to an average cumulative price increase of more than 11 percent for paint and materials, almost double the amount highest annual increase recorded in the past 23 years, according to data authored by CCC Intelligent Solutions. However, because many shops are reimbursed for materials via a formula involving paint hours times a refinish labor rate, insurers effectively have complete control over the rate of reimbursement.
Frank O’Brien, Vice President for State Relations with the American Property and Casualty Insurance Association, said the bills into consideration will make Massachusetts the only real state in the nation to manage the auto body labor reimbursement rate.
“There isn't any free lunch,” O’Brien said. “If you add costs to a system … it flushes with the system and it impacts price.”
Rory Whelan, Regional Vice President for Government Affairs with the National Association of Mutual Insurance Companies, sounded an identical note. He established that he sees places that insurers and repairers can meet, but argued against the “price fixing” that the bill like H.1111 creates.
“I’ll paraphrase an old saying: Whether it ain’t broke, don’t break it,” Whelan said. “Competition works for consumers, which is working for the auto consumer in Massachusetts.”
“Price fixing leads to higher costs, never lower costs. Those costs are ultimately borne through the consumer,” he said.
No action, despite ‘broad consensus’
Guy Glodis, a former Massachusetts legislator who once chaired the Insurance Committee, because the Joint Committee on Financial Services was once known, noted that nothing has changed because the issue was under debate in early 2000s, despite “broad consensus” among lawmakers that action is required.
“The labor rate in Massachusetts may be the lowest, but we operate in the second priciest state, all while there’s been, as we all know, staggering insurance profits, record profits during the last several years,” Glodis, an AASP/MA lobbyist, said.
Earlier this month, consumer groups analyzing insurers' underwriting performance from 2022 asserted auto insurers reaped billions of dollars excessively profits because of reduced accidents throughout the pandemic lockdowns, and say consumers are still owed billions in additional refunds.
“Insurers selling personal auto insurance reaped windfall profits with a minimum of $29 billion in 2022 as miles driven, vehicle crashes and auto insurance claims dropped because of the pandemic and related government actions,” based on the Consumer Federation of the usa and Center for Economic Justice . In Massachusetts, the total amount overpaid was put at more than $632 million.
The groups' analysis show that insurers collected $42 billion in excess premiums nationally while refunding only $13 billion in “premium relief” payments to customers.
“Instead of giving back the COVID windfall to consumers, insurers increased payouts to senior management and stockholders,” the CFA and CEJ said.
“In just about any state, car insurance premiums – by law – can't be excessive,” said J. Robert Hunter, CFA's director of insurance. “The inability or unwillingness of almost all state insurance regulators to enforce what the law states and protect consumers raises serious questions. Once we stated in letter after letter to insurance regulators throughout 2022, it had been crystal clear that insurers' premium relief was woefully inadequate.”
According to a state-by-state analysis by the Consumer Federation of the usa and Center for Economic Justice, Massachusetts auto insurance customers, Massachusetts insurance customers are each owed additional premium relief of $632.
Special commission to meet
The 2022 Massachusetts budget offers a unique Auto Body Rates Commission, with membership to include the chairs from the Joint Committee on Financial Services; the insurance commissioner or perhaps a designee; one senator and one representative, appointed by the minority leader of each body; the lawyer general or a designee; three people chosen through the Automobile Insurers Bureau; three people chosen by the Alliance of Automotive Service Providers of Massachusetts; a representative of a vocational-technical school or program as well as an auto dealer.
The panel is to produce a study which includes ” an analysis of auto body labor rates in the commonwealth, including a comparison at work rates in surrounding states; an analysis of the impact of managed competition within the car insurance market on labor rates; an assessment of whether current labor minute rates are reasonable and, if not, an assessment of potential means of calculating an acceptable labor rate; the number of auto body shops in the commonwealth each year from 2008 until present, such as the number of shops that have closed in that period of time; and an analysis of the impact at work rates around the auto repair shop workforce.”
The commission is to hold at least two public hearings in “geographically diverse” regions of their state, and it is to issue its report by Dec. 31, 2022.
The Joint Committee on Financial Services continues to accept online testimony around the bills into consideration until Wednesday, Sept. 22 at 5 p.m. To submit testimony online you have to first create a merchant account for MyLegislature and follow the instructions available at https://malegislature.gov/assets/documents/how-to-submit-testimony-v1.1.pdf