17 Bullet Points on The New Insurance Labor Rate Report

rental car crash | Agency Checklists — When you need good insurance and a good body shop

The labor rates allowed or negotiated between automobile insurers and auto body repair shops have been a cause of disagreement since just before the passage of a major automobile insurance reform bill in 1988. Up to that time, Massachusetts had the highest insurance labor repair rates in the nation, except for Alaska. Since that time, the average $30.00 per hour labor rate of 1988 has only risen to an average of $40.00 per hour in 2022, notwithstanding thirty-four years of inflation.

Legislature sets up a commission to investigate insurance repair labor rates

In 2021, the auto body repair industry prevailed on the Legislature to establish a fourteen-member Special Commission on Auto Body Labor Rates (Commission). The Commission’s member’s included representatives from the auto body repair industry, the insurance industry, the auto dealership industry, tech schools, and the state government.

The charge to the Commission by statute

The Commission, according to its mandate, was to hold hearings, investigate, and file a report to the Legislature that would include:

An analysis of the labor rates in Massachusetts in comparison to other states, including a comparison to labor rates in neighboring states.
The effect of managed competition in the automobile insurance market on labor rates.
An assessment of whether current labor rates are reasonable and, if not, an evaluation of potential methods for calculating a reasonable labor rate.
The number of auto body shops in the Commonwealth each year from 2008 to the present, including the number of shops that have closed during the last fourteen years.
The impact of labor rates on the auto body workforce.
Making legislative or regulatory recommendations concerning corrective legislation [higher labor rates].

Commission finishes two months ahead of schedule

Last week I received a copy of the Commission’s impressive and well-documented report. The Commission’s enabling statute allowed its members until July 1, 2022, to complete their investigation and file this report. They completed their work two months early and did a great job.

Some items I found interesting in reading the report

Below, there is a link for anyone who wishes to download the full report. For others, I have culled 17 factoids from the report items that I found interesting for bullet-pointing. In no particular order, these points are:

The Commission conducted two public hearings and received a hundred pieces of written testimony from individual auto body shop owners, insurance associations, car dealerships, the National Federation of Independent Businesses, professors, and consumers.
The average labor rate presently paid to auto body shops in Massachusetts by insurance companies for auto damage repairs is approximately $40 per hour.
The insurance industry does not dispute that the labor rate paid to auto body shops in Massachusetts is below the national average rate.
The labor rate presently paid by the insurance companies to body shops has not significantly changed from 2008, when managed competition began.
In Rhode Island, where state law requires a survey of auto body labor rates, the prevailing rate range is between $46 and $53 per hour for insured repairs.
In 2020, there were 1,686 registered auto body shops in Massachusetts, according to the Bureau of Standards, which were 119 fewer than the number registered in 2008 when managed competition began.
This Commission is the second one that the Legislature has established. A similar commission conducted hearings and issued a report in 2008. However, no legislative action followed the submission of that report.
The average collision repair person’s salary in Massachusetts is $47,400, while the annual mean wage for trade persons in all industries, according to the Bureau of Labor Statistics, is $72,940.
The auto body industry is losing its technicians to other industries and trades because of higher wages.
Currently, there are presently four bills before the Legislature to create government set labor rates that insurance companies would be required to pay auto body repair shops based on the average labor rate of surrounding states.
The labor rate paid by insurance companies in Massachusetts, according to the national auto body research, is significantly lower than the rates that consumers are willing to pay out of pocket for auto repairs.
The Commission heard the labor rate paid for mechanical repairs ($85.00 per hour) versus that paid for bodywork ($40.00 per hour) results from auto body repair work being paid by insurance companies after motor vehicle accidents while consumers pay for most mechanical work.
The Commission heard that a lawn mower repair person charges $89.00 per hour.
Increasing the auto body labor rate to the national average would increase the average auto insurance premium by $22.50, according to a body shop association.
The issue of the labor rate cannot be separated from the repair time, according to the insurance industry.
For insurers, Massachusetts body shops take increased time to repair vehicles making the average cost to repair a vehicle in the state just slightly less than the nationwide average to repair a vehicle.
A pending bill in the Legislature would have auto insurers pay the hourly labor rate used in 1998 ($30.00) adjusted for the last twenty years of inflation. This bill’s formula would require payment of a labor rate presently of $78 per hour.