Rate Regulation Weighed, But Insurers Point To Benefits Under Managed Competition
OCT. 3, 2023…..Two years ago, lawmakers were gearing up to have a special commission dive deep into the long-running debate over the labor rates paid by insurers to auto body repair shops in hopes of finding a solution to an issue that has festered on Beacon Hill for years.
With that special commission’s final report in the can for more than a year, the Joint Committee on Financial Services on Tuesday heard much of the same testimony from many of the same people when it comes to auto body labor rates that have not changed significantly since 2008: auto body shops say an increase or the power to negotiate the labor rate with appraisers is necessary or else shops will begin to close for lack of profit and workers, and the insurance industry asserts that a significant change to the auto body labor rate would mean an increase in insurance premiums paid by Massachusetts residents.
The issue has lingered on Beacon Hill for nearly two decades despite special commissions that explored the matter in 2008, and again in 2021-22. But auto body repair shop owners were back in front of legislators on Tuesday to remind lawmakers that shops are reimbursed by insurers at an average rate of about $40 per hour — which they said is the lowest in the nation — and pressed for legislation regulating minimum labor rates.
“Our industry has gone from being body men and banging out dents and painting cars to a group of highly-skilled technicians working on vehicles that carry computers processing more code than rocket ships that traveled to the moon. The painting and refinishing process has caused our technicians to become chemists and have to be able to measure additives to achieve color matches, and at the same time, the long-lasting finishes produced at vehicle manufacturing factories by robots,” Evangelos “Lucky” Papageorg, executive director of the Alliance of Automotive Service Providers of Massachusetts, said. “Sadly, the labor rate of reimbursement has not kept pace with the changes in technology, training and equipment required to perform proper repairs, as well as with all the other escalating costs of running a business here in Massachusetts.”
Papageorg and others supported a handful of bills dealing with auto body labor rates, including H 1035 from Rep. James Hawkins of Attleboro. The bill, substantially similar to one Hawkins filed last session, would require that insurers reimburse auto body shops at a minimum rate equal to the rate at the time the Insurance Reform Act passed in 1988, adjusted for inflation. Afterward, the rate would be adjusted based on the Consumer Price Index.
According to the U.S. Bureau of Labor Statistics, $1 in October 1988 is equal to $2.55 of buying power in August 2023 (the most recent month with data available).
Christopher Stark, executive director of the Massachusetts Insurance Federation, said the Hawkins bill is a bad idea because auto body labor rates today are between seven and 15 percent higher than they were at this point last year.
“So the market is responding and it’s responding well, and we do not want to reintroduce some levels of government control of the marketplace,” Stark said. “Since the 2008 reforms, which moved us from fixed and established to managed competition, consumers have won in the state. We’ve gone from consistently one of the top five highest insurance rates states to now and the 15-to-18 spots nationally, and that’s good for consumers.”
He argued that a major factor keeping labor rates relatively lower in Massachusetts is a “continuing oversupply of repair shops in the market” as the number of physical damage claims in Massachusetts has trended downward. Citing the same figures as he did at a 2021 hearing, Stark said the number of physical damage claims in Massachusetts declined from about 606,000 in 2003 to about 472,000 in 2019, a drop of 22 percent.
“Fewer cars need more technologically advanced repairs, yet the number of auto repair facilities remains relatively consistent over that time, with only a decline of 5.5 percent — again, compared to the physical damage decline of 22 percent,” he said. “This type of protectionism would undermine the foundation of managed competition and runs counter to well-established economic principles, and mandating a minimum labor rate will increase drivers’ premiums. It’s a tax without a benefit for drivers.”
Stark said the Massachusetts Insurance Federation instead supports a bill (H 1005) filed by Rep. Michael Finn of West Springfield. Stark said the bill “is an important piece of legislation that we came up with in response to both of the chairs urging us to come up with be part of the solution moving forward on labor rates.” It would abolish the the Automobile Damage Appraiser Licensing Board and shift its authority to the commissioner of insurance, something repair industry representatives say would be a non-starter for them.
The Legislature established a special commission to study auto body rates in the fiscal year 2022 budget, consisting of legislators from both major parties, three people appointed by the Automobile Insurers Bureau, three people appointed by the Alliance of Automotive Service Providers of Massachusetts, a representative of a vocational-technical school or program, and an auto dealer.
A final report released in April 2022 stated that the “Commission recognizes that auto body labor rates must be addressed and that the auto body labor rate has not increased significantly since 1988.” But the group, co-chaired by Financial Services Committee co-chairs Rep. James Murphy of Weymouth and Sen. Paul Feeney of Foxborough, did not make a straightforward recommendation and presented the Legislature with six “recommendations and potential solutions.”
The first possibility the commission mentioned was the status quo, which it said “is not a viable recommendation and will not provide a long-term solution to the issue of auto body labor rates.” There were also recommendations made by the Alliance of Automotive Service Providers Massachusetts and Massachusetts State Automobile Dealers Association.
Two types of legislation were identified: one set of bills under consideration last session that “would create a government-set labor rate that insurance companies would be required to pay auto body repair shops based on the average labor rate of surrounding states” in New England, and another (including Hawkins’ bill) that “would use the labor rate set in 1988 and adjust it for today’s use based on inflation over the past twenty years.”
And then there was the “legislative recommendation,” which was to create a Labor Rate Advisory Board made up of government officials, insurance industry representatives, repair industry representatives, and others to “address any and all issues related to auto body labor rates.”
The advisory board would be charged with conducting an annual survey of auto body shop labor rates and collecting other industry data to “be used as factors to provide a basis and recommendation for which the board can discuss a fair and equitable labor rate.”
That “legislative recommendation” and a requirement for a minimum hourly labor rate of $55 was included in the Senate version of an economic development bill that collapsed in the final days of formal work in the 2021-2022 legislative session when House and Senate Democrats were blindsided by legally-required tax rebates.
That same language is before the Financial Services Committee again this session as S 688, filed by Sen. Michael Moore of Millbury.