Pass The Labor Rate Bill

Analysis of Cost Savings For the Auto Insurance Industry In Massachusetts

Based on Projected Savings From the Expedited Supplement Process Regulation And Passage of the Auto Body Labor Rate Bill

Issue Date: March 3, 2010

    Information provided by The Labor Rate Bill Coordinating Committee, consisting of members from the Alliance of Automotive Service Providers of Massachusetts/Rhode Island (AASP), the Central Mass Auto Rebuilders Association (CMARA), and the Massachusetts Auto Body Association (MABA).

Summary

    The auto insurance industry in Massachusetts would realize savings of between $1.30 and $40.30 on every completed auto damage repair job if there was reasonable implementation of the Expedited Supplement Process regulation, and despite the new costs that would be incurred by the passage of the Auto Body Labor Rate Bill (H1043/S122). This conclusion is based on conservative estimates of the implementation of the regulation and the "real" (unexaggerated) costs of the legislation.

    Using information provided by insurers during discussions leading up to the adoption of the regulation, savings from appraiser visits to shops, vehicle rentals, and claims administration would equal between $181.25 and $230.00 per claim (see attached Exhibit). The assumptions for these figures are very conservative, and could be significantly greater based on each insurer's level of implementation of the regulation and internal efficiencies.

   These savings more than offset the projected (unexaggerated) costs of enactment of the Auto Body Labor Rate Bill. Labor costs would further decline for insurers because the average labor hours per job would decline due to damaged panels being replaced and not repaired. Currently, as well as over the past decade or so, average labor hours have been skewed because our unusually low labor rate encouraged insurers to insist that shops repair damaged panels rather than replacing them, as in all other states, which results in this statistical anomaly.

    The collision industry recognized several problems coming at it and deliberated over the best way to deal with them. Reforming the way shops are paid for their labor was the only solution. Repairing today's technically advanced vehicles requires computerized equipment, highly skilled technicians, modern management techniques, and even more flexible physical plants. All shops will be required in the next few years to conform to EPA mandates regarding the chemicals and vapors produced within them, at a cost of $30,000.00 to $75,000.00, and possibly more, per shop. Modernized collision repair shops operate like manufacturing plants and can create great savings for insurance companies by reducing cycle time (the time it takes to repair a vehicle, thus reducing rental charges and increasing customer satisfaction), easing burdensome paperwork and lowering administrative costs, and reducing waste in the environment and for the business.

    The Expedited Supplement Process regulation was the first step proposed by the auto collision associations on the path to modernize the industry. Immediately, insurers recognized the cost savings and worked enthusiastically with us to get the regulation approved. However, what was intended to be a great cost savings tool for insurers was turned into a weapon that is still being used against the collision industry. Instead of realizing great savings on eighty percent or more of the repair jobs, insurers have underutilized this tool so that they could seek favor from only their own selected shops.

    If insurers utilized the regulation in eighty percent of the jobs (an easy number to reach), the Auto Body Labor Rate Bill would cost them nothing to implement. The legislation would result in an average labor rate in Massachusetts of $40.54, which would place us at number 47 in the country, between South Carolina and Georgia. This all could be done at no cost to insurers, no cost to the commonwealth, and no cost to consumers. All we ask is for fundamental fairness.

Exhibit

Insurers' Savings From Expedited Supplement Regulation

Appraiser Visits to Shops

Insurer Cost = $85.00 (staff); $130.00 (independent)

Average Visits Per Job That Could Be Eliminated: .75 visits

Appraiser Savings = $63.75 - $97.50 Per Job

Rental Vehicle

Insurer Cost = $30.00 Per Day

Average Days Saved Per Job: 2.75 days per job

Rental Savings = $82.50 Per Job

Administration Savings

Reduced time and level of expertise to manage claims

Average Savings Per Job = $35.00 - $50.00 Per Job

Total Savings: $181.25 - $230.00 Per Job

Total Savings at 80% Utilization: $145.00 - $184.00 Per Job

Labor Rate Configuration

Current Average Massachusetts Labor Rate: $35.75

Current National Average Labor Rate: $45.02

Most Recent Massachusetts Mean Hourly Wage Average: $20.96

Most Recent National Mean Hourly Wage Average: $19.21

Bureau of Labor Statistics Multiplier: 1.0911 (9.11% above national average)

Indexed Labor Rate For "A" Shops: $49.12

Indexed Labor Rate For "B" Shops: $44.21

Projections

"A" Shop Rate ($49.12) = 20% of jobs performed at approximately 12% of shops

"B" Shop Rate ($44.21) = 25% of jobs performed at approximately 18% of shops

Open Shop Rate ($35.75) = 55% of jobs performed at approximately 70% of shops

Average Rate = $40.54

* This is the advantage of a tiered rating system that offers higher rates to compliant shops. All shops do not produce the same outcomes, and should not be paid the same.

At 30 hours average per job, labor cost per job would increase $143.70.

Reduced from savings of $145.00 - $184.00 per job yields total savings for insurers of:

$1.30 - $40.30 Per Job