By Sheila Loftus
November 2007

Insurance companies want collision repair shops to be four-star restaurants, but charge McDonald’s prices.

So contends Allen Wood, executive director of the Collision Repair Association of California (CRA). “A quality shop that is well-equipped can justify higher rates than a hole-in-the-wall, shade-tree shop,” Wood says.

Unfortunately, insurers are unwilling to recognize the difference in the quality of work shops produce. Their labor rate surveys, which determine a prevailing competitive price in a given area, “make mediocrity the norm,” Wood says. “There is no reward for quality work or level of expertise. Labor rate surveys facilitate a dumbing down of the industry.”

All shops are paid to make Big Macs, even if they’re actually making exquisite sirloin steaks.

Wood’s remarks were prompted by the California Department of Insurance’s recent decision to withdraw its proposed changes to rules relating to insurance labor rate surveys. The new rules, Wood and other California collision repairers believe, would have sanctioned the surveys.

Currently in California, Wood says, the burden of proof is on insurers to prove a collision repair shop’s rate is too high. Changes in the rules would have given the surveys a credibility they don’t deserve. Moreover, they would have made it difficult for shops to recover increases in the sudden rise of items such as paint and materials.

“In the proposed regulation package, the burden of proof was going to be switched to the repairer,” Wood says. “This was unacceptable.”

The current language the California Department of Insurance uses pertaining to insurance company surveys, put in place in 2002, says, “Any insurer that conducts an auto body repair labor rate survey to determine and set a specific prevailing auto body rate in a specific geographical area shall report the results of that survey to the department, which shall make the information available upon request. The survey information shall include the names and addresses of the auto body repair shops and the total number of shops surveyed.”

Even this language isn’t entirely satisfying to shops, says David McCune, the executive director of the California Autobody Association (CAA). “Originally we had a lot of other stipulations [relating to] how insurance companies should do labor rates,” he says. “Our position had always been that a non-biased, third-party should be involved [in conducting the survey].”

As always, however, collision repairers “have to keep pushing the department to enforce the regulations,” McClure says.

Insurance departments rarely ever favor body shops over insurers because often they’re run by former insurance company executives. (And many of them upon leaving office wind up back at insurance companies.)

Even in California, which is tougher on insurers than most states, collision repairers need to be vigilant just to have the laws enforced. The Department of Insurance, Wood says, “is so insurance-centered that it is certainly not going to be fair to the repair industry.”

Because of price surveys, collision repair facilities around the United States cannot operate like most businesses. Imagine if restaurants could only charge what a survey said they could charge—a survey conducted, no less, by an entity with a vested interest in low meal prices (a group of people allergic to cooking, let’s say). Picture this conversation:

“Well, honey, our options tonight are the Four Seasons or Kentucky Fried Chicken.”

“Oh, we can’t afford the Four Seasons.”

“Sure we can! All entrees are the same price in every restaurant. But we’ll have to get there early because it’s bound to be crowded!”

What if all cars had to be priced the same? All computers?

Mediocrity would reign.

One might argue that a repaired car is a repaired car, no matter who repaired it. But where would you rather have your vehicle repaired, the Four Seasons of collision repair shops or the Joe’s Diner of collision repair shops?

“I have never seen another industry in which you can’t raise your labor rate without asking someone else,” Wood says. “I always thought that when you were in business for yourself, you did what you needed to do to cover the bottom end. Here you are always asking permission of someone else.”

As late as the 1980s, owning a collision repair shop in the United States was an avenue to an upper-middle class lifestyle, even if one didn’t possess a college diploma. But even the best educated collision repair shops owners—and there are more now than ever—find it difficult merely to make payroll. Just about everything that happens in a collision repair shop is controlled by the insurance industry. And insurers are forever looking to reduce a body’s shops profits even more, whether it’s via denying payment on certain procedures or enforcing oppressively low labor rates.

Some collision repair shop owners are fond of calling insurers their “partners.” This is either wishful thinking or boneheaded delusion. Either way, it’s dangerous. A partnership is about equality. The relationship between collision repairers and insurers is about as unequal as one can find today.

The recent news out of California might, at first blush, seem like a grand victory for body shops. Certainly it was preferable to instituting new, damaging language to the California Department of Insurance’s rules on insurance company labor surveys.

But here’s something to dampen the triumph: Insurers didn’t like the proposed changes either.

And what insurers don’t like, they usually don’t have to swallow.

© 2007 Sheila’s Information Network Inc.

Sheila Loftus (sheilaloftus@yahoo.com), past publisher of the CRASH Network, has written about the auto collision repair industry for 32 years. She lives in Washington, D.C.