Two trade associations representing California auto insurers assert that new collision repair regulations are adding to the “skyrocketing repair costs” in the state, and warn that insurers will have no choice but to pass those costs on to consumers.
In November, the California Department of Insurance issued new collision repair labor rate survey regulations, establishing voluntary standards “for insurers to accurately and reliably survey auto body repair labor rates to ensure they are paying the reasonable and proper amount,” as the agency described them. In December, the department promulgated new anti-steering regulations “to prevent consumers from being misled or claims delayed when a collision-damaged vehicle needs to be repaired.”
It’s safe to say that California’s insurance industry isn’t happy with the new measures.
The Association of California Insurance Companies and the Personal Insurance Federation of California recently issued a press release with this title: “Attention California Drivers: New Auto Repair Regulations Could Hit You in the Wallet.”
“Improved technology has made cars safer for passengers, but these advances have not slowed auto accidents or auto repair costs,” said Mark Sektnan, president of the Association of California Insurance Companies. “California and states across the nation are seeing an explosion of auto accidents, traffic fatalities and higher costs to repair more sophisticated cars. Things are about to get even worse for California drivers because [of] the CDI-approved regulations that are rapidly pushing auto repair costs even higher.”
Insurers negotiate labor rates with body shops to control costs, the associations explained. But they claim that the new labor rate rules – CDI REG-2012-00002 – force insurers to pay “rack rates” that body shops set “randomly.”
The insurers likely will have to pass the higher costs on to consumers and businesses, the associations said.
Since the new regulations took effect in March, “insurers are seeing labor rates jump significantly,” the associations said. They offer these examples: One large body shop in the Bay Area raised their labor rate for mechanical labor from $71 per hour to $116 per hour, while another shop increased rates from $77.87 to $108 per hour.
“These new CDI regulations are magnifying the crisis California is facing from more frequent accidents and higher repair costs,” said Rex Frazier, president of the Personal Insurance Federation of California. “The price tag of these regulations could add an additional $280 [million] to $300 million in higher auto repair costs, which could hit California drivers in their wallet.
“There is an epidemic on our roads with distracted or impaired drivers and pedestrians traveling on congested and poorly maintained roads. These conditions are already creating a deadly and costly environment. Now we are faced with additional repair costs from these new regulations that will simply compound the skyrocketing repair costs.”
Not surprisingly, the California Department of Insurance sees the new labor rate survey regulations from a different point of view.
“Insurers limit payments for auto collision repairs based on labor rates derived from insurer-created labor rate surveys [that] did not fairly measure labor rates,” the agency said in November. “Consumers are left having to pay the difference between the actual labor cost of the repair and what the insurer was willing to pay based on its labor rate survey. The new regulation sets forth voluntary standards for insurers to accurately and reliably survey auto body repair labor rates to ensure they are paying the reasonable and proper amount.”
The regulations went through a formal review process required by state law, which included receiving input on the regulations at public workshops, public hearings and through written public comments, according to the agency. Consumers, insurers and repair shops provided input for drafts and revisions of the regulations.