Mass. auto repair shops, insurers in battle over rates

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By Matt Murphy

STATE HOUSE, BOSTON, JULY 14, 2015….Auto body repair shop owners pleaded with lawmakers on Tuesday to intervene and force insurance companies to pay higher hourly rates, a move the insurance industry ridiculed as a “step backward” from the state’s deregulation of the auto insurance industry.

With auto body repairers paid roughly $11 an hour less than the national average in Massachusetts, shop owners said their livelihoods are being threatened by insurance carriers who get to dictate the rates regardless of the cost of training employees and keeping up with new technology.

The disparity, according to shop owners and vocational educators, is making it harder to keep young workers in Massachusetts at a time when many auto technicians are nearing retirement age.

Insurers said auto body repairers are free to try to negotiate higher rates or turn down work if it’s not cost effective, suggesting supply and demand is dictating the wage reimbursement levels.

Molly Brodeur, president of the Alliance of Automotive Service Providers of Massachusetts, told the Committee on Financial Services that auto repair shops in Massachusetts are compensated on average at the lowest rate of any state in the country at $37 an hour, below the $48 an hour national average.

Trade groups and repair shop owners are pushing legislation (S 561/H 805) that would require insurers to compensate auto body repair shops at the average rate of bordering New England states, or $45.44. The rates would be adjusted every two years with approval from the Division of Insurance.

“We will never have the highest rate in New England. That’s never been our intention. We just want a level playing field,” Brodeur said.

Several people testifying told lawmakers that low rates are making it difficult to recruit young technicians into the field who are leaving to work in other states like Connecticut. Given the high cost of continuing training for automotive technicians on new, more technologically advanced vehicles, some owners said current rates are threatening the survival of many repair shops, raising concerns about consumer choice.

“We can no longer afford to subsidize the auto insurance industry,” said Rick Starbard, owner of Rick’s Auto Collision and Service in Revere. Starbard pegged the cost to each shop to retrain employees to fix Ford’s new F-150 pickup trucks, the best-selling vehicle in America, at $50,000.

Sen. Vinny deMacedo, a Plymouth Republican, said his brother left the auto body repair business more than two decades ago because it was “cost prohibitive.” DeMacedo said he worries low rates will increase the financial pressures on shop owners to “cut corners” in other areas, including the disposal of harmful chemicals and solvents that could harm the environment.

“I really believe this is something that needs to be addressed. To ignore it pushes more and more individuals out of an industry we all need. This is an important part of our economy,” deMacedo said.

More than seven years after Massachusetts officials deregulated the automotive insurance market to invite more competition, the insurance industry prefers the status quo.

John Murphy, the executive director of the Massachusetts Insurance Federation, said the problem is one of supply and demand, arguing that as the need for car repairs has decreased over the past decade the number of shops has remained steady.

“This is a market question. Ultimately there are no cars going unrepaired in Massachusetts because of this issue. If there were, you’d be hearing about this. But apparently there are enough shops out there,” Murphy said.

Murphy said mandating higher rates would lead to increased insurance costs for all car owners. He suggested instead that rates will come up naturally if consumers begin having trouble finding someone to repair their cars.

“The economics will find that balance,” he said.

Rep. Chris Walsh, a Framingham Democrat, said he found the arguments made by the repair shop owners “valid,” but questioned why rates are higher in other states that operate under a similar system without government intervention. No other states dictate auto repair rates to insurers, multiple people testified.

“I would expect in the free market concept, in a state that has a high cost of living, this would not be true. So there is a dynamic going on keeping rates down,” Walsh said.

Gary Cloutier, owner of Cloots Auto Body and Repair in Westfield, said the insurance industry was living in “fantasy land” if it thinks the free market will resolve the compensation problems, stating that bike, lawnmower and snow blower repair shops charge a higher hourly rate than auto body shops collect from insurance carriers.

“When did fixing a bike, or a lawnmower, or a snow blower become more complicated than fixing a car…,” Cloutier said. “They’ve created a huge mess that’s about to blow up.”