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The latest version of a Texas House bill would determine the state’s prevailing rate through a “transparent and unbiased” third-party labor rate survey.

It also would prevent carriers from using coercion or most incentives — including a guarantee of no out-of-pocket costs — designed to bring customers to the carrier’s network of direct repair shops agreeing to repair the vehicle under certain rates and/or terms.

Labor rates

Shops in several states have criticized the practice of a carrier insisting that the “prevailing rate” for a particular market is a certain dollar amount — but refusing to reveal the data demonstrating how this value was calculated or basing the calcuations on questionable methodology. Lawsuits also have suggested carriers which do not conduct surveys simply base their view of a “prevailing rate” on whatever State Farm’s black box of a survey produces.

The California Department of Insurance recently cited allegations of flawed surveys in mandating that any carrier conducting a survey had to follow a certain standardized template and continue to provide the results to the state. The agency also defined the geographic scope of a market for which a prevailing rate applies.

House Bill 3840, sponsored by Rep. Travis Clardy, R-Nacogdoches, removes the insurers out of the surveying game altogether and states:

“Prevailing rate” means the rate identified by a rate survey that is conducted by a third party that is designed to be transparent and unbiased and that is based on the posted retail labor rates and not direct repair program shop rates that operate under a contract with an insurer.

Larry Cernosek, legislative board member of the Houston Auto Body Association and owner of Deer Park Paint & Body, told the House Insurance Committee on Tuesday that the only carrier in Texas that seems to survey labor rates was State Farm.

“They won’t give us the information of how they got that information,” he said.

In an interview Friday, Auto Body Association of Texas President Burl Richards said his ideal third-party surveyor would be National Auto Body Research, which conducts the Variable Rate Surveys of various states’ labor rates. (Here’s Texas.)

“That’s who we would love to be able to do the survey,” Richards said.

But Richards said he was open to other neutral parties and said he’s contacted “multiple insurance companies” on the issue.

“Nobody wants to talk about it,” he said.

He said he’d like to have representatives from major Texas auto body groups and carrier representatives come together and determine an equitable survey system.

“That’s the fair way to do it,” he said.

On a broader philosophical level, there’s the issue of if the notion of a “prevailing rate” is irrelevant. Given that a carrier can just total a car if the repair bill gets too high — thereby keeping labor rates in check — is another state-sanctioned price control even needed? Does this monkey with a customer’s right to choose their own shop?

However, an insurer policy might already require a customer to pay more than the prevailing rate out-of-pocket. That means both customers and shops have an interest in the state producing a fair, transparent and standardized means of determining a prevailing rate rather than letting a carrier declare “The prevailing rate is $X. We’re not going to show you how we came up with that number, but trust us, it’s right.”

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