Auto body shops say they, not insurers, should set costs

— -- Auto repair shops are stepping up their efforts against insurance companies, which they argue are controlling their prices by steering customers toward preferred businesses that do their bidding. Auto body trade groups are promoting bills in state legislatures from Massachusetts to Iowa to try to change the rules of the game.

At issue is who gets to decide prices for auto body repair — shops or insurance companies. Laws and prices vary by state, but repair shops say if they don't charge what insurance companies decide are fair prices, they lose business, sometimes to shops that use substandard parts.

Insurance company officials counter that they deal with thousands of vehicle repairs each year and figure out who can do the best work for the lowest cost. That, they say, saves money for consumers.

Some consumers disagree. About a year ago, Kris Weaver hit a deer with her red pickup. She says she took the vehicle to O'Mara Auto Body in Martensdale, Iowa, a company she had used and trusted. The truck needed a new bumper, license plate mounting, grille and air conditioning condenser

Tom O'Mara, the body shop owner, estimated repairs would cost $1,330. When O'Mara sent the invoice to AAA, the company reimbursed him $1,187. That left Weaver with a $143 out-of-pocket bill.

"It was just a continual battle," said Weaver, adding she fought until the difference between the total cost and the coverage plus deductible was $25. AAA is an association of clubs across the U.S., and policies vary by club, said Cindy Brough, a spokeswoman for AAA.

Three bills about auto insurance and repair prices were introduced in the Iowa Legislature this year, but none passed. They are expected to be introduced again, said Tom Stanberry, a lawyer who lobbies for the insurance industry.

In Massachusetts, auto body shops will back the Auto Body Labor Rate Bill in the 2012 state legislative session. The bill would establish a commission to set floors on repair rates at certified shops, said Peter Abdelmaseh, lobbyist for the state's Alliance of Automotive Service Providers.

Insurance companies say they must set price standards to keep a lid on costs and premiums and say they conduct detailed surveys to arrive at the rates they pay. In Iowa, regulators at the state's Insurance Division surveyed the largest auto insurance companies in the state this fall, including State Farm, Progressive, Farm Bureau, American Family, Nationwide, Grinnell Mutual and Auto-Owners, at Republican Gov. Terry Branstad's request.

In a Nov. 16 letter to Branstad, the regulators said they had found that insurance company rates in the state are reasonable. Iowa law requires rates to be reasonable but isn't specific on what that means.

State Farm, the nation's largest auto insurer, with 42 million policies and 18% of the market, regularly surveys repair shops online to determine prices for each market. Dick Luedke, spokesman for State Farm, said his company allows any repair shop to participate in the surveys.

Luedke acknowledges the hourly rate determination isn't always perfect and says State Farm will adjust it occasionally after discussing with shop owners, but generally the company stands by its rates. If a repair shop doesn't think the rates are fair, the business can still charge more.

"He definitely can do that, but what we pay is the prevailing competitive price," Luedke said. "If he wants to collect the difference from the customer, he can, or he's free not to do the repair."

Shop owners argue the system of preferred shops puts all auto body repair businesses in two categories — the haves and the have-nots. "The shops that sign onto these (networks) operate by fear," said Ron Reichen, owner of Precision Body and Paint in Beaverton, Ore. "Those shops see the insurance company as their customer, and not the person with the car."

Reichen said insurance companies save money by sending jobs to shops that use second-class auto parts. The insurance industry vigorously disagrees, saying it's not in insurers' interest to promote poor-quality repair shops.

"If you have a shop that you're having repeated complaints about, you don't send work there anymore," said Steve Morain, president of the Iowa Insurance Institute.