A Vermont law will go into effect July 1 that includes an automotive labor rate, aftermarket parts, and market conditions study.

The study was added by the House in May to S. 95, an insurance and banking bill, that was introduced in the Senate in February.

During the Senate’s May 10 session, bill sponsor Sen. Ann Cummings (D-Washington) said the study is overdue.

“I don’t know about the rest of the body but I have several auto body shops in my district and for a number of years now there has been a tension between insurance companies and auto body companies,” she said. “We require people [have] automobile insurance. Therefore, we have some obligation to keep that insurance affordable and what that insurance policy covers, when we buy it as consumers, it’s our responsibility to read it and understand what we’re getting.

“The problem is that when you have damage and you go to an auto body shop, what the insurance company covers and what the actual costs are are getting farther and farther apart. The actual labor costs frequently are not anywhere close to what the auto body shop has to pay to get good mechanics. This study will look at that and see if it is time to readjust things, to make sure that that balance between wanting to get adequate coverage for people… because if we just said, ‘Well your insurance will pay for everything,’ then an awful lot of people are not going to be able to afford insurance for their cars, which we require them to have.”

This isn’t the first time concerns have been lodged regarding aftermarket parts used in auto body repairs. In 2016, all CAPA-certified high-strength steel components were called into question after hardness tests completed by Vermont Auto Body Association President and Parker’s Classic Auto Works Owner Mike Parker revealed the parts had a 100% failure rate in matching “like kind and quality” of OEM parts, as required by insurance companies.

Parker conducted his tests on an aftermarket Subaru radiator tie bar and later, on an aftermarket Nissan rear bumper. CAPA then decertified at least one of its parts and urged shops to submit any complaints about CAPA-certified parts. Parker’s testing on the Nissan bumper led NSF to ask Diamond Standard to revamp the part.

In 2019, NSF ceased aftermarket auto body repair parts and collision-related company certifications.

Under the new law, signed by Gov. Phil Scott on May 31, Vermont’s Commissioner of Financial Regulation is charged with investigating and making recommendations on the average hourly labor rates charged by auto body shops and rates paid by auto insurance carriers by region and statewide compared to rates in other jurisdictions, including bordering states New York, Massachusetts, and New Hampshire.

The new law also requires the commissioner to work with the Vermont Department of Labor’s Economic & Labor Market Information Division to compile hourly wage data for body shops and related repairers taking into consideration other forms of insurance labor reimbursement including flat rates for repair work and factors used by body shops and carriers to arrive at labor repair rates.

After the study is completed, the commissioner will recommend whether a minimum labor reimbursement rate for both first- and third-party automobile insurance claims should be established and, if so, what that rate should be and how it should be adjusted to reflect market changes, such as inflation, according to S. 95.

The study will also determine:

• • If auto insurance carrier and independent appraiser practices equally consider the interests of insurance companies, auto body shops, and consumers;
  • How much insurance carriers control or influence auto body shop repair work chosen by the consumer and how that should affect carrier liability, particularly regarding the quality and safety of repairs;
  • Use of direct repair programs (DRPs) and their impact on the automobile repair industry and consumers;
  • Disclosures made to consumers and whether they’re adequately informed of potential financial exposure under a policy including in regard to any labor rate, material rate, hour, and differentials for loss of use;
  • Whether insurance regulation should be updated to match market changes or business practices that might impede the prompt, fair, and equitable settlement of claims in which liability has become reasonably clear;
  • Whether carrier valuation methods and betterment practices used are legitimate and fair to consumers;
  • Potential cost savings from using aftermarket or recycled parts in repairs and if aftermarket parts should be certified, if and to what extent a carrier should be liable for incidental costs related to the use of aftermarket or recycled parts, and the notification that should be provided to consumers about the use of aftermarket or recycled parts;
  • Number and type of complaints received by the Department of Financial Regulation and the Consumer Assistance Program about automobile insurance policies and auto body repair work;
  • If additional regulatory measures are necessary to prevent anticompetitive behavior and ensure the interests and protection of all parties, especially consumers; and
  • How auto repair costs contribute to the price and availability of automobile insurance and if a minimum labor rate could impact the price and availability.

Public input will be solicited by the commissioner including from insurance companies, consumers, and auto body shops.

The commissioner’s final report is due to the House Committee on Commerce and Economic Development and the Senate Committees on Finance and on Judiciary by Nov. 15, 2024. An interim progress report is due to the committees by Jan. 15.

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