FEATURE
Don’t Let “Prevailing Rates” Stop Your Shop From Being Profitable!
A customer drops off their vehicle to be repaired. After disassembling, scanning and/or blueprinting the car, the shop writes a thorough estimate that accurately portrays the work that needs to be performed to safely and properly restore that vehicle to its pre-accident condition. It’s time to begin the repair…or is it? In many instances, shops encounter delays and problems in the process through the interference of the third-party bill payer who rebuts that estimate, refusing to pay for certain procedures or even arguing that the shop’s hourly rate isn’t in line with the market’s “prevailing rate.” Repairers then face several options: • Explain why the remainder of the repair is needed and bill the customer, • Neglect to perform the work and contend with future liability issues or • Absorb the costs of properly repairing the vehicle and subsequently sacrifice profitability. Insurers consistently use the idea of “prevailing rate” to suppress Labor Rates around the country and underindemnify consumers, but what is a “prevailing rate,” how does it affect safe repairs and how can shops combat this concept to protect their customers and their businesses? “The ‘prevailing rate’ is an insurance term that is supposedly a snapshot of the existing rates in a specific marketplace at a particular time,” explains Aaron Schulenburg, executive director for the Society of Collision Repair Specialists (SCRS). “Insurers are only
14 | April 2022
able to set market rates through acceptance. If repairers establish – and stick with – their Labor Rates based on a solid understanding of the true costs of labor, supplies, specializations and so forth, that’s how prevailing rates should be determined; however, if the majority of shops in that market accept externally dictated rates, carriers perceive that as the prevailing rate instead.” “Nobody has a clue what a ‘prevailing rate’ is,” states attorney Erica Eversman (Vehicle Information Services). “Insurers have been able to self-define this term generally, typically setting them based on a survey conducted in a particular geographic region of all shops. Unfortunately, over time, insurers have routinely utilized their negotiated DRP rates to determine what they consider to be the prevailing rate. In actuality, the prevailing rate should be determined based on the ‘fair market rate,’ which is the rate that an ordinary consumer would pay to repair their vehicle without using insurance to pay, so prevailing rate calculations should be based on retail or posted door rates, NOT contract rates which are given at wholesale price in exchange for that unspoken promise to direct more work to the shop.” Dave Luehr (Elite Body Shop Solutions) agrees: “Honestly, there’s probably more mystery than answers around this topic since they refuse to share information on how they came up with that data, making it difficult to identify which factors go into that determination. The most obvious of those factors is the inclusion of DRP shop rates; insurer surveys specifically ask shops about the rate you charge ‘us’ which implies
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