Running a Shop Finance Labor Rate

Prevailing Competitive Rates

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I always hear “prevailing competitive rates” are generated by survey.  In my area, only one carrier really collects information through a survey. Shop  estimates are used by one of the smaller carriers that I talked to. How should rates be determined—and what difference does it make to me?

Prevailing Competitive Prices (PCP) are supposed to be calculated by a survey of “walk-in” rates charged by repair facilities. When an insurance carrier or appraisal company determines PCP from estimates, it can result in artificially lower rates for the industry.

Here’s why: When collision repairers write an estimate, we might use one of two rates depending on our relationship with the customer’s insurance company. We use either a walk-in rate or a “contract price” based on a DRP or other such contract.

Contract rates are generally lower than walk-in rates due to anticipated volume. If the carrier uses contract prices from estimates for labor rate surveys, those prices cause the PCP to decrease. This could cause severe legal challenges for the carrier, and it can definitely short-change repair facilities in the area through misrepresentation of “walk in” rates. Clearly, this is a frustration that definitely plagues the collision industry.

To help prevent estimates being used in a rate survey, I would recommend that in the remark section of all of your estimates that you write:

“This estimate may be calculated at a rate different than our posted rates due to contractual obligations. It may not be used for survey purposes.”

It may not correct mistakes of the past, but it might proactively create a better opportunity to correct the future.

Ray Fisher is the president of ASA-Michigan. This article represents his opinion and does not reflect the views of ASA-Michigan.

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