VIEWPOINT: The Outlook for Rhode Island’s Two-Tiered Shop Licensing System
This spring, Rhode Island will begin to fully implement its new, two-tiered collision repair business licensing program, in which body shops will be designated as either Class A or Class B businesses.
The law, which passed during last summer’s legislative sessions, was backed heavily by the Auto Body Association of Rhode Island (ABARI). The organization’s spokesperson, attorney Jina Petrarca-Karampetsos, grew up in her father’s Rhode Island collision business, Providence Auto Body, and was one of the guiding forces in getting the legislation passed. She explains the new regulation, why it exists, and why it could serve as an example for a potential solution for the rest of the industry.
How did this legislation come about?
The process of putting this together started, oh, probably 15 years ago; it’s been discussed for a long time.
For context, in Rhode Island we already have a survey rate law, which, I think, there is a lot of confusion over in states without a similar regulation. What the survey rate law does is require all insurance companies to survey all body shops, and then use those responses to help determine prevailing labor rates. It’s designed for all shops to be represented in those decisions.
The classification law builds on that. Both are, above all, about consumer protection, which a lot of what ABARI does is aimed at that. With the times that we’re in, vehicle technology continues to increase, including the materials with which they are made. We felt there were some shops that were qualified to do these repairs, and others that weren’t. Consumers should have that knowledge to be able to make the choice, and coupling with the survey rate law, shops should be compensated accordingly.
How does the new two-tier system work?
Rhode Island has had minimum requirements for becoming a licensed body shop for quite some time. These are standards that are actually quite high, and that standard has become the basis for our Class B shop designation. That means they have to be a modern business with frame machines, spray booths, certain welding equipment, etc., to be able to complete safe repairs on vehicles.
Now, the main differentiation between becoming a Class A shop and being a Class B shop in this system comes down to manufacturer certification. OEMs built the vehicles, and they’ve outlined how they need to be repaired; who better to certify these shops? What this does is take enforcement out of the state’s hands and keeps it in the industry with automakers. This law doesn’t create more government involvement or regulation in the industry.
To become a Class A shop, you can file with the Department of Business Regulation at any time. There are no deadlines, and it’s an ongoing process. You simply need to provide written proof of automaker certification.
Two other items needed for Class A: Shops must offer lifetime warranties and track customer complaints; and all shop technicians must meet state certification standards (Class B shops require one in five techs to be certified).
Then, circling back to the labor rate survey part of this, insurers are now required to do two separate surveys— one for Class A shops and another, separate one for Class B shops. In theory, this should help promote a fair labor rate that compensates shops properly for their ability and investment.
How many shops are expected to achieve Class A status?
Rhode Island is a small state to begin with, and we have just around 200 body shops total. And some of those are very small, family businesses. We don’t expect all of them to try to become Class A shops. And that’s not necessarily a bad thing. Shops will need to determine their business model, who their customers are and make their decisions based on that. Being a Class B shop is not something to be looked down on. These are still very good shops in there.
For those that do make this leap, I’d guess that just under 20 percent of shops will meet the requirement this year. That could change a lot in the next couple years, though, because it takes time to hit those OEM requirements. If a shop just recently started this process, it will be a while before they can file for Class A status. We anticipate there being many, many more coming onboard in Year 2.
Why is this regulation important to the future success of shop operators?
It goes back to that investment these shops are making in their futures. In most cases, they are spending well over six figures to be prepared to work on advanced materials in vehicles. The investment can be huge, and by doing so, they position themselves to fix vehicles they otherwise could not and should not work on. By having the two tiers, and the two separate labor rate surveys, it ensures that the insurance carriers will at the very least acknowledge the difference, and it should help operators earn a fair rate.
From a consumer standpoint, this allows them to fully understand which shops can fix their vehicles correctly, which shops are trained, equipped and have the knowledge and skill to make those repairs. It brings about consumer awareness, and it gives them the information to make an educated choice, which is what they need and deserve.
Many industry organizations across the country have debated the merits of a classification system for collision repair businesses. Do you feel this two-tiered system might be the solution?
I definitely think so, yes, and that’s why we went with it. I’m relatively familiar with that argument nationally, and it’s a little different here because we’ve had minimum standards here for years. Those are still very high, and they ensure safe repairs.
But the difference now is that, instead of debating whether we're benchmarking the lowest level or a truly qualified level, we have tiers that accurately position businesses for consumers. We’ll see in the coming years how it affects the marketplace, but I think it will only be a positive thing and something others can emulate.