A DECADE OF ABARI-SUPPORTED BODY SHOP LEGISLATION CONTINUES TO TAKE ITS TOLL ON RHODE ISLAND S AUTO INSURANCE COSTS AND PRICES:

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1 SPECIAL REPORT A Decade of ABARI-Supported Body Shop Legislation Continues to Take Its Toll on Rhode Island s Auto Insurance Costs & Prices: Rhode Island versus Nearby States March 2015

2 A DECADE OF ABARI-SUPPORTED BODY SHOP LEGISLATION CONTINUES TO TAKE ITS TOLL ON RHODE ISLAND S AUTO INSURANCE COSTS AND PRICES: Executive Summary Rhode Island versus Nearby States Since 2003, seventeen (17) pieces of legislation favorable to and promoted by the Auto Body Association of Rhode Island (ABARI) have become law in Rhode Island. All of these had the effect of increasing the amount paid for auto body repairs or limiting the role of auto insurers in the claims process, hence reducing insurers ability to provide checks and balances on behalf of their customers. Additional legislative proposals of a similar nature that could harm consumers are expected this year. This paper examines various repair-related costs and auto insurance premiums for Rhode Island, during the time ABARI-supported bills began to pass, compared to six nearby states Connecticut, Maine, Massachusetts, New Hampshire, New York and Vermont. It is apparent that the body shop-related laws enacted during ABARI s 10-year campaign have adversely affected Rhode Island drivers. Highlights of the analyses show the following: 1) Once lower than the average of nearby states, Rhode Island s average collision repair cost 1 is now significantly higher. 2) Rhode Island s growth in collision repair costs is due largely to the growth in body shop labor costs. Total labor costs are now higher in Rhode Island than in nearby states, when they too were once lower. 3) Over the last decade, the average insured collision claim cost in Rhode Island has grown 15 percentage points faster than the average of the six nearby states. 4) As a result of body shop repair and labor costs that continue to be higher and rising faster than other states, Rhode Island drivers are estimated to pay the 3 rd highest average vehicle damage insurance premium 2 in the nation. 1 The body shop collision repair cost reflects parts, labor and other (e.g., towing and storage costs). 2 Vehicle damage includes collision, property damage liability and uninsured/underinsured motorist-property damage coverages. A Decade of ABARI-Supported Legislation Takes Its Toll on Rhode Island s Auto Insurance Costs & Prices Page 1

3 Once lower, Rhode Island s average collision repair cost is now higher than that of nearby states In 2003, when ABARI-supported body shop legislation began passing, Rhode Island s average body shop collision repair cost was 1.6 percent lower than the average cost of the six nearby states. Over the years, the pattern has changed, whereby Rhode Island s repair cost is now about 15 percent higher. 3 The Pattern in Average Body Shop Collision Repair Cost Between Rhode Island and Six Nearby States Has Changed, Hurting Rhode Island Drivers $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 1.6% Lower Rhode Island Nearby States 14.9% Sources: AudaExplore and Mitchell, Inc. Based on AudaExplore and Mitchell data, Rhode Island s average body shop collision repair cost grew 39 percent from 2003 to 2014; in contrast, the average repair cost of nearby states grew 19 percent. The exponential growth in Rhode Island s repair cost is a primary reason for its shift in pattern i.e., from being lower than other states in 2003 to being higher than other states in Rhode Island s body shop labor costs have grown significantly over the last decade A key component of the total collision repair cost is the body shop labor cost. In 2003, total labor costs were essentially the same for Rhode Island and its six nearby states. During the last decade, however, Rhode Island s labor cost per claim rose 32.4 percent, compared to a 23.3 percent increase in the other states. This rapid rise has contributed to a 7.4 percent higher labor cost in Rhode Island today ($1,371 per claim RI vs. $1,276 per claim nearby states). 4 3 AudaExplore, a Solera Company, and Mitchell, Inc. Both organizations collect and compile claims data on collision repairs. 4 Ibid. A Decade of ABARI-Supported Legislation Takes Its Toll on Rhode Island s Auto Insurance Costs & Prices Page 2

4 The Gap in the Average Labor Cost Between Rhode Island and Nearby States is Wider Today $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 0.1% Rhode Island Nearby States 7.4% Rhode Island s average insured collision claim cost has been rising much faster Since ABARI-supported body shop legislation began passing in 2003, the average cost of collision claims (i.e., severity) in Rhode Island has been rising much faster than in nearby states specifically, 15 percentage points faster (42 percent RI vs. 26 percent nearby states). 5 Rhode Island s growth in claim severity has been especially apparent during the last five years, climbing 10 percentage points in 2014 while the claim severity for the other states fell slightly. % Increase Since The Average Collision Claim Cost in Rhode Island Has Accelerated Much Faster than in Nearby States (3) Rhode Island Nearby States Source: Fast Track Monitoring System Reports; 2014(3) reflects first three quarters of % increase since % increase since 03 5 Fast Track Monitoring System, which comprises publicly available quarterly reports of industry auto loss trends. Fast Track is prepared jointly by Independent Statistical Service, Insurance Services Office, Inc. and National Independent Statistical Service. A Decade of ABARI-Supported Legislation Takes Its Toll on Rhode Island s Auto Insurance Costs & Prices Page 3

5 In 2003, Rhode Island s collision claim severity was about 1 percent higher than the average of the six states combined ($2,627 RI vs. $2,602 nearby states). With the passage of multiple body shop bills, Rhode Island s collision claim severity has been accelerating and is now almost 14 percent higher than the average of the six states ($3,737 RI vs. $3,277 nearby states). The average vehicle damage premium in Rhode Island is estimated to be 3 rd highest in the U.S. The high body shop labor costs that are a significant component of the high collision repair costs in Rhode Island have contributed to very high prices negatively affecting drivers pocketbooks. PCI estimates that Rhode Island has the 3 rd highest average vehicle damage (collision, property damage liability and uninsured/underinsured motorist-property damage) premium in the nation. The latest available (2012) annual premium paid by Rhode Island drivers is estimated to be $689, compared to $538 in the U.S. a 28 percent difference! 6 Rhode Island s premium is also higher than those of nearby states: Massachusetts ($662); New York ($658); Connecticut ($615); Vermont ($490); New Hampshire ($480); and Maine ($441) $689 Rhode Island s Average Annual Vehicle Damage Premium is 3 rd Highest in the Nation 28% $538 $662 $658 $615 $490 $480 $441 0 Rhode Island Massachusetts Connecticut New Hampshire Countrywide New York Vermont Maine Source: PCI, based on NAIC data 6 PCI, based on data source: National Association of Insurance Commissioners, by permission. The NAIC does not endorse any analysis or conclusions based upon the use of its data. Only the District of Columbia and Louisiana are found to have higher average vehicle damage premiums than Rhode Island. A Decade of ABARI-Supported Legislation Takes Its Toll on Rhode Island s Auto Insurance Costs & Prices Page 4

6 Conclusion Since 2003, the different body shop bills promoted by ABARI have led to rising costs in the state s auto repair system, which in turn have created additional pressures on insurance costs, causing them to accelerate. These significant costs have in turn been passed on to consumers. Rhode Island drivers are estimated to be paying the 3 rd highest vehicle damage premium up to 56 percent more than their counterparts in nearby states. Overall, Rhode Island s average combined liability and physical damage premium is 6 th highest in the U.S. 7 Keeping costs down for consumers should be the most significant matter. As such, PCI respectfully urges lawmakers to oppose any further body shop- or vehicle damage-related bills that create higher prices for Rhode Island s drivers. The Property Casualty Insurers Association of America (PCI) is a national trade association consisting of nearly 1,000 insurers of all sizes and types that write 39 percent of the general insurance in the country. PCI members write 47 percent of the total personal auto market in the U.S. and 70 percent of the total auto market in Rhode Island. 7 Data Source: NAIC, by permission. The NAIC does not endorse any analysis or conclusions based upon the use of its data. A Decade of ABARI-Supported Legislation Takes Its Toll on Rhode Island s Auto Insurance Costs & Prices Page 5

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