The impact of towing-business challenges on insurers
Roadside assistance programs enable insurers to meaningfully engage with consumers and differentiate their brand.
On average, 65 million drivers in the U.S. — or about one in three — experience a roadside event each year, the severity of which can range from a dead battery or flat tire to a mechanical breakdown on a highway.
In fact, these events happen so frequently that there are three times more roadside events annually than there are windshield repairs, non-drive-able accidents, or vehicle thefts combined.
These figures should be exciting to insurers.
Today’s auto insurance industry is increasingly competitive. Roadside assistance has become one of the few, and often one of the first, touchpoints for insurers to meaningfully engage with consumers and differentiate their brand beyond the claims process.
Agero research has found that nearly half of consumers expect their insurer to be there for them during vehicle breakdown events and that consumers are twice as likely to turn to their auto insurer, versus a motor club, to make a roadside assistance request.
As a result, roadside assistance has been shown to be a significant driver of policyholder satisfaction and brand loyalty. Roadside coverage can boost insurer net promoter scores (NPS) by as much as 45 points, depending on the brand and its existing baseline NPS. Further, our research indicates that over half of consumers feel their roadside assistance experience is one of the most important factors (beyond price) they consider when renewing or switching their auto insurance policy.
What’s more, roadside can be a boon to claims services such as accident management. Insurers offering roadside assistance see six times more tow volume from the accident scene. As policyholders get used to contacting their carrier for roadside incidents, they become more likely to call after an accident. This more immediate first notice of loss (FNOL) can enable earlier vehicle capture and more streamlined handling that, in turn, can result in major loss cost reduction, to the tune of $500-$800 per claim.
With 87% of U.S. cars carrying insurance and two-thirds of consumers enrolled in roadside coverage through their insurer, it’s clear roadside assistance represents tremendous opportunity for insurers.
Challenging trickle-down
However, the towing and road services industry delivering this assistance is facing significant economic and business challenges that are putting this service at risk — and insurers must take note.
Roughly 75% of motorists rely on a professional (versus a friend, family member or a ‘do-it-yourself’ attitude) to come to their aid when their vehicle is disabled. These providers have substantial influence over the consumer experience. But over the past three years, rising operational costs and driver shortages have threatened the industry’s ability to maintain customer satisfaction.
An analysis of insight and data available from the U.S. Bureau of Labor Statistics, which includes service provider research, consumer studies, and conversations with those in the industry, shows tow and roadside service providers’ cost pressures have been accelerating well above historical and consumer rates. Beginning in 2016, service provider operational costs began to grow at an average of 7.36% per year, more than two times the pre-2016 rate of 3.28%.
Contributing to this significant rise are three principal cost drivers, which account for approximately 66% of an operator’s cost structure:
- Labor: A significant pain point and costly expense is labor, which represents nearly 40% of a service provider’s cost structure. Over the past three years, payroll for motor vehicle towing has increased an average of 9.12% annually. Further, the safety risks, stresses and requirements of the job, and growing competition from alternative driver employment options, have made hiring and retention difficult.
- Fuel: Representing approximately 15% of a service providers overhead, diesel prices have increased at an average rate of 20.7% per year over the past three years.
- Commercial Insurance: Insurance premiums account for nearly 10% of a service provider’s cost structure and have increased 19% industry-wide. Nearly three in four providers have experienced a 28% hike in their premium costs.
These economic and business conditions have led 40% of service providers to believe that unless the current financial structure changes significantly, many providers will not survive the next five years.
This could result in substantial impact to insurers, including driving costs and deteriorating service levels and experiences for consumers, likely severely reducing the positive impact on satisfaction and loyalty roadside is able to provide. For example, a workforce reduction of as little as 3% could correlate to an increased breakdown wait time of 13 minutes, pushing an additional 12% of users to a dis-satisfactory experience (where total wait exceeds 60 minutes, at which time NPS starts to decline).
Insurers get significant value from roadside and, as a result, should play a significant role in helping to put the roadside industry on a sustainable path forward. This includes looking at program economics, including the price to the customer:
- Insurers’ roadside program price is low compared to most motor club subscriptions and its money-saving value is not fully understood by most consumers. How the program is priced and marketed can have a positive a downstream economic impact on the service provider community.
- Consumers are accustomed to tipping for service — salon services, ride sharing, dinners out and more. When these tools are simple, straightforward and consistent, consumers are eager to use them. Tipping capabilities, such as in mobile apps, can improve the bottom line of the driver (Uber hit $50 million in tips just two months after it rolled out the app option).
Roadside assistance is a valuable business driver for the insurance industry, with the power to increase satisfaction and differentiation. But as service providers become increasingly challenged by economic and business issues, insurers should consider taking action. It is incumbent upon the auto insurance industry (alongside other roadside program sponsors) to fully understand these issues and their impact and to make changes that will put roadside on a more sustainable path forward.
Luis Quiroga is vice president of product strategy and marketing at Agero, Inc. To reach this contributor, send email to AgeroConnect@agero.com. These opinions are his own.
See also: