With travel increasing and more vehicles on the road post-pandemic, collisions and other vehicle issues have surged, resulting in greater demand for towing services and roadside assistance.
The volatile economic environment has also had an impact on tow-truck demand. Facing extra-long wait times for new vehicles, and majorly inflated prices for used vehicles, drivers are opting to keep their aged vehicles on the roads for longer, increasing the chances of incidents occurring that may require towing services.
Like the rest of the commercial auto and trucking industry, tow-truck operators have experienced challenging insurance conditions in recent years. Commercial auto insurers have seen their loss ratios deteriorate due to challenges around social inflation, large jury awards, and a rise in auto claim costs. As a result, there has been a hardening of the marketplace, with many carriers raising rates, limiting capacity, and applying strict risk selection and underwriting criteria.
“There are always ebbs and flows in this market,” said Rob Mills, senior underwriter at Trinity Underwriting Managers (TUMI), an Amwins company. “We’re in a hard cycle at the moment, which is difficult for everybody – the insureds, brokers, underwriters, and carriers – and we’re trying to piece together solutions that work.”
Tow-truck operators have some unique exposures relative to the wider commercial auto and trucking industry. When approaching or dealing with an incident on a road or highway, tow-truck operators have significant side-of-road exposures, especially because they’re often called to work during hazardous driving conditions due to poor weather, volume of traffic, or challenging terrain. The trucks – which have high insured values due to the towing and recovery equipment attached to the chassis cab – could be hit by other cars on the road, leading to an expensive repair job and claim.
Furthermore, the operators could suffer bodily injury while loading wrecked cars, and they could be dragged into vicarious liability lawsuits for simply being involved in a potentially litigious situation. The industry is also exposed to issues related to fraud, and special risks like confrontations with car owners when repossessing or impounding a vehicle.
There are risk management strategies that tow-truck operators can apply to mitigate some of these risks, according to Mills. He said: “Tow-truck operators should take a good look at how their organization is being run. A lot of the contracts they have are high-risk, they’re time-sensitive, and they require drivers to be in a certain place at a certain time, which lends itself to burnout and feeds into the ongoing challenge around driver shortages.”
Tow-truck operators can also use dash cams (both inward and outward facing) and telematics to promote safe driving practices and to protect drivers in the event of a claim. These tools can help to determine who is at fault in an accident, reducing the likelihood of nuclear jury verdicts and socially-inflated claims.
“Dash cams and telematics are two more risk management tools in the toolbox for tow-truck operators,” Mills told Insurance Business. “However, there was a misconception in the past that these tools were adversarial and created the ‘Big Brother’ effect, but I think it’s important to look at dash cams and telematics as a team effort – from insureds, brokers, and carriers – to protect the insureds. These tools pay immediate dividends. There are upfront costs, but if they can prevent a claim, that could make all the difference for towing businesses, especially in this economic environment where every dollar matters.”
Mills emphasized the importance of partnership. When many commercial auto carriers switched into ‘hard market mode’ and altered their pricing and underwriting strategies to offset soaring claims costs, the team at TUMI made a conscious effort to focus on claim frequency, with the aim of controlling preventable claims.
“We started by looking at frequency,” he said. “Are our insureds having a lot of claims? What type of claims are they having? Can we prevent these claims by working together to determine better risk management strategies? Rather than following the crowd and incrementally raising rate to adjust and offset for potential loss, we focused on reducing claim frequency, which also reduces the likelihood of our insureds suffering a severe claim. The next stage is to look at the frequency of severe claims, and to what extent that’s a bi-product of plaintiff attorneys [targeting commercial auto companies].
“We have a very interactive approach with our insureds, particularly around the use of dash cams and telematics. If a risk alert shows that a driver is not using a dash cam, we’ll remind them that these tools are there to protect them and their businesses. We’re very interactive with our claims department as well. We don’t believe in a one-size-fits-all approach to underwriting. We’re constantly refocusing our efforts based on the claims we’re seeing and the risks our insureds are facing in different regions.”
Mills said good underwriters want to know – “warts and all” – about tow-truck operators’ true risk profiles in order to find the best possible insurance and risk management solutions. That requires strong relationships and partnership between all stakeholders, candid discussions about risk management, and acceptance that investments into tools like dash cams and telematics can have long-term benefits.
“We’re not here to decline risks,” he said. “We’re here to find solutions.”