Will 2022 bring higher inflation, economic growth, or equilibrium?

2022 may be another roller coaster ride! More things continue to change just when we thought life and the economy were heading back to normal. According to a recent World Bank blog post, global growth in 2022 is expected to decelerate, from 5.5% to 4.1%. We can blame continued COVID-19 disruptions, supply chain bottlenecks, anticipated higher food, gasoline, and energy prices, combined with worker shortages and recent geopolitical issues related to the Russia/Ukraine conflict. 

What does this mean to all of us? How will this impact the towing and roadside industry and service level agreements (SLAs) many program providers adhere to for their insurance carrier clients? I’d like to find a way to get off this unpredictable roller coaster ride this year and move back into equilibrium.  

Let’s talk about what’s been going on.

As consumers, most of us are already feeling the effects on the economy. I’m not used to seeing grocery store shelves empty and being the lucky one who snagged that last gallon of milk or having to switch brands because my favorite cereal is sold out. Supply shortages have impacted all industries; as a result, we are faced with higher prices. I recently tried to purchase new furniture and was told it would take 3 to 4 months for my order to arrive. I was also going to have to pay about 20% more. Is this the new norm?

After auto usage and road volume declined to unprecedented lows in 2020 due to the pandemic, motorists have significantly increased how often they drive and even changed their driving behavior now as public health measures have loosened. According to the U.S. Federal Highway Commission, traffic volume in November of 2021 was up 11.2% year over year and is continuing to climb in 2022. 

Many of us are back in our cars and on the roads traveling, getting ready for summer trips, and now we’re seeing much higher gasoline prices. In a recent CNBC article, “higher gasoline prices — that will affect consumer confidence. Does that mean the consumer is going to lock down spending? Probably not,” says Wells Fargo Chief Economist Jay Bryson. “Given the fact that omicron is receding and things are opening up, I think that’s a countervailing force.”

Additionally, major supply chain issues in 2021 for new vehicles pushed consumers to purchase used cars, and the prices for these vehicles jumped by 42% compared to December 2019 to October 2021. With overwhelmed ports and delayed shipments, we’re now more aware of long-hidden stress points in the global supply chain. As a result, the costs of goods, services, food, and gasoline will continue to rise, and the supply chain issues that have plagued the economy for the past two years will likely persist or even intensify.

In a recent Federal Reserve meeting, Fed Chairman Jerome Powell stated they would likely hike interest rates in moderation in 2022. However, the Fed Chairman also called the labor market “extremely tight” and said inflation has risen well above the Fed’s 2% target and could hit 10% this year. “We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation,” said Powell. “We know that the best thing we can do to support a strong labor market is to promote a long expansion, and that is only possible in an environment of price stability.”

Continued worker shortages in 2021 have led to higher wage rates in 2022, helping fuel inflation. Companies recognize that they cannot continue to compete merely on wages, benefits, and culture. They have to be more creative now, and many are starting to include company-specific training for higher skillset matches to what employers need. Adding equity, inclusion, and diversity initiatives has become the new norm. In addition, more companies realize there is a higher demand for “remote” employees due to pandemic-related concerns to fill open positions. Hiring remote workers also help companies widen their pool of available candidates when they begin to look outside of their city and state.   

Another factor to consider is how companies entice the last of the pandemic’s workforce dropouts to jump back into the job market. According to JP Morgan Chase, continued strong demand for labor should attract those workers, but demographic trends may still drive a long-term worker shortage. Moreover, even a return to pre-pandemic labor market participation rates and higher wages won’t reverse the aging of the American workforce or the slowing of immigration flows. As a result, businesses will need to invest in technologies that allow smaller teams to be more productive. 

Now let’s talk about the towing and roadside assistance industry.

Most insurance carriers offer their members towing and roadside assistance coverage as a policy add-on to their vehicle insurance plans. Typically, insurance carriers partner with existing towing and roadside networks, like HONK Technologies and others, to manage and deliver emergency roadside services on behalf of carriers.

As a towing and roadside program provider, we understand how important it is to meet and maintain specific performance metrics and service level agreements (SLAs). Well-managed programs routinely look at key performance indicators, including time-to-dispatch, the actual time of arrival compared to estimated arrival times, Net Promoter Score (NPS), customer sentiment, survey response rates, straight-through processing rates, complaint rates, and more.

Continued worker shortages, equipment shortages, higher fuel costs, higher maintenance costs, pandemic-related issues, and inflation may impact high-performing towing and roadside program performance metrics, SLAs, and pricing moving forward.        
Service providers want to grow their businesses in 2022. HONK’s recent survey of 582 service providers found that 46% of providers are hiring and intend to purchase additional tow trucks in 2022 because of the higher demand for their services. Unfortunately, there is some downside to this. 

Towing and roadside rates in 2022 will begin to rise. We’re already experiencing pressure from service providers. Their rates are increasing across the US due to higher fuel costs, higher wages, and an overall increase in maintenance and general expenses for their businesses. From that same survey, 22% of service providers stated they have more work than they can handle, which has led to dispatching delays and longer wait times for motorists stranded on the side of the road in some areas. 

When service providers have more work than they can handle, that results in longer wait times for stranded motorists. Unfortunately, longer customer wait times lead to unhappiness, which has a domino effect by lowering NPS ratings and reducing customer sentiment. Since the return of pre-pandemic driving patterns, traditional motor clubs and other roadside providers have started to struggle to meet the demands of their clients. Thankfully, HONK has successfully maintained its key performance indicators like high NPS and low ETAs throughout the last year and a half.

HONK mitigated some of the pandemic effects. But it’s been our high-performing Service Provider network’s resilience, perseverance, and hard work. You may point out that Service Providers are independent contractors who probably work for multiple vendors simultaneously. So what makes HONK different? Why have our service level metrics remained high while other vendors struggle with long wait times and a shortage of providers willing to take their jobs? 

It’s simple. Service providers want more towing and roadside jobs closer to their available trucks to reduce their en-route travel times and fuel expenses for optimized truck utilization. These are jobs that are 30 minutes or less in drive time. Prioritizing jobs based on location makes the most business sense for tow providers so they can accommodate more customers per day, improve truck efficiencies, and lower overhead costs. Most insurance carriers are now opting to work with roadside assistance program providers who utilize location-based dispatching systems over traditional territory-based models to take advantage of higher service provider performance and 55% shorter wait times for their customers. 

The outlook for 2022.

2022 will feel a lot like 2021, at least at first. But we’re hopeful the situation will eventually return to equilibrium by the end of the year. But first, the economy will have to overcome current downside risks, including simultaneous Omicron-driven economic disruptions, further supply bottlenecks, a de-anchoring of inflation expectations, financial stress, climate-related disasters, geopolitical conflicts, and a weakening of long-term growth drivers. If this doesn’t happen, unfortunately, inflation will continue to drive up prices for all services.  

To learn how HONK can modernize your roadside assistance program, increase your NPS ratings, and assist your customers 55% faster than your current program provider, visit our Industry Solutions page.