Channel | Industry

Risky Business: P&A Meets Ride-Hailing

F&I products shield car buyers from undue financial duress while generating revenue for providers, administrators, agents, and dealers. But using a covered vehicle for Uber and other ride-hailing services accelerates odometers and could void the coverage. P&A asked four leading executives how they are responding to the growing use of personal vehicles for commercial purposes.
By: Tariq Kamal

Risky Business: P&A Meets Ride-Hailing

Few emerging automotive industry trends have garnered as much attention as ride-hailing. Services such as Uber and Lyft offer mobile app-based services anyone with a smartphone can use to arrange and pay for a ride, typically for less than the cost of a taxi and almost always with a driver who is using their own personal vehicle to pick up fares.

Drivers and passengers are prompted to rate one another after each ride, and both parties have good reason to keep their grades up. For drivers, that requires delivering a memorable customer experience and maintaining their vehicles to a high standard of cleanliness and repair.

These factors combine to create an attractive transportation option. The numbers prove it: In 2017 alone, the global ride-hailing leader, San Francisco-based Uber, facilitated four billion rides in 600 cities in 78 countries. (It took the company seven years to rack up its first billion.) With 75 million monthly active riders and three million active drivers, the company currently averages about 15 million rides per day.

Executives working at the highest levels of the F&I product provider and administration segment are well aware of the expanding reach of ride-hailing. They know a certain number of the units covered by their service contracts, GAP policies, and protection products are being used for livery. They can assume Uber and Lyft drivers are far more likely to blow through their mileage limits than the average car buyer. In many cases, the mere fact that the vehicle is being used for commercial purposes voids the coverage.

So how serious is the issue, and how are industry leaders responding? To find out, P&A reached out to Brian Krasavage of Allstate Dealer Services, Kelly Price of National Automotive Experts (NAE)/NWAN, Safe-Guard Products International’s David Pryor, and Tony Wanderon of National Auto Care (NAC). We quickly learned ride-hailing isn’t keeping our sources up at night, but it is on their radar, and further complications — and opportunities — almost certainly lie ahead.

What’s the Big Deal?

Summarizing the consensus opinion, Price says she is not particularly concerned about ride-hailing, noting that, for most affected units, the owner is only using their vehicle to earn supplemental income in their free time.

“I really don’t think there is much difference between using a car for ride-hailing and using a car for light business use,” says the CEO of NAE/NWAN. “For those consumers who would like to work for a ride-hailing service full-time, inclusive rental and lease options are available from both Uber and Lyft.”

“I don’t see what all the fuss is about. We price our products based on time and miles,” said Wanderon, who serves as NAC’s CEO. “Do I care? Yes. It is a problem, but not because of the expiring miles.”

Wanderon’s chief concern is the enhanced likelihood of a claim arising within the first two or three years of ownership, which is traditionally considered a low-risk period for new vehicles. “If they drive more than 25,000 miles per year, they come into risk fast, and you’re not going to have the earnings to pay the claims. … When you get a higher loss upfront, you want to make rate adjustments, but you don’t really understand the risk you’re taking on at this point.”

Pryor sees ride-hailing — and carsharing, which includes Zipcar-type services and pooled fleets — as a “significant opportunity” for Safe-Guard, where he serves as CMO. If F&I products are designed to protect customers from the “perils of ownership,” and ride-hailing increases those perils, he argues, opportunities for sales proliferate.

“This is not only due to higher vehicle usage, but also the fact that these vehicles are now a source of income for our customers,” Pryor says. “This commercial approach to vehicle ownership sharpens the customer focus on the value our products provide over their ownership lifecycle. Our only concern is identifying when these vehicles are used for ride-hailing so we can design and price the products appropriately.”

Krasavage agrees. The vice president of Allstate Dealer Services says his company is responding to the expansion of ride-hailing by evaluating ways to adapt their products to meet the needs of those drivers. Rather than exclude or disqualify commercial users, Allstate’s service contracts, for example, are being updated to include them.

“For GAP, we view ride-hailing as a business use, and the vehicle is eligible for coverage under our commercial GAP product offering,” Krasavage says. “We are evaluating the impact on our lease product, Allstate Excess Wear & Tear, which currently excludes business use; however, due to the typical high mileage associated with ride-hailing, we don’t envision a significant number of leased vehicles being used for ride-hailing.”

Equally telling is a recent move made by Allstate’s business insurance division, which partnered with Uber to provide commercial coverage whenever the driver’s app is switched on.

“Overall, we view the changes in transportation preferences as opportunities to address new needs,” Krasavage says.

Qualification and Sales

Krasavage says his company’s inclusive approach is designed to keep things “as simple as possible” for dealers and customers. But he does not downplay the need to collect whatever information is necessary to determine the coverage each customer’s usage demands. Price agrees, noting that NAE/NWAN has yet to see a “true impact” from ride-hailing, but that hasn’t prevented her team from continuously monitoring their programs. Pryor says Safe-Guard relies on its dealers and claims team to identify ride-hailing customers, primarily because they want to know how that application affects purchase, usage, and claims.

“At this stage, our main focus is on collecting as much data as possible to understand customer behavior and product opportunities,” Pryor says.

Wanderon knows that, outside of asking them, there is little product providers can do to determine whether a given F&I customer plans to use their new vehicle to pick up fares — in fact, at the time of purchase, some car buyers may not know themselves. Rather than interrogate their customers, he advises F&I managers to qualify them by making clear the terms of the contract. If the customer understands the coverage, they should be less likely to buy products they won’t be able to utilize.

“When they do have a claim, and we deny it, we’re the bad guys,” Wanderon says. “But we wouldn’t be able to identify them unless Uber shared that information with us.”

“Ask the right questions, then make the appropriate product suggestions based upon the customer’s answers,” Price advises. “There are a variety of products offered by our industry such as service contracts, appearance protection, and others that would provide great benefits to these consumers.”

Krasavage concurs, adding that, if a customer identifies themselves as a ride-hailer, they should be rewarded with a customized F&I presentation. If the dealer’s lineup includes an applicable service contract, a commercial GAP product, and robust paint-and-fabric and tire-and-wheel protection, it’s a win for all sides.

“If a customer is serious about conducting ride-hailing to the point where they consider it their primary business or an important source of income, the F&I manager should emphasize the importance of keeping their vehicle in the best condition possible,” Krasavage says. “No one likes riding in an Uber or Lyft vehicle that is in disrepair or unkempt. A vehicle in better condition can help maintain a high level of rider satisfaction and ratings given that impacts their reputation.”

“To me, people who are ride-hailing, in most cases, they take care of their cars better,” Wanderon adds. “That’s their livelihood. If you’re an Uber driver, you want to get that five-star rating.”

Other Concerns

Pryor said he anticipates specific pricing for ride-hail-oriented programs and usage-based pricing for carshare programs. For now, he says, Safe-Guard remains in data-gathering mode. “From our perspective, the value of having a larger, more robust pool of data on the impact of ride-hailing outweighs the short-term risks associated with the higher usage.”

Safe-Guard is currently testing unlimited-mileage vehicle service contracts in select markets, Pryor adds. He expressed dismay at the fact that some third-party administrators have used evidence of ride-hailing to deny claims. “This short-term gain creates tremendous customer and dealer dissatisfaction and risks tarnishing our entire industry. Transparency and education are key; both customers and those selling the products need to fully understand what is covered by the products available.”

Price believes understanding which products ride-hailers want and need is just as important as the pricing. To that end, NAE/NWAN’s lineup includes options that should appeal to Uber and Lyft drivers.

“We offer a variety of terms, including unlimited-time service contracts, that follow the vehicle odometer only, rather than coverage being based on both time and mileage,” Price says. “These flexible terms provide the customer and dealer with options for standard and nonstandard use.”

Allstate offers a “full array” of time and mileage options, including a 36-month/125,000-mile service contract, Krasavage reports. Change is inherent to the automotive business, he adds, and providers and administrators owe it to themselves to build offerings around individuals who use their vehicles to generate personal income.

Looking further ahead, Price wonders whether the growing popularity of subscription-based services, including programs introduced by such manufacturers as Cadillac and Volvo, will temper the demand for ride-hailing — and F&I products.

“Our industry needs to adapt to current and future buying trends,” she says. “The vehicle-buying landscape is changing. As providers to the industry, we need to closely watch consumer buying trends and make the necessary changes to remain relevant.”

If vehicle ownership really does go out of style, Wanderon says, Uber may be the least of the industry’s concerns.

“Clearly if there are fewer consumers buying vehicles, there will be fewer opportunities to sell our products,” Wanderon says. “If new-vehicle sales fall from 17 million to 13 million, that will have an effect.”

This article was written by:

- has written 31 posts on P&A Magazine.

Tariq Kamal is an editor and contributor for a number of auto industry publications, including Agent Entrepreneur and P&A as well as Auto Dealer Today, F&I and Showroom and Business Fleet. He also serves as an organizer and speaker for Industry Summit, Agent Summit and Compliance Summit.

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The views expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect the views of P&A Magazine or any employee thereof.

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