The past few years have seen the rise of so-called transportation network companies (TNCs) such as Uber, Lyft, and Sidecar. These companies have built technology platforms that enable passengers to request rides from drivers using their own vehicles who have registered on these networks using an app on their mobile phones.
The explosive growth of TNCs (ridesharing services are already available in more than 60 major cities) can be attributed to the public’s dissatisfaction with the price, availability, and service of traditional taxis and livery vehicles. Proponents of TNCs often cite cost, convenience, and courteous drivers as reasons why they prefer these services over traditional options. Taxi and livery service companies on the other hand argue that TNCs are typically less expensive because their drivers are not professionals with commercial vehicles and insurance. Rather, the drivers are people who use their personal cars to make extra money acting as part-time taxi drivers.
The fact that people are using their own cars to pick up and drop off passengers for a fee has created questions about insurance and who ultimately is responsible when an accident occurs. Most personal auto policies are designed to exclude coverage in situations when a vehicle is used as a public or livery conveyance. In response, TNCs – as of this writing – are providing $1 million in liability insurance for their drivers, which is activated the moment the driver is matched with a passenger and provides coverage until the trip concludes. Uber and Lyft also provide contingent liability coverage (in the amount of $50,000/$100,000/$25,000) for when the driver has logged into their systems, indicating that he or she is available to pick up passengers but has not yet accepted a ride request. This coverage is activated only if the driver’s auto insurance carrier denies the claim; it does not act as excess coverage.
For most people, it may appear that they would be adequately covered by insurance in case of an accident if they elected to drive for TNCs, either through their own policy or the coverage offered by the TNC. But the reality is that their coverage may be inadequate, and obtaining indemnification quickly may prove difficult – not as a result of ill intentions from the TNCs or personal auto insurers, but rather because the popularity of peer-to-peer ridesharing has grown so quickly that not all questions related to insurance have clear answers.
On the surface, the additional risk presented by policyholders who drive for TNCs may appear unwanted by most personal auto carriers, as the current rates would not reflect the additional exposure. However, in today’s ultra-competitive personal auto market where insurers are desperately looking to retain their profitable customers and attract the best risks from competitors, TNC drivers may become an opportunity for growth and increased profits. The main problem is that there’s not enough experience yet nor a transparent way for insurers to know if and when their policyholders are driving for a TNC. If insurers could collect the right data on drivers involved in ridesharing, such as where and when they are driving along with other details, appropriate pricing could be developed over time. Additionally, if insurers knew which policyholders were engaged in ridesharing, policy language could be tailored to dovetail with coverage offered by the TNCs and minimize potential subrogation and claims investigation costs.
The new ridesharing economy appears to be here to stay. And while regulators are still figuring out under what rules these companies will operate, insurers can take action to minimize their eventual exposure to claims resulting from ridesharing activities. One action could be to notify all their policyholders that their personal auto coverage may or may not respond while the policyholder is engaged in ridesharing activities. Another possibility would be to ask policyholders on the insurance application/renewal form if they plan to use the car for ridesharing activities.
For insurers interested in offering ridesharing coverage, the optimal tools are not yet in place but may be developed in the future. What is certain is that the peer-to-peer economy is growing, and that will continue to pose new challenges for insurance.
If you’re a registered ISOnet® user and want to learn more about ridesharing, visit our Emerging Issues portal, available on ISOnet.