Personal auto insurers track many industry trends, including mobile app technologies, telematics programs, and automated vehicle advancements. Two new issues — ride sharing and car sharing — have now crossed insurers’ paths, and they pose some interesting challenges. The idea of sharing a car or a ride seems innocuous; it conjures up images of giving a neighbor a lift to the store or parents taking turns running errands with the family minivan. But despite the friendly-sounding names, the new types of sharing may have implications that insurers and policyholders haven’t anticipated.
Employee carpools or college dorm mates sharing a ride home from school are long-standing traditions. But those forms of sharing typically require advance planning and involve people who know each other. Technology has altered the nature of ride sharing. It’s now possible to share cars and rides with little or no advance notice using social networks to draw from large numbers of anonymous individuals. Entrepreneurs are eager to capitalize on the trend.
What is car sharing?
Simply put, with car sharing, a private individual rents his or her personal vehicle to another driver for a few hours, days, or weeks.
Services such as FlightCar, GetAround, and RelayRides act as brokers between people offering their cars for rent and those seeking rentals. Each of those services collects a fee. FlightCar bills its service as “car sharing for travelers.” The company specializes in owners who drive to the airport and park their cars there while traveling. In return for sharing a car that would otherwise sit idle, the car owner gets free airport parking, a ride to the terminal, and a portion of the car’s rental fee. FlightCar even washes and vacuums the car. FlightCar’s rates are typically far below the rates of commercial rental car companies. Their service is currently available at two airports in Boston and San Francisco.
GetAround and RelayRides offer “peer-to-peer” car rentals, another version of car sharing. Using a smartphone application, car owners list their cars as available for rent from any location within the geographic area that offers the service. For example, a car owner can drive to work in the morning and park his car, at which time a renter can pick up the car to run a few errands and return it before the end of the workday. The services solicit car owners with pitches such as “The average car sits idle for 22 hours a day” and “Earn up to $1,000 a month by renting your car.”1 Typical rental fees can range from $8 to $10 per hour. GetAround is currently available in San Francisco, Portland, Chicago, Austin, and San Diego.
What is ride sharing?
Companies like Lyft, Uber, Sidecar, eRideShare, and Ridester act as brokers or ride-sharing exchanges between prospective drivers and passengers. eRideShare and Ridester use web portals to match drivers and passengers. Their services seem geared more toward commuters interested in sharing the expense of carpooling.
Lyft, Uber, and Sidecar offer on-demand shared rides. The idea behind ride sharing is to earn money while carrying a passenger in an otherwise empty car. In practice, one might be hard-pressed to distinguish some aspects of on-demand ride sharing from traditional taxi and limousine services, particularly when brokers use pitches for prospective drivers such as “Drivers are making up to $35 an hour and choosing their own hours” and “Just a few hours of driving can help cover costs for parking, insurance, repairs, and gas.”2
For on-demand services, prospective passengers can summon a car using a smartphone app. A recent article in The New York Times describes one example in which a bar patron summoned a car after closing hours using her smartphone and “minutes later, a graduate student moonlighting as a driver pulled up in an SUV.” The same passenger was quoted in the article as saying, “This is so much cheaper than a cab, and so much easier.”3
Some traditional taxi companies and related regulators appear vexed by these upstarts. The taxi industry sees a potential loss in revenue as it competes against what it might perceive as lower-cost operators, and regulators often cite potential safety issues in a largely unregulated market.4 But the services appear to be here to stay. One state, California, recently even issued guidelines.5, 6
What does it mean for personal auto insurers?
Car- and ride-sharing services target personal automobile owners, so one of the most significant issues for personal auto insurers involves liability. If a car is involved in an accident while used in a car- or ride-sharing arrangement, who pays? Typical language in a personal auto policy, such as that found in ISO’s current Personal Auto Policy, excludes coverage with respect to “liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance.” However, that exclusion “does not apply to a share-the-expense car pool.”
From a risk assessment standpoint, car sharing may be the easier of the two services to evaluate. In many cases, car sharing is basically analogous to a public rental. There’s no sharing of expenses and no sharing of a ride between driver and passenger to a common destination. In essence, the car is available to rent for a fee. In line with this, some car-sharing services offer primary coverage in the event of an accident. In many cases, the service offers car owners third-party liability coverage as well as some comprehensive and collision coverage.
On-demand ride-share services are more difficult to evaluate. At least one such company states in its terms of service that payments are “donations” and not “fares” and requires passengers and drivers to affirm that they’re not using the vehicle for a commercial purpose. Passengers are further required to affirm that they’re not using the service “outside the ride-sharing and carpooling exemptions under applicable law or on behalf of any entity or organization.”7 Another service advertises that it will provide excess liability coverage “…in the event that the driver’s personal insurance will cover only a portion of or none of the driver’s liability associated with an incident.” None of the services appears to provide drivers with comprehensive or collision coverage.
So, what, if anything, should insurers do? Depending on the specific facts and circumstances, some insurers believe that the “taxi or livery conveyance” exclusion does apply. In response to ride-sharing trends, ISO recently released an exclusion endorsement for vehicle-sharing arrangements as part of its personal auto program. However, a more fundamental challenge for insurers is determining whether a driver was engaged in ride sharing when an accident occurred. And in the typical claims process, when does the question ever arise, “At the time of the accident, were you engaged in ride sharing?”
Perhaps surprisingly, the topic did come up in one incident, as recently reported in the San Francisco Bay Guardian.8 According to the article, the insurer discovered that one of its policyholders had an accident while providing ride sharing to passengers and reportedly requested that she stop providing the service in order to continue coverage. There was no mention of how the insurer handled the claim, but the policyholder was reluctant to stop ride sharing because “it’s a big part of my income at this point and I would hate to give it up because I would have to find something else.”
Should insurers worry? Recently, one ride-share provider raised more than $60 million in new capital to continue its expansion. The service already provided more than 30,000 rides per week, or 1.5 million rides annually.9 And given the urban locations with the population density to make such services tenable, it’s hard to imagine that all those trips end accident-free.
With more ride-share start-ups entering the market, more markets coming online, and the relative ease with which car owners can make money by offering their services, ride sharing appears poised for significant growth. Ride sharing may not be insurers’ number one concern, but it should probably be on their radar.