Ride Sharing & the Insurance Gap
Laura Maxwell

Ride Sharing & the Insurance Gap

Insurance Regulators Raise Eyebrows

Laura Maxwell March 18, 2015 Posted in: Blog Posts, Ridesharing
Ride sharing connects drivers and passengers through a Transportation Network Companies (TNC)’s app that is installed on a passenger’s smartphone. Drivers are independent contractors and use their own automobiles to provide the ride share service through companies such as Uber, Lyft and Side Car. The popularity of TNCs have caught the attention of regulators in various jurisdictions and concerns have been raised about the adequacy of these drivers’ insurance coverage.

Coverage issues arise during the time that the app is activated (“app on”) until the time the app is turned off (“app off”) as the driver is using the vehicle as a livery service and traditional livery coverage is excluded from a personal auto policy. For insurance purposes there are three distinct time periods during “app on” to “app off.”
  • Period 1: App is On and the driver has not accepted a match and there are no passengers
  • Period 2: App is On, the driver has accepted a match and is enroute to the passenger
  • Period 3: App is On, the passenger is in the car
TNCs provide insurance coverage for ride share drivers as soon as the driver accepts a match and until the passenger is dropped off at his/her destination (Periods 2 and 3). TNCs may offer contingent coverage during Period 1 that provides coverage if the driver’s personal automobile insurer rejects the claim or there is no underlying coverage.

The National Association of Mutual Insurance Companies (NAMIC) disagrees and believes that commercial insurance should cover the vehicle for all three periods. During a recent NAMIC webinar, Ride Sharing: State Legislative Update, NAMIC stated their position as:
  • Ensure that personal auto insurer’s right to exclude coverage for commercial TNC activities is protected
  • Create ‘bright line’ standard to determine when commercial activity begins and TNC coverage is in place
  • Mandate that commercial coverage has primacy
  • Mandate that the commercial insurer has primary or sole duty to defend
During Pinnacle’s recent Apex webinar on ride sharing, we polled attendees on how should Period 1 should be covered? Out of the 54 respondents, 31 selected Commercial from “app on” to “app off” and 23 selected Personal - ride sharing endorsement. No one selected that personal auto insurance rates currently cover this exposure.

New Legislation Coming to California in 2015
Effective July 1, 2015:
  • TNCs must disclose in writing to their drivers that personal automobile insurance does not provide coverage while the vehicle is in connection with a TNC’s online-enabled application or platform (Public Utilities Code, Division 2, Article 7, 5432.(a)).
  • During Period 1, TNC insurance is primary (Public Utilities Code, Division 2, Article 7, 5433.(b)(1)) This coverage may be maintained by the participating driver, the TNC or any combination of both (Public Utilities Code, Division 2, Article 7, 5433.(c)).
California’s new law will eliminate the insurance gap and creates the need for new insurance products. The California Department of Insurance approved Metromile’s rate filing to add a new coverage endorsement to their personal auto policy. This endorsement provides coverage during Period 1. The filed rate page has Type of Vehicle Use factors of 1.00 for both personal and TNC use. The filing memorandum states that there is no credible data to select a higher or lower factor at this time and that they will monitor the experience for possible future rate adjustments.

The filing memorandum also states that miles driven during Periods 2 and 3 will not be counted in the rating of the vehicle. This removes duplication of coverage while the vehicle is covered under the TNC’s commercial policy.

For California, the insurance gap ends on July 1, 2015. California personal auto insurers will need to decide whether or not they want to offer a TNC endorsement. In other states, they will need to watch legislative action and may want to strengthen their current livery exclusion.


Click to download the presentation from Laura's Apex Discussion webinar on ride sharing.

lmaxwell@pinnacleactuaries.com

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