Commercial Auto Insurance – Ride Sharing
Most cars are, well, under-used. Consider cars used for commuting to work. During the work week, the majority of vehicles are driven to work (or to a mass-transit site), sit there during the entire work day, then are driven back home….where often they sit until the next work day. Those that are used during the workday are often just used to go to lunch. Regardless, many millions of vehicles are parked at a given location rather than in motion.
The cost of owning and operating cars, vans, trucks, and hybrids continues to grow, sometimes explosively (e.g., gas prices). Another major expense, besides gas, maintenance, and repairs, is car insurance. The latter expense is quite similar to car loan payments; it’s scarcely affected by how much you use the vehicle. Ridesharing is a method being tried as a way to mitigate these problems.
Essentially, ride-sharing consists of a group arrangement consisting of:
• vehicle owners (and lessees)
• an operating area that is underserved by affordable public transport
• an insurance source
• persons who do NOT have their own vehicles
• a program administrator
Initial arrangements allowed persons who needed, but who didn’t own, vehicles to have temporary access to vehicles that were idle during the workday. Both vehicle owners and interested drivers would have to register in a program and then be permitted to share a pool of vehicles – on an appointment basis. The vehicle owners would be paid an established hourly use rate and the program administrator would receive either a flat amount (from drivers and users) or, more commonly, a portion of the hourly rates.
The above situation describes early attempts to create viable rideshare arrangements. However, the landscape has changed dramatically in just the last couple of years. Initial ride-sharing arrangements were fairly inefficient and non-viable due, mostly, to the inability to draw sufficient participants. That issue has largely disappeared. The focus and administration of ride-sharing programs have substantially changed.
Today, several ridesharing companies are operating in locations around the world and their territories are expanding. The key to making these programs viable has been mobile phone technology. Several companies have created mobile phone applications that act as a ride-share administrator.
The process involves an individual using a smartphone to download a ride-share app, then agree to the company’s user terms. The terms may vary, including stipulating to a certain proficiency in driving, having a certain amount of insurance coverage in effect, agreeing to maintain coverage, the absence of serious driving and/or criminal violations, and other requirements. Once the app is in place and the terms are agreed to, the ride share driver can turn on the application, respond to ride requests, accept passengers, and take them to their destination and, either go on to another ride request or turn off the application.
So far, such programs have been set-up in different cities. Since there are many millions of vehicle owners with smartphones, there now exists a way to draw in millions of participants. Several companies have become billion-dollar operations that connect vehicle owner/operators with persons needing temporary
The largest companies have steered clear of using the term, “ride-sharing,” replacing it with “Transportation Networking Companies” or TNCs. Initially, these companies performed the following services:
• Provided and maintained the mobile application and processes
• Recruited vehicle owner/operators
• Monitored transactions
• Established and maintained service price-tiers
As soon as the use of TNCs became significant, complaints arose from taxi operators and from transportation regulators. Taxi operators complained that such services acted in the same manner that they did and severely undercut their prices. Regulators had concerns about service operations as well as compliance with
transportation requirements and oversight of vehicle operators. Another source of complaint was insurance companies.
Insurance companies immediately recognized that protection was needed whenever vehicles were used in TNCs. In the beginning, TNCs depended upon the
coverage carried by its participating vehicle owners/drivers.
Insurance company premiums do not take ride-sharing situations into consideration. Their policy language treats ride-sharing arrangements of TNCs as a business use and such use is excluded. Increasingly insurers have begun to respond to the need of TNC participants. Insurers have clarified that the coverage gap exists specifically during the times that vehicle operators accept requests for rides through the time that they turn off the mobile phone applications and are no longer available to respond to requests.
Therefore, coverage is provided by personal auto insurance when the vehicle owners are NOT using the TNC application. While such drivers are providing PNC service, commercial coverage must be provided on a blanket basis by the TNC. Such coverage must, at a minimum, meet the financial responsibility requirements of the jurisdiction where the participants operate. TNC practices are to license their service on a city-by-city basis.
Regulators in many jurisdictions are grappling with decisions such as, whether to permit TNCs to operate in their area, what rules should be used to oversee them,
whether participants conform to whatever rules are established and, when, if applicable, to issue cease and desist orders.
• California regulators have recently devised a number of rules which involve the following:
• Criminal background checks.
• Driver training
• Minimum of $1 million in insurance
• Required TNC driver licenses
• Vehicle inspections
• Zero tolerance policy regarding use of drugs and alcohol, and
These rules may become models for other jurisdictions that are either dealing with existing TNCs or which are considering the entry of such companies.
If you are participating in, or are considering participation in a ride-sharing arrangement, immediately contact an insurance professional to make sure you are not sacrificing your coverage.
Source – ©The Rough Notes Company, Inc.