Rise of Ride Sharing Could Mean Pricier Auto Insurance for Everyone

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That’s what forces pushing new regulations on sharing are suggesting anyway. Ride-sharing services see the situation quite differently, of course.

Regulators aren’t quite sure what to do with so-called “sharing economy” services such as Airbnb, Lyft, and UberX. In many ways, sharing operations are in competition with traditional businesses—hotels in the case of Airbnb, rental cars and car sales when it comes to Lyft, UberX, and other ride-sharing ventures. Yet homeowners and automobile owners who participate tend to see sharing as just that, sharing, not a true business. Sure, there’s some money changing hands digitally in these transactions, and there’s a contractual business agreement at the heart of every organized sharing service provided, but the owners playing along typically view their participation as an occasional, side-gig sort of thing. As such, sharing companies and sharers alike take the stance that authorities shouldn’t regulate these services like a regular business.

Like regulators, insurers aren’t entirely certain what to make of increasingly popular sharing arrangements. Or more accurately, auto insurers aren’t certain how to make customers pay for the extra coverage they say is needed in such an arrangement. “It’s very clear in California: If you drive your car and make money on it, you need a commercial license,” Pete Moraga, a spokesman for the Insurance Information Network of California, told the San Francisco Chronicle earlier this month. “But because it’s so new, insurers don’t ask the question, which does open the process up to fraud.”

Ride-sharing services typically provide $1 million worth of excess liability coverage for their drivers. But well-publicized accidents and lawsuits have brought up the possibility that such a policy leaves holes in one’s coverage. A Consumer Reports post published earlier this year warned:

That million-dollar excess liability insurance covers passengers, pedestrians, other cars, and property, but it doesn’t cover injuries suffered by the driver or damage to his or her car-cum-cab if there’s an accident.

Lyft has responded to the criticism by bumping up its coverage and even forming a new Peer-to-Peer Rideshare Insurance Coalition in order “to ensure a safe and trusted future for the emerging peer economy.”

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Yet auto insurance-ride sharing conversation/confusion/controversy is very much still alive. Lately, the discussion has shifted to Colorado, where lawmakers are floating a bill that would officially authorize and regulate ride-sharing firms. As the Denver Post reported, if passed the law would “effectively require insurers to provide coverage for Lyft and UberX drivers, who use their own vehicles for fares, under personal policies even while they may be engaged in commercial activity.”

Such a ruling would seem to eliminate some of the gray areas as to whether one’s personal insurance or the one provided by the ride-sharing service would provide coverage when Lyft or UberX drivers get in accidents. It would also hopefully eliminate the possibility that neither policy agrees to cover damages when, say, a Lyft driver gets in an accident while viewing the company smartphone app but before picking up a passenger. (That’s one of the holes that’s at the heart of a lawsuit arising after an Uber driver killed a 6-year-old girl in an accident on New Year’s Even in San Francisco.)

There could be a downside to requiring that personal policies provide such coverage, and the impact might not only be felt by the folks who pick up paying passengers via UberX, Sidecar, or Lyft. A memo associated with the bill in Colorado noted that officially classifying and regulating as transportation-network companies (or TNCs) would have an effect on the insurance premiums paid by all drivers: “Since in many cases the insurer will not know which of their customers will be using their vehicle to drive for a TNC, they will be forced to pass this cost on to all of their customers.”

In other words, your auto insurance rates would supposedly go up regardless of whether or not you’d ever picked up a passenger via Lyft or UberX, or even if you’ve never heard of these companies.

An expert hired by UberX to assess these claims says the theory that everyone’s auto insurance will rise thanks to ride sharing is hogwash. “Colorado insurers cannot increase their premiums without first developing actuarial support for such increase,” former Colorado Insurance Commissioner William Kirven wrote in response to the memo. The idea of passing along higher costs to drivers is “purely speculative and cannot be justified or based upon any information available at this time,” he wrote.

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One thing that is perfectly clear is that the debate regarding ride-sharing regulation and insurance isn’t likely to end anytime soon. The Denver Post noted that the issue is expected to be raised soon in Arizona and other states.