Do ride-share drivers need commercial coverage or will personal auto do?

You may not know anyone who’s used a ridesharing application to book a trip, instead of calling or hailing a taxi. But soon, that may change—ride-sharing service providers, also known as Transportation Network Companies (TNCs), are growing rapidly across the United States, and presenting potential new exposures for personal and commercial auto insurance coverage.

As of January 2015, the three major ridesharing service providers—Lyft, Uber, and Sidecar—operate in more than 130 U.S. cities throughout approximately 40 states and the District of Columbia. These major players in an expanding TNC market are all reporting rapid growth as they compete for riders, revenue, and drivers.

Booking a ride through a TNC application is relatively simple. Passengers use the app to locate drivers nearby and request a ride. The drivers set their own hours, use their own cars, and are not required to have any commercial auto driving experience. Once the driver accepts the request and the ride is complete, the passenger pays for the ride through the TNC application, which then takes a percentage as commission from every fare.

Potential coverage gaps

The TNCs reportedly provide the drivers with insurance, but that insurance may cover only certain exposures when the driver is operating the car. To understand the coverage, it’s helpful to divide the role of the TNC driver into three phases.

The first phase is when drivers are logged into the TNC app and looking for ride requests. Think of it like a traditional taxi, except that passengers must find and hail the taxi through the app. During this phase, TNCs typically offer contingent liability coverage if personal auto coverage is declined or not available.

What that means is if drivers sustain damage while they’re logged on and looking for passengers, then want to submit a claim, they will likely turn to their personal auto coverage for help. Needless to say, that may result in disputes between personal auto insurers and TNC drivers.

The second phase begins when the driver has accepted the request and is en route to pick up the passenger. The third phase occurs when the passenger is in the vehicle and on the way to the destination. During these latter two phases, TNCs have indicated that they provide primary liability and uninsured/underinsured motorist (UM/UIM) coverages, and in certain circumstances, contingent comprehensive/ collision coverage.

Some of the potential insurance coverage gaps came to light in January 2014, when a TNC driver struck and killed a minor in California. The litigation that followed reportedly cited the driver’s status as a TNC driver and that he was looking for a fare when the accident occurred. Subsequently, some TNCs expanded coverage to include when a driver is logged onto their app and looking for passengers. That expansion, though, provides contingent liability coverage and applies only if the driver’s personal auto insurance is declined or not available.

As for policyholders, many personal auto policies currently exclude coverage when the car is being used for a TNC service. ISO last year introduced an Advisory Notice to Policyholders that explains how driving for a TNC is considered operating a “public or livery conveyance” and is currently excluded under the ISO Personal Auto Program. ISO has also developed a reinforced version of the “public or livery conveyance” exclusion that explicitly addresses TNCs.

Who’s driving?

Perhaps the biggest potential challenge facing insurers is determining which of their insureds is driving for a TNC and when that driving occurs. Stakeholders in the TNC arena have indicated they’ve noted a wide appeal for young adults, students, teachers, seniors, and the unemployed to earn supplemental income as TNC drivers. It may not occur to many of those drivers to inform their auto insurers that they’re participating as TNC drivers. Others may be reluctant to share their ride-sharing activity with their personal auto insurer due to concerns ranging from premium increase to cancellation or nonrenewal of their personal auto insurance coverage.

The result: Insurers may not be aware that an insured is driving for a TNC until after an accident occurs and a claim is made. At the same time, insurance agents and brokers might face errors and omissions exposures under general or professional liability coverage. The policyholders could claim they were not properly informed of the possible exclusions or limitations in driving for a TNC.

To help avoid such situations, it’s critical to talk to potential policyholders about the risks of ride-sharing during the application or underwriting process. Several state insurance departments have already released advisory notices or bulletins addressing ride-sharing arrangements through TNCs and indicating in part that participation as a TNC driver may not be covered under a personal auto policy. Similarly, legislation addressing TNCs in California and Colorado typically requires certain insurance information be disclosed within the TNCs’ contractual arrangements with their drivers, so as to ensure that policyholders are properly informed of insurance implications while engaging in ride-sharing.

It’s also important to look at ways, including telematics, to monitor driving patterns. A telematics device can indicate not only the amount of time spent driving and miles driven by a TNC driver but also the location of the vehicle, the vehicle’s driving patterns, and the context in which driving occurs. Having the ability to compare data from when the vehicle is being used strictly for personal purposes to when the vehicle is being operated in the context of a ride-sharing arrangement may provide valuable information in determining how behavior as a TNC driver, even if there is no passenger in the vehicle, may change the nature of the risk.

Coverage opportunities

Despite all the challenges of TNCs, they also present opportunities. As the number of TNC drivers continues to grow, there will likely be a need for personal auto endorsements that cover policyholders as soon as they log into their TNC apps and start looking for passengers. There’s also the opportunity to cover TNC drivers with commercial auto insurance. While commercial auto policies for taxi or livery services are generally more expensive than traditional personal auto policies, there may be ways to adjust premiums for TNC drivers, depending on where, when, and how they drive.

ISO is in the process of developing an endorsement for its personal auto program that would offer an option to cover TNC drivers from when they log onto the app until the passenger has entered the car. Providing that option addresses potential challenges in the claims handling process, since TNC coverages vary when the passenger isn’t in the vehicle. ISO is also considering options in the ISO Commercial Auto Program to address explicitly TNC drivers, and possibly, TNCs themselves.

The author

Sandee Perfetto is personal auto product development director at ISO, a Verisk Analytics (Nasdaq:VRSK) business.