Monday, January 12, 2015

USAA, Uber and Colorado Embrace the Collaborative Economy

It is no secret that today's revolutionary collaborative economy companies present many challenges to established business models and laws, not the least of which are those pertaining to risk. Luckily, new forms of protection--including laws and innovative insurance options--are being developed to cover ridesharing participants.

USAA, Uber and the state of Colorado have all taken actions that not only protect consumers but also facilitate the continued growth of sharing economy firms. Their actions demonstrate how Transportation Network Companies (TNCs, such as Uber and Lyft), states (including lawmakers and regulators) and insurance companies can innovate and collaborate to resolve the issues of risk and protection that hinder growth, acceptance and adoption of ridesharing. Accidents are unavoidable, and all three of these parties play important roles in safeguarding drivers, riders and others when they occur.

Uber Covers (Some) of UberX Drivers' Risks

UberX presents a special risk challenge for both Uber and drivers. While UberBLACK, UberSUV and uberTAXI rides are provided by commercially licensed drivers covered by commercial insurance policies, UberX is a true peer-to-peer business model, with private drivers offering rides in their private cars. Personal auto insurance is not priced for the additional risks that come from commercial transportation, and as a result, auto policies exclude these sorts of commercial activities.

Uber protects UberX drivers with a variety of coverage while transporting customers. From the moment a driver accepts a trip to its conclusion, drivers are covered with $1 million of liability coverage, $1 million of uninsured/underinsured motorist coverage and $50,000 of contingent comprehensive and collision insurance (with a $1,000 deductible).

During the "gap time" or "unmatched phase," when drivers are logged into the app but do not have a fare, there is a different set of coverage offered. This includes protection for bodily injury up to $50,000 per individual (and $100,000 per accident) and up to $25,000 for property damage. This policy is contingent to a driver’s personal insurance policy, meaning it will only pay if the personal auto insurance completely declines or pays zero.

While questions remain and some argue coverage must improve, Uber has taken steps to clarify the insurance and protection situation with its drivers.

Colorado Becomes First State to Authorize Ridesharing

Auto insurance and livery services are regulated at the state and local levels, so TNCs have been working (or battling) for acceptance on many fronts. Last June, Colorado became the first state to pass a law that clarifies issues of protection and risk, permitting TNCs like Uber and Lyft to legally operate.

Under the legislation, ridesharing companies will have to obtain permits from the Colorado Public Utilities Commission and carry at least $1 million in liability insurance. In addition, either the companies or their drivers will also have to carry primary insurance coverage during the gap period between when the app is turned on and a rider enters the vehicle.

This gap (or unmatched) period continues to cause questions, even in Colorado (much less states without their own similar legislation). For example, Uber has stated in a blog post that "the vast majority of personal insurance policies cover this period either by the plain terms of the insurance policy, or due to the insurance requirements set by state." The insurance industry feels otherwise. Dave Jones, California Insurance Commissioner, notes that "TNC's are under the mistaken impression that personal automobile insurers cover now, planned to cover, or will cover the risk of TNC-related for-hire transportation," The Insurance Information Institute states that "a standard personal auto insurance policy stops providing coverage from the moment a driver logs onto a TNC ride-sharing app." And Esurance agrees, noting that "if a TNC driver is available through the app, they’re driving as a livery service and therefore won’t be covered" by personal insurance coverage.

Because of the confusion, some ridesharing drivers try to hide their association with TNCs from their insurance companies. This is risky behavior that places their insurance at risk, and in fact, there have been sporadic reports of insurance companies canceling coverage for ridesharing drivers. The threat of losing insurance is so real that cab drivers in one city, in an effort to buy leverage against the growth of ridesharing, claim to be compiling a database of thousands of TNC vehicle license plate numbers to make available to insurers.

USAA Offers Innovative Ridesharing Coverage

Even with the coverage offered by the TNCs and the new law in Colorado, there is a need for insurance companies to step in to help educate and protect their customers. USAA, which has a reputation for innovation, is piloting a program to do just that.

USAA is launching a pilot in Colorado that will protect TNC drivers from the moment their ridesharing mobile apps are turned on until they are matched with a passenger. The pilot program, which will begin in February, extends a member’s existing auto policy coverages and deductibles, and costs about $6 to $8 more per month.

Colorado provides the perfect proving ground for this inventive insurance product. Not only is it the first state to authorize ridesharing, but Colorado also has a high concentration of USAA members (not to mention a Financial Center and Regional Office in Colorado Springs.) “Ridesharing is a growing industry, and it’s important that our members have the right coverage,” said Alan Krapf, president, USAA Property and Casualty Insurance Group.

USAA is not alone in offering novel products for ridesharing participants. Erie Insurance has  a new insurance offering that covers ridesharing drivers "before, during and after the hired ride" in Illinois and Indiana. And last May, MetLife announced a partnership with Lyft to develop new insurance solutions to protect rideshare passengers and drivers, although details on those products are still outstanding. Watch for many other insurance companies to follow the leads of USAA, Erie and MetLife with new products aimed at TNC drivers.

The collaborative economy still has a lot of maturing to do, and TNCs like Uber are a long way from working out their legal and regulatory issues across the country and globe. Still, the fact that Colorado, USAA and Uber have come so far so quickly is quite impressive, considering Uber was available in only a handful of cities four years ago. This sort of prompt and innovative action is required elsewhere so that riders, drivers, insurance companies, states and TNCs can understand their roles, responsibilities, risks and costs in the nascent ridesharing marketplace.

1 comment:

Unknown said...

Good piece Augie. It is sadly not surprising that most of the insurance industry is turning away from ride sharing. Here is a new opportunity but insurers don't like to do anything 'new'.

The industry needs to shake up and start thinking about its future role as the collabortaive economy and the internet of things changes the nature of how people buy or borrow.