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Read Why Ride-sharing Services, Such As Uber and Lyft, Are Not Treated The Same As Taxi And Limousine Services In Pennsylvania And Around The United States

Posted Scott B. Cooper on Mar 04, 2015 in Car Accidents

The National Association of Insurance Commissioners (NAIC) has started looking at how ride-sharing services may impact the insurance industry and the personal insurance policy of a consumer.  These are important issues that need to be followed.  Below is a summary of the issue from February 25, 2015.  As you can see the NAIC is actively working on this important issue.  If ride-sharing companies are not properly regulated, and their insurance policies not properly confirming with state laws, then people involved in a Pennsylvania car accident may not receive adequate coverage or compensation.

Issue: Commercial ride-sharing companies, or transportation network companies (TNCs), have gained in popularity in dozens of U.S. cities over the past few years as a new option in the public transportation market. TNCs use mobile technology to connect potential passengers with drivers who use their personal vehicles to provide transportation for a fee. TNCs demonstrate how technological advances can lead to new business models that hold the potential to lessen traffic congestion, improve the environment, and enhance social connection.

However, the risks associated with participating in ride-sharing services are not yet completely understood and do not fit neatly into insurers current risk-pooling models, raising numerous insurance related questions. Specifically, there is increasing concern over the potential gaps in insurance coverage in the unfortunate event of an accident or injury. While every personal auto insurance policy differs, most contain exclusions when a person uses their vehicle for livery services.

Overview: A TNC is an organization offering prearranged transportation services for compensation using an online application or platform to connect passengers with drivers willing to transport them. Instead of hailing a cab or calling for a car service, consumers in need of a lift can download the app and connect with drivers who use their personal vehicles to pick up passengers. The app also allows users to get a price quote, track the driver’s location and pay their fare using a credit card on file. The three most popular TNCs are Uber (available in 36 countries and more than 60 U.S. cities), Lyft (available in more than 60 locations) and Sidecar (available in Boston, Chicago, Long Beach, Los Angeles, San Diego, San Francisco, Seattle and Washington, D.C.).

Ride-sharing is different, however, than taking a traditional taxi or limousine. Taxis and limousines have been licensed by the state and/or local transportation authority. The vehicles are required to be inspected and drivers must be properly licensed. In addition, taxi operators are required to have commercial insurance that protects a passenger and third parties (i.e., pedestrians or other drivers) in the event of an accident. TNCs may not be subject to the same stringent requirements that apply to taxis and limousines. Additionally, there are issues surrounding the insurance coverage provided through these programs.

The largest insurance coverage issue surrounds the driver’s personal auto insurance policy. The Personal Auto Policy typically excludes coverage for livery. As a result, a TNC driver’s personal auto insurance policy may not provide coverage when the driver is using his car to transport people in a ride-sharing arrangement for a fee. This applies to liability insurance, personal injury protection coverage in no-fault states, comprehensive coverage and collision, and UM/UIM.

Another significant concern is determining at what point in time a driver is operating the vehicle for hire. There are three periods in the ride-sharing business model: Period 1: App on, waiting for match; Period 2: Match found; and Period 3: Passenger in vehicle. Does commercial activity start in period 1, when the driver turns on the TNC app and makes himself available for hire? Is it period 2, when the driver picks up a passenger? Lack of clarity surrounding this issue may lead to coverage disputes as claims arise.

The largest TNCs have policies on their drivers that include commercial auto, liability, and collision coverage. Some TNCs also offer uninsured/underinsured motorist coverage. Some of the large TNCs say they have filled the insurance gap with extended excess policies, although such policies are so new they have not been tested. Also, coverage for when a driver is available to pick up a passenger and has the app on typically has much lower limits, such as $100,000 per occurrence.

Status: Insurance regulators oversee insurance companies and insurance agents, not TNCs. The insurance laws and regulations apply to the insurance company and the insurance producer issuing the insurance policy to the TNC or the individual driver. However, as TNCs have gained in popularity state insurance regulators are taking action and working with the TNCs to ensure consumers are adequately covered. Roughly 25 state insurance departments have issued bulletins cautioning consumers of the potential limitations of insurance coverage. Additionally, several states have passed or are debating legislation setting clearer insurance coverage rules and standards.

The National Conference of Insurance Legislators (NCOIL) is also currently considering a proposed model act to regulate insurance requirements for TNCs and their drivers. The proposed model would preempt any local ordinance, resolution, or other law adopted to impose, require, or otherwise regulate insurance requirements for TNCs. Additionally, it would establish, among other insurance requirements, that TNCs provide primary liability coverage for all three periods. However, it would not require private passenger auto insurance policies to cover a driver’s TNC activity. It also calls for various disclosures to TNC drivers and passengers. 

On August 16th, 2014, the NAIC’s Center for Insurance Policy and Research (CIPR) held an event to explore the insurance issues surrounding TNCs. The event illustrated that some progress has been made toward addressing these issues. Several of the largest TNCs now provide $1 million of single limit primary liability coverage. Primary coverage typically applies only to periods 2 and 3, when a ride request is accepted or a passenger is in the vehicle. Several of the largest TNC companies have also recently taken steps to address the insurance gap in period 1, when the driver has engaged the app, but not yet picked up a passenger, by offering contingent coverage during this period. Additionally, insurers are beginning to respond to new laws, like those in California and Colorado, with new insurance products. Many of these emerging products provide coverage through an endorsement for commercial and personal use of a vehicle or for the insurance gap in period 1.

To study regulatory issues related to insurance coverage for transportation sharing and other emerging sharing products, the NAIC Property and Casualty Insurance (C) Committee appointed the Sharing Economy (C) Working Group in 2014. The Working Group has begun to identify transportation-sharing issues by developing a white paper, Transportation Network Company Insurance Principles for Legislators and Regulators. At the completion of this white paper, anticipated in the spring of 2015, the Working Group will then begin identifying home-sharing issues in an additional white paper.

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