The gist of the concept is, a company buys the insurance to cover liability arising from vehicles used in the course of its business. A common example is a pizza delivery business.
By Kathy Finn | May 4, 2015
In the rapid rollout of mobile app-based ridesharing services that compete with traditional taxicabs and other urban transportation, taxi businesses have bristled over the higher insurance costs they must bear compared to what drivers for Uber, Lyft, Sidecar and other such services generally pay.
The discussion about Uber at the recent RIMS 2015 Conference in New Orleans gave no indication that the taxi owners’ complaints will go away.
Gus Fuldner, head of insurance and risk management for Uber Technologies Inc., told the industry audience that “non-owned auto” policies provided by the company supplement Uber drivers’ personal auto insurance and round out the coverage necessary to protect all parties to the ridesharing experience.
“Non-owned auto is a common part of the automobile insurance world, but it doesn’t get a lot of attention,” Fuldner said.
The gist of the concept is, a company buys the insurance to cover liability arising from vehicles used in the course of its business. A common example is a pizza delivery business. Drivers who use their own car for deliveries must maintain the normal personal auto insurance that complies with state requirements for registering the vehicle. In addition, the business may purchase a policy that covers these non-company-owned vehicles.
“This coverage increases the limits and ensures coverage without gaps, regardless of the driver’s own policy terms,” Fuldner said. This is the foundation for insuring the operations of “transportation network companies” such as Uber, he said.
How Uber Works
Speaking during a session entitled “Transportation at the Touch of a Button,” Fuldner showed how Uber uses mobile technology to make transportation quickly available to urban users without requiring them to call for a cab or stand in a street and flag down a vehicle.
Using the app on a smart phone, the user can see a map that shows the location of any Uber drivers who are nearby. A graphic along the bottom of the screen lets the user choose from Uber’s “black car” service (a high-end ride); a taxi service similar to standard cabs; or ridesharing, the least costly option.
The user touches an icon to select a ride, and if the driver accepts the request, the user then sees a photo and name of the driver, a rating provided by previous riders, and details about the car, including its license plate number. The user can watch the location of the car on the map to see it approaching.
Once a trip is completed, “you get a very simple and almost magical payment experience,” Fuldner said, because the user’s payment method has already been entered into the app. The driver pushes a button to send the trip information to Uber’s servers, which calculate the charge for the ride. The user is asked to rate the ride from one to five stars, and an emailed confirmation provides a record of the transaction.
Fuldner said the background checks and drug testing that drivers must undergo to qualify as Uber drivers, plus the rating system, help ensure a quality ride experience.
However, prosecutors in California have sued Uber alleging that its claims about its background checks are misleading. They say Uber uses information supplied by the drivers that could be stolen or false. The company has also balked at fingerprinting drivers.
Last month Uber said it was upgrading its safety standards and background checks in the wake of security issues including allegations of rape by drivers and data privacy concerns.
Taxi Industry
While drivers who participate in Uber’s “limo livery” service and taxi service must carry traditional commercial auto insurance for their particular vehicle and jurisdiction, many cab drivers see the lower insurance burden required for Uber’s ridesharing drivers as an unfair competitive advantage.
Nevertheless, 16 states and more than 20 U.S. cities have enacted laws or regulations that set standards for ridesharing services, including requirements for insurance.
Fuldner said language in the coverage model used in most states was agreed upon among major insurers and trade associations, including the American Insurance Association, the Property Casualty Insurers Association of America and the National Association of Mutual Insurance Companies.
“For a long time there was a lot of noise in the industry generated by the personal auto industry as well as the taxi and limousine industry about ridesharing,” he said. “It’s been a big education effort for us to explain how it works, but I think our agreements with major insurance companies have made the legislative process a lot more straightforward.”
Fuldner added that some personal auto insurance carriers have begun to see ridesharing as a potential growth market. He said companies including Farmers Insurance Group, USAA, GEICO and a new niche insurer called Metromile have started creating products specifically targeting TNC drivers.
“In Colorado, for instance, a driver can pay a certain amount for extra insurance that covers your use of your vehicle for this,” he said.
Fuldner said the impact of ridesharing on local markets, where an Uber ride can be 40 percent cheaper than a taxi, is clear in data recently released by expense management firm Certify, which tracked its clients’ use of rental cars, taxis and Uber in various cities.
The results showed that Uber’s share of rides increased from 9 percent to 29 percent in the past year, while traditional taxis declined from 52 percent of the market to 35 percent.
The National Association of Insurance Commissioners recently adopted a white paper on insurance coverage for ridesharing that offers suggestions for how state regulators should deal with insurance issues.
Also, ISO this month introduced two new personal auto coverage options for ridesharing drivers when they’re logged in but don’t have any passengers – an issue that has been the subject of controversy among insurance companies and those outside the ridesharing community.
Finn is a New Orleans-based journalist.