Insurance in the Sharable Economy

By | May 5, 2014

The new sharable economy is growing across the country, and one question looms large: What are the insurance implications?

Homeowners and renters understand the types of insurance they need and where they can buy coverage. Drivers know they need auto insurance on their car. But just how is insurance supposed to work in the sharable economy? The answers to this question are evolving rapidly.

The car-sharing industry is based on the use of personal automobiles, so it is paramount to ensure that the people who put their personal vehicles into the system are insured while the car is operated as a ridesharing vehicle.

Legislation regulating car sharing has been enacted in California, Oregon and Washington. These insurance protections were first developed in California.

The new sharing economy presents both an opportunity and potential risk.

Insurers have developed model draft legislation that can be introduced as more states adopt this collaborative arrangement. This sharing model enables car-owners to make their personal vehicle available to be rented to another person through a car-sharing company.

For example, someone who works 8 a.m. to 5 p.m. and parks their car during work hours can make it available for rent to those needing a car during the day. The car-sharing company’s commercial insurance takes effect as soon as the renting customer takes the keys and ensures that the car-sharing company, not the car owner’s personal auto insurance, protects the driver and the car while engaged in a commercial operation.

Ridesharing is another new rapidly expanding trend. However, the insurance implications of this business model have proven controversial.

Ridesharing is a service provided by transportation network companies (TNCs) that use a smartphone app to connect drivers using their own personal cars with people needing a ride for a fee as part of an organized program. Lyft, UberX and Sidecar are expanding rapidly and are rivaling the services traditionally provided by taxi cabs.

A 2014 New Year’s Eve accident in San Francisco that resulted in the death of a six-year-old girl highlighted an insurance gap and ignited legislation across the country. Legislation on this issue has been introduced in Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland and Oklahoma. Local ordinances governing ridesharing programs have been introduced in Chicago, Dallas and Seattle. In Colorado, TNCs are sponsoring legislation to mandate personal auto insurance policies cover the commercial driving of TNC drivers once they turn on the app until they are matched with a passenger.

Insurers are fighting these bills because the personal auto policy is not designed to cover riskier, more costly commercial risk TNC activity. The bill in Colorado could force all drivers to pay higher insurance costs to subsidize the TNC’s costs of doing business.

In California, insurers are sponsoring legislation to fill the insurance gap and make sure drivers understand that their personal auto policy will not provide coverage when a personal car is used for commercial purpose.

The sharing economy has enabled some homeowners and renters to rent out their spare room for extra money. Airbnb is a San Francisco-based company that connects travelers in need of accommodations to people with rooms for rent. Homeowners insurance policies typically exclude coverage for the personal property of roomers, boarders and other tenants staying in a home.

The new sharing economy presents both an opportunity and potential risk for those who participate in it. If you plan to share your car or your home, a conversation with your insurance agent or company is the first step to ensure that you have the right coverage.

About Robert Passmore

Passmore is senior director personal lines policy for the Property Casualty Insurers Association of America. More from Robert Passmore

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Insurance Journal West May 5, 2014
May 5, 2014
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