New Rideshare Regulations Pose Insurance Obstacle for Drivers

The California government issued new regulations in September intended to set clear standards for drivers participating in technology-based ridesharing programs such as Uber, Sidecar and Lyft, but the regulations still leave much to be cleared up about how drivers in the programs should go about getting insured.

Even though the the California Public Utilities Commission (CPUC) set insurance standards for drivers working for rideshare programs—which now have the official designation of “transportation network companies” (TNCs)—there’s little consensus on whether there’s coverage out there that will meet those standards and keep drivers covered when they’re not transporting passengers.

Commercial vs. Personal

From the time TNCs started operating—back when they were referred to as rideshare programs—the main insurance issue has been who pays for damages from an accident caused by a TNC driver while carrying a passenger.

All cars in California are required to be covered by a personal auto insurance liability policy. But most personal policies won’t cover damages a TNC drivers causes while transporting passengers because that’s considered using the car for business or commercial purposes.

“Both drivers and riders must understand that an accident in a ridesharing vehicle will not be covered under a personal auto insurance policy,” the Property Casualty Insurers Association of America said in a statement regarding the new regulations.

As a result, the CPUC has required, among other things, that the TNCs carry at least $1 million worth of commercial auto liability insurance coverage per accident. This insurance will cover the damages caused by their drivers while transporting passengers for a fee. The drivers must also carry a personal liability policy and be able to provide proof of both.

Problems with the Dual-Policy Requirement

The problem is that it’s unclear whether there’s personal auto insurance out there that will allow drivers to use their cars for both personal and commercial purposes in the way that the CPUC regulations necessitate.

Insurance for taxi drivers who use their commercial vehicles for “off-duty” use is not offered by any of the major auto carriers, meaning those drivers have to pay for coverage through specialty insurers, explained Trevor Johnson, director of the San Francisco Cab Drivers Association. That’s one reason taxi-drivers, who view the TNCs as a threat to their profession, pushed hard for the new insurance regulations, Johnson said.

“It’s going to make it hard for these drivers to maintain personal insurance,”  he said. “There’s the distinct possibility that they won’t be able to get and maintain personal insurance, but that whatever policies get put in place, these policies may not have enough coverage.”

According to the California Department of Insurance (CDI), the issue is one for the CPUC to resolve. But the CPUC appears to have left that up for to the insurance industry to work out.

“We have specified our expectations for the attributes of insurance,” said CPUC president Michael Peevey in a statement. “Now the insurance market will determine the best approach to ensure that there is coverage for passengers, drivers and third parties at all times while these vehicles are operating on a commercial basis.”

It looks like at least one insurer is addressing the commercial side of the equation.

The CPUC provided Online Auto Insurance News (OAIN) documents filed by Lyft and Sidecar showing that they have obtained commercial auto insurance policies from James River Insurance Company. The policies provide the $1 million worth of coverage mandated by the regulations.

But that still leaves the issue of how these drivers can maintain personal policies that would cover cars for personal use even though they’re also used commercially part-time to transport passengers for hire.

A CPUC spokeswoman was unable to comment on whether such policies are currently available to drivers.

Car-Sharing Model Could Be the Answer

One model insurers could use is what’s in place currently for car-sharing programs.

If they use this model, TNC drivers’ personal policies would effectively turn off the moment they pick up a rider. At that point, the TNC’s commercial policy would take over.

However, legislation was needed to establish the car-sharing model. No such legislation has been passed for TNCs.

And there are still some issues that need to be ironed out for a similar system to work for TNCs, according to Pete Moraga, spokesman for the Insurance Information Network of California.

“The gray area here is verification of drivers picking up riders. How will the insurer know?” Moraga told OAIN. “This will have to be worked out. Because this is so recent, there will be more work to be done on the part of insurers to deal with this new driving entity.”

Meanwhile, several insurance sources in Sacramento say that personal insurance companies will be offering some sort of product line for TNC drivers.

One of those policies for smaller companies and independent drivers could be a hybrid commercial and personal policy, according to an insurance industry lobbyist who spoke on the condition he not be identified because he’s not authorized to talk about his clients’ discussions.

He confirmed there are talks between insurance companies and TNCs to identify when a driver is using their vehicle for commercial purposes and when they are operating it for personal use.

“The idea is … the driver would have to log in and mark that they’re on the clock to be able to pick up fares,” he said. “That way the insurance companies don’t have to guess whether a driver is covered by commercial or personal use.”

The source said that’s just one of several ideas currently being discussed, and that the talks “could change tomorrow.”

“But it’s going to happen at some point,” he said. “Once one [insurance] company goes, the rest will follow.”

Until the procedures are more clear-cut, drivers transporting passengers for TNCs need to make sure their personal auto coverage won’t be dropped once their insurer finds out they’re using their car to transport passengers for hire.

“Our official advice to drivers or to someone who’s driving for a TNC is to always check with your insurance carrier and make sure you have appropriate coverage for the way you are using your vehicle,” Nancy Kincaid, spokeswoman for the CDI, told OAIN. “That’s what’s most important for consumers.”

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