How Uber Affects Car Insurance

With more than 8 million U.S. users and 160,000 drivers, Uber is disrupting the transportation industry in an unprecedented manner. By leveraging technology, they (along with other ride-sharing companies) are transforming the way we travel, especially in crowded, urban areas.

As the ride-sharing industry continues to exponentially grow, auto insurance companies are trying to figure out how and where to properly provide coverage for drivers that participate in these services.

Most personal insurance policies exclude all livery services and commercial insurance policies are expensive. Many ride-sharing companies do provide insurance for their drivers while paying passengers are in the car; however, there are still gaps in insurance coverage that each driver needs to properly address.

Q: Why are companies like Uber and Lyft getting so much attention from auto insurance companies?

A: These companies are attracting significant attention from auto insurance companies due to their operations — providing ride sharing services by contracting with drivers who use their personal vehicles to transport passengers. These drivers do not typically have a livery driver’s license nor are their cars registered or insured as commercial vehicles.

The issue at hand is that personal auto insurance is not designed, underwritten or priced to handle livery-type services. They are written for personal use vehicles that may include the transportation of family and friends. Therefore, most personal auto insurance policies exclude all livery services as those are typically handled on a commercial auto insurance policy. In fact, most policies actually stop providing coverage from the moment a driver logs onto his ride-sharing app until the app is shut off.

Commercial auto insurance policies generally carry higher limits, are underwritten with the recognition that commercial vehicles travel more miles, and cover exposures not included in private-passenger policies due to the increased risk of accidents and subsequent claims.
Q: Why don’t insurance companies cover ride-sharing?

A: The short answer: Auto insurers have not yet determined how to underwrite the risks of personal-line policyholders using their private-passenger vehicles on a for-hire basis.

Given the proliferation of companies like Uber and Lyft, however, it is likely that auto insurers will at some point start to offer policies that provide motorists with coverage for both traditional private use of a vehicle and commercial vehicle use.
Q: What is government doing as far as insurance is concerned? Do any laws govern ride-sharing and insurance?

A: For city and state governments the two key insurance regulation questions are:

  1. Must ride-share drivers be licensed in the same way that taxi and other for-hire drivers are?
  2. If private-passenger policies do not cover ride-share drivers when they are working, how do they become properly insured?

Though many municipalities have yet to properly address the concerns above, some governments have already started passing bills that insurance requirements and regulations for ride-share drivers.

For example, California recently passed a bill with the following requirements:

  1. Requires all ride-sharing companies to disclose to drivers upfront that the driver’s personal insurance policy will not apply while using their private-passenger vehicle for work activities.
  2. Requires commercial insurance from the moment the driver logs onto the app, until the driver logs off.
  3. Clarifies that their commercial insurance is primary coverage.
  4. Requires the ride-sharing liability insurer to defend and indemnify drivers when they have a claim, or accident, while on assignment.
  5. Ensures coverage is not dependent on a private-passenger auto insurer first declining coverage.

Q: How can prospective drivers learn if they have sufficient coverage?

A: Prospective drivers should ask the their ride-sharing company what level of coverage it provides. Most ride-sharing companies provide insurance coverage for their drivers, but only when they have a paying passenger in the vehicle.

Drivers should also contact their own auto insurer to address gaps, if any, in their liability protection. It is also recommended that ride-sharing drivers review a copy of their company’s insurance contracts so they know the exact terms and conditions of the coverage.