It seems like the sharing economy is spreading its disruptive peer-to-peer vines throughout every conceivable segment of the service industry, which now includes the previously static realm of car rentals.
Pitching themselves to consumers as the Airbnb of the car rental industry, vigorous tech startups like Turo, Getaround, and a few others have established a firm foothold in the peer-to-peer sharing economy. The premise of these services — all of which rely on secure apps for transactions — is pretty simple: Everyday drivers can rent their personal vehicles to those in need of transportation.
Turo and Getaround — which were both founded in 2009 — allow participating “members” to set the price of their car rental individually, allowing car owners to earn money while their cars might otherwise stay parked in a garage or driveway.
What’s more, car renters can choose the vehicle (and price) that suits their needs. Whether you’re looking to impress a business partners with a flashy Tesla for the afternoon or you need a Dodge Ram for hauling lumber on a Sunday morning, there’s a potential vehicle out there for you.
According to various reports, members who rent their personal vehicles make an average of $500 a month through these services.
And like the rest of the communal economy that has disrupted everything from how we date to where we stay on vacation, peer-to-peer car sharing is catching on. According to a Washington Post study from March, “nearly 5 million people have signed up to rent or drive vehicles via Turo in the past two years, and the company is already valued at around $700 million.”
What’s more, Getaround is operational in 14 U.S. cities and boasts more than a half-million users.
But like all innovations that descend upon a once-stable service industry, experts and analysts say consumers need to take some precautions and ask the right questions before diving headlong into these ventures — and when it comes to car sharing, pressing concerns are how they handle insurance and how to make sure you have the right insurance policy.
“All of these tech startups seem to be coming at us with lightening speed, and so much of it seems really cool. But you need to make some careful considerations before deciding to participate,” says insurance tech analyst Ed Wisk. “The insurance industry is a slow moving beast, and they still lag behind some of the most disruptive innovations.”
So, if you’re thinking of signing up to rent your personal vehicle through a service like Turo or Getaround, here’s everything you need to know about the insurance implications.
How These Companies Protect You
When drivers rent a car from traditional services like Avis or Enterprise, the insurance landscape is pretty straightforward. The company owns the vehicles it rents out and drivers can opt to use the rental company’s insurance for an additional cost or use their own auto policy to finically protect them if any issues arise while driving the rental.
When it comes to insurance with companies like Turo and Getaround (the two largest in this space), things are a little more complicated.
First, let’s look at Turo.
According to Turo, hosts (i.e. those who rent their vehicles out) are covered by a $1 million liability insurance policy, which “protects hosts against lawsuits for injuries and property damage that occur during a trip.” They also protect “against certain ‘comprehensive’ and ‘collision’ losses that occur during a trip,” and for “acts of nature,” Turo matches whatever coverage your “pre-existing comprehensive insurance coverage would have been on your personal insurance policy.”
Importantly, Turo offers three different tiers of coverage — basic, standard, or premium — and while liability coverage is provided in all three, the different tiers offer various perks. For instance, the standard and premium plans provide a replacement car if yours needs to go in for repairs. They also waive the up-to $3,000 deductible that comes with the basic plan.
“If someone is thinking about renting out their car through a site like Turo, they need to read their conditions very carefully,” says Judy Squire, senior vice president for CBIZ Insurance Services Inc. “They should also know right from the start that their own personal auto policy will not respond in the event of a claim. Renting their vehicle to others constitutes a business exposure and coverage is therefore excluded.”
Getaround offers a very similar insurance model (although there is only one tier of coverage). They have a standard $1,000 deductible and it’s important to note, says insurance agent and analyst Ronald Hettler, that the $1 million liability policy may not be as generous as some drivers may think.
“I know it sounds like a lot of coverage,” says Hettler, “but if you have more coverage than that between your auto and personal liability policies, you could be poorly covered.”
Hettler also points out that Getaround’s insurance policy contains the following exclusions:
- Wear and Tear: They will cover any “excessive” wear and tear that occurs during the rental period but will not provide insurance for “normal wear and tear.” For more details about this Getaround has an extensive explanation of wear and tear.
- Personal Belongings: According to Getaround, “personal belongings left in the car are not insured…it’s the responsibility of the owner and renter to ensure they remove any personal belongings from the car before and after each rental.”
- No Permissive Drivers: According to the company’s terms of service only registered members are permitted to drive a rental car. If an unauthorized driver is behind the wheel during an accident, the insurance policy will be null and void.
- Personal Use Only: Getaround will only provide insurance as long as the vehicle is not being used for “commercial purposes, organized racing, or stunting activity.”
Hettler also points out that both Getaround and Turo require certain standards when it comes to the mechanical integrity of rental vehicles, and it’s critical, he says, that you’re honest about meeting these requirements.
“If you’re caught misrepresenting the quality of your car, you could be in serious trouble,” says Hettler. “If the insurer for Getaround or Turo alleges that you materially misrepresented the condition of your vehicle, then you could be held responsible for damages or injuries, either by them electing to not cover you or suing you for amounts that they had to pay. And if that happens, your personal auto policy will not help you at all.”
So who actually pays for the insurance? In the case of both Turo and Getaround, it’s the owner who foots the bill based on a percentage of what they charge for the rental. For example, if a car owner lists her vehicle for $100 a day on Turo and rents it out on the standard plan, she makes $75 on the transaction, with the remaining $25 going towards insurance.
What You Need to Make an Auto Claim
Accidents are going to happen, and that’s part of the risk one takes in signing up for a car sharing service. If your vehicle does inflict or incur damage while a temporary driver is behind the wheel, here are some of the important things to know.
According to Turo’s website, owners are free to take their damaged vehicle to the repair shop of their choice and Turo will pay the full repair cost up to the cash value of the vehicle, or a $125,000 limit. The company will then send out an adjuster to document the vehicle’s condition, mileage, or any other factors that might help determine its actual value. The company then utilizes proprietary software to match the damaged vehicle to as many comparable vehicles as possible to arrive at a final value assessment.
According to Squires, it’s really important for car owners to know whether or not the share service pays out claims based on actual cash value (ACV) or replacement costs. The difference between these two was accentuated in 2017 when a Turo renter totaled an Audi R8 and the owner was left $16,000 in the hole.
“They may be disadvantaged if their own personal auto policy would have settled at replacement cost but the car sharing company’s policy will only pay ACV, in which case you might need some extra coverage in addition to what the company provides,” says Squire. “They should also find out if the company uses original manufacturers parts or after market parts for repairs, because some vehicle warranties could be void if after market parts are used.”
It’s also critical to know the company’s policy on reporting accidents and damage. For instance, Getaround requires car owners to report all incidents within 48 hours of the end of the member’s trip. If you miss this window “you may forfeit Getaround insurance coverage during the trip and be solely responsible for the full cost of repairs and any loss or liability arising from the incident.”
“I think these services can offer a lot of value for those who needs them, but you have to do your homework before signing up,” says Squire. “And you might also want to check in with your personal auto insurer if you plan on renting out your car a lot. Most personal auto carriers will be reluctant to continue a policy for someone they know is actively renting their vehicle, which means your continued insurability with your auto carrier could be in jeopardy.”