Do States Regulate How Uber and Lyft Operate?
Ridesharing advocates and state regulators are moving fast to establish a sustainable auto insurance model for the new industry in attempt to keep up with the rising numbers of Uber, Lyft and other for-hire drivers on the road.
Catching up to that pace of new drivers may prove daunting.
Take Uber, the industry leader in ridesharing services, as a good example.
Launched in 2009, it took Uber six years to reach 1 billion rides, getting there in late 2015. But it only took six months for Uber to crest 2 billion drivers, achieving that benchmark in July, 2016.
Overall, the total number of U.S ride share drivers has risen from 8.2 million in 2014 to 15 million in 2016. About 20.4 million drivers are expected to be on the road by 2020.
State regulators quick to respond to ridesharing
The National Association of Insurance Commissioners, in particular, is getting in the driver seat on ride sharing auto insurance coverage, with a growing number of state insurance commissions riding shotgun. The goal is to hammer out a uniform auto insurance mandate for Uber, Lyft and other ride sharing company companies (more formally known as transportation network companies, or TNCs.)
Currently, state insurance regulators oversee insurance companies and insurance agents, not TNCs, the NAIC reports.
“The insurance laws and regulations apply to the insurance company and the insurance producer issuing the insurance policy to the TNC or the individual driver,” the NAIC says in a mission statement. “However, as TNCs have gained in popularity, state insurance regulators are taking action and working with the TNCs to ensure consumers are adequately covered. The NAIC and at least 25 state insurance departments have issued bulletins cautioning consumers of the potential limitations of insurance coverage.”
At least 28 states and the District of Columbia have enacted legislation to set insurance coverage rules and standards for TNCs.
What would a uniform ridesharing auto insurance policy look like? Both Uber and the NAIC already have an answer for that.
“Uber X worked with several personal lines insurers and trade associations to develop a TNC insurance compromise model bill (TNC Model Bill),” the NAIC states.
The TNC Model Bill includes express permission of personal auto policies to exclude coverage for TNC-related driving, mandatory primary liability coverage during Period 1 of at least $50,000 bodily injury per person, $100,000 bodily injury per incident and $25,000 property damage depending on state law and mandatory primary liability coverage during Period 2 of at least $1 million. Coverage may be maintained by the TNC, the TNC driver or a combination of the two.
Plus, TNC coverage is not contingent upon a denial of claim payment from the person’s personal auto policy (PAP).
Should insurance rules for Uber be nationwide?
Rideshare drivers contacted by insuranceQuotes would welcome any clarity on the issue.
“In Kansas, our legislation requires Uber (the Sunflower state doesn’t offer Lyft) to cover us from the time we get the ping for a ride to the time we drop off the passenger,” says Teajai Kimsey, an Uber driver based in Kansas City, Missouri. “In other states, Uber is only required to cover when your passenger is in the car. Consequently. in those states insurance companies like Travelers or Farmers have a “gap” policy, available to drivers for an additional fee.”
Kansas is hardly alone in buckling down on ride share drivers, insurance-wise.
Consider California, which recently enacted a law that mandates all ride share drivers and companies like Uber and Lyft have liability insurance coverage during all three “driving periods.”
Here’s how California legislators define each of those periods:
- Period one: App open – waiting for a match.
- Period two: Match accepted – but passenger not yet picked up (i.e., driver is on his/her way to pick up the passenger).
- Period three: Passenger in the vehicle and until the passenger exits the vehicle.
The new state law, called AB 2293, requires ride share companies to “maintain $1 million in liability coverage from the time a match is accepted until the passenger exits the vehicle (periods two and three).” The law states that either the ride sharing firm or the driver maintain primary liability insurance in the pre-match period (period one).
The coverage amounts to a $50,000 minimum for injury to a single person, $100,000 minimum for injury to multiple persons, and $30,000 minimum for property damage
California, Kansas lead the way in ridesharing regulations
Many cities and states do not have ride share insurance regulations in place at the moment, says Scott Solombrino, co-founder of the National Limousine Association (NLA) and president of the nation’s largest private car company Dav EL/ Boston Coach, in Boston.
“Atlanta and Chicago are two examples of major cities that have yet to pass meaningful legislation to protect their citizens,” he says. “That said, the recent bill passed in Massachusetts is an excellent example of legislation that can be, and should be mirrored across the nation.
“The bill requires that TNC’s (Uber/Lyft etc.) provide insurance while the driver has a passenger in the car with a liability up to $1,000,000 , although we still do not truly understand the extent of that coverage.”
While prices vary for the auto insurance costs paid out by ride share operators, Solombrino says there is some uniform data available.
“Many traditional group transportation operators pay $8,000 per vehicle annually,” he says. “However, as many of the TNC’s drivers fall within the Department of Labor’s current definitions of an employee, the NLA feels that this expense should be absorbed by the operator (e.g. Uber & Lyft) and not by the driver.”
John Cross, a faculty member in the Finance Department at Cal State Fullerton, where one of the courses he teaches is Finance 461 – Property and Liability Risk Management, says state-by-state ride share auto insurance boils down to a few key themes.
“First, for revenue and public safety, many states regulate the taxi industry and some even control rates,” Cross says. “Now Uber comes along and threatens to change this. Some in the taxi cab industry believe it’s unfair to allow Uber in, because Uber isn’t a taxi company and may not be subject to the same regulation. Others believe this may be about political power of cab companies trying to keep out a disruptive market participant into their commercial sphere.
“Consequently, these considerations are often behind how the government responds to ride sharing, at least for now.”
Despite insurance mandate, ridesharing is here to stay
Down the road, those who in the past, such as taxi companies, who have opposed innovation and change won’t succeed in the long term, even in the states where they have political allies.
“Doubtless the same will be true here in California,” Cross says. “Some localities will present issues for the ride share industry, and may slow it down, but it appears to be a juggernaut that won’t be stopped.”