CSG-Griffith Forums Bring Light to Rideshare Insurance Concerns

Ohio and Massachusetts are expected to consider legislation this fall aimed at regulating rideshare services such as Uber and Lyft. CSG has partnered with the Griffith Insurance Education Foundation to provide academic, non-partisan seminars in both states for state policymakers and staff, including one taking place Sept 28 at the Massachusetts State House in Boston.

The debate over rideshare legislation in Massachusetts began in earnest Sept. 15 at a hearing of the legislature’s Joint Committee on Financial Services. At issue are two bills. One, proposed by Gov. Charlie Baker, would require rideshare drivers to carry at least $1 million in insurance and face background checks. The other bill, which has the support of the state’s taxi industry, would require drivers to submit fingerprints for background checks, prohibit them from operating at Boston’s Logan Airport, require their cars to be less than 5 years old and restrict them from increasing prices during busy times—a practice known as “surge pricing.” 

But it is the insurance issues associated with rideshare services that are the focus of today’s seminar, hosted by Massachusetts state Sen. Thomas McGee, and that also were the focus of last month’s seminar in Columbus, Ohio, hosted by the office of Ohio state Rep. Michael Stinziano.

“The sharing economy, I am convinced, is here to stay,” said Kim Staking, assistant professor of finance at California State University, who briefed attendees at the Ohio seminar. “I think it’s extremely important for legislators and regulators to pay attention to because it changes the way our economy operates, but more importantly it changes the way that the safety net operates, whether it’s the public safety net or the safety net that we provide through the insurance industry.”

Staking said when rideshare services first began, it was believed that drivers, who use their personal vehicles to give rides to passengers, could be covered by their personal automobile insurance. The services offered by rideshare drivers were considered no different from carpooling, something permitted despite the exclusion of the transporting of people for hire—known as the livery exclusion—under these policies.

“Over time … it’s become clear that the driver’s individual automobile policy is not sufficient,” Staking said.

Taxi companies were the first to complain that rideshare drivers did not have to purchase pricey commercial insurance policies as taxi companies did. 

“Later… as a group, the insurance industry became concerned,” Staking said. “They said ‘we provide insurance to somebody who has their car parked most of the day. They drive to work in the morning; their car’s parked during the day. They drive home at night; their car’s parked there. … But what about this Uber or Lyft or Sidecar driver who is working … at times of day when there’s heavy congestion? He’s picking up people on Friday and Saturday nights late at night when (he’s) tired. (He) may be operating in a geographic area that (he’s) not familiar with. So this is likely a higher risk.’”

Staking said the change in thinking by insurance companies has created a widening insurance gap as rideshare services have grown in popularity, with many rideshare drivers now hoping they don’t get into an accident and vowing not to tell the insurance company if they do.

“Some (insurance companies) will even say ‘if you are ridesharing, we won’t cover you at all,’ he said. “So this period when you’re just using the car for personal uses may not be covered as well if they discover that you’ve been doing ridesharing.”

A few insurance companies have started offering special policies for rideshare drivers under a series of pilot programs. But, Staking noted, the policies are available in just a handful of states and he believes it will take better cooperation between the insurance industry and rideshare companies to allow more of them to exist.

Another rideshare issue states have struggled with is the question of whether drivers are employees of the companies they drive for or independent contractors. Ohio has a fairly unique distinction where that comes into play, said another of the Columbus briefers, insurance expert Carol Blaine of Ohio Dominican University. 

“We’re one of only (four) states now that still have state-funded workers’ (compensation insurance funds),” she said. “So if the decision here were to be that drivers for rideshare companies are actually employees, we just need to realize that means the state now has new people to cover.”

But Blaine said she can envision a confusing scenario where the same rideshare driver could be considered an independent contractor at the state level and an employee at the federal level, for tax purposes. 

Ohio also holds another distinction that puts rideshare drivers at odds with state laws.

“We have a minimum financial responsibility law here in the state, where if you’re going to operate a vehicle, you have to either post certain bonds and go through a process to show that you have the money equal to $25,000 or $50,000 for property damage or two people (being) injured in an accident or—what we all mostly do is—we just show our proof of insurance,” Blaine said. “If you’re driving for Uber and you know … that your personal policy probably isn’t in force here, you’re violating state law because you don’t have your financial responsibility established.”   

Blaine said that makes it important for policymakers in Ohio and elsewhere to clarify the status of rideshare drivers for insurance purposes.

“If we’re not clear about who covers what, when, in essence we’re leaving Ohioans kind of naked, if you will, about … whether they’re in compliance with the law.”

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