Insurance Issues Abound on Heels of Ridesharing Popularity
Cars spend a lot of time sitting in parking lots and driveways.
“We’ll drive it to work; it will sit in a parking lot; we’ll drive home,” said Kim Staking, an assistant professor of finance at California State University in Sacramento. “On the weekend, we’ll drive to a soccer game; it’ll sit there for a couple of hours; we’ll drive home.”
Automobiles are underutilized assets that depreciate in value the second they are driven off a new car lot, Staking said. Some people want to get more value out of the vehicles they own, however, and others don’t want to purchase a vehicle at all. This, Staking said, is the reason rideshare companies such as Uber and Lyft emerged—followed by a host of concerns about insurance and regulation.
During a recent CSG eCademy webcast, “Rideshare Companies: Insurance and Regulatory Issues for States,” Staking discussed insurance coverage and the risks associated with rideshare services, which he also referred to as transportation network companies. The webcast was part of a collaboration between CSG and The Griffith Insurance Education Foundation.
Rideshare companies have depended on drivers’ personal automobile insurance providers to take responsibility for any accidents, Staking said. But many insurance companies forbid drivers to use their vehicles for livery services; taxi drivers are required to have commercial insurance.
And there are other issues, Staking said, such as a lack of worker’s compensation for rideshare drivers and whether or not the drivers should be treated as employees or independent contractors.
“I want you to just pause for a minute and think how the risks of a rideshare driver may be different from the risks of the general population,” Staking said. “The problem is we have quite a bit of heterogeneity.”
Staking said that although some Uber and Lyft drivers work on a “very occasional basis,” drivers also might work 40 or more hours a week and are more apt to drive late at night, in unfamiliar neighborhoods and in bad weather than a person who does not work for a rideshare company.
“This is not the same risk as driving a car, and if we insured them at the same risk of driving a car, we would be losing money,” Staking said.
Several insurance companies have started pilot programs for covering drivers employed by rideshare companies. But, Staking said, there has been too much of a delay in establishing these programs and the coverage is only available in a few states.
“Colorado was one of the early states to come up with a comprehensive insurance law, regarding ridesharing,” Staking said. “So we see a lot of companies that are providing there.”
In California, the employment status of rideshare drivers has been challenged, he said. The state labor commission found that a rideshare driver who had worked for a rideshare company about a year was an employee, not a contractor, and therefore the company owed money for gas, insurance and maintenance.
“There are a lot of court cases that are looking at challenging this independent employee status,” Staking said. “There’s legislation that’s coming up in some cities and some states regarding the legality of ridesharing.”
Staking said ridesharing adds value to underutilized assets and provides an important service to individuals who need transportation. However, he warned, states must take a careful look at rideshare services, and the industry’s insurance gaps, in order to protect the public.
“In many ways, it’s a revolutionary use of technology,” he said. “At the same time, I think it needs to be done in a way where the insurance issues and regulatory issues are taken care of.”