By Autumn Cafiero Giusti
Mobile apps have made it possible to turn your personal vehicle into a source of revenue. More drivers are relying on ride sharing apps such as UberX and car-sharing programs such as RelayRides to make a little extra cash on the side, either by chauffeuring passengers or renting by out their cars.
But when it comes to insuring a car that you’re using for moonlighting purposes, things can get tricky.
Car sharing and ride sharing have created havoc in the private auto insurance market, with some insurers and state regulators scratching their heads over who foots the bill if someone gets into an accident.
“There’s a big public policy debate on how to insure this,” Michael Barry, vice president of media relations for the nonprofit Insurance Information Institute in New York.
While both relatively new concepts in the auto insurance world, car sharing and ride sharing are two different things, and insurance experts say it’s important for consumers to understand the difference between the two.
Car sharing is the sharing of private passenger vehicles, similar to a car rental service. FlightCar, GetAround and RelayRides are a few examples.
Ride sharing connects riders with drivers who use their own cars to transport them and is analogous to a taxi service. A few of these programs are Lyft, Sidecar and UberX.
Generally, neither ride sharing nor car sharing is considered by traditional personal auto insurance rating plans. Most personal auto ratings reflect driver characteristics such as driving record and vehicle type – not whether those drivers are selling rides or renting out their cars.
Ride sharing: When does coverage kick in?
Between the two sharing services, ride sharing has sparked the most debate as far as personal auto insurance goes.
“The concern was and still is that a private passenger policy was never intended to cover someone who is engaging in a commercial enterprise,” Barry says.
The question at the center of the debate: At what point does the coverage kick in? It could be anywhere between the time when the ride-share app is first turned on – and a driver sends the signal to Uber or Lyft that he or she is available to offer rides – and when the app is turned off and the person reverts to driving passengers privately.
“The private passenger market says you’re now engaging in a commercial enterprise. You might not have someone in the car, but you’re engaging in a commercial enterprise and driving around with a passenger policy that says you can’t do that,” Barry says.
One of the more high-profile instances of the ride-share insurance gap involved a fatal accident in 2014, when 6-year-old girl who was killed by an Uber driver in San Francisco. The family’s attorney said Uber denied insurance protection that would have covered the family and the driver, and the family ultimately filed suit against both Uber and the driver.
Uber maintained that the driver was not providing services on the company’s UberX system because he did not have a passenger with him.
“There was a lot of insurance debate about who’s the responsible party here,” Barry says.
Making that determination can vary, depending on the situation and what coverage is in place, says Sandee Perfetto, director of personal auto product development at ISO Insurance Programs and Analytic Services, a subsidiary of Verisk Analytics in Jersey City, N.J.
Perfetto explains that there are three periods of exposure for drivers offering ride-sharing services.
1) The driver is logged into the ride-share app and hasn’t been matched with a passenger.
2) The driver has been matched with a passenger, but that person isn’t in the car yet.
3) The driver has a passenger in the car.
“In a traditional policy, there isn’t coverage in any of these ride sharing places,” Perfetto says.
The biggest gap in coverage appears to be in the first period, Perfetto says. The larger ride-share companies typically provide contingent liability coverage during this period, however that means they will cover the driver only if personal coverage was declined or unavailable.
In phases two or three, most of these companies provide liability, comprehensive and collision coverage.
Several states, including California and Colorado, have been working to address these coverage gaps. Some insurers have also begun to accommodate customers to offer a hybrid policy. In Colorado, for instance, USAA customers can pay an additional fee to receive a policy that will cover you for both private passenger and ride-share driving. Eerie Mutual and Farmers in California are offering similar policies.
Ride-share policies emerge
Whether ride sharing affects personal auto insurance depends on how and when the insurance company is covering the rideshare driver, says Harry Campbell, who runs the blog The Ride Share Guy.
“In general, the newer, non-commercial based ride-share policies have been adding less than 10% to the cost of the insurance,” Campbell says.
When becoming a rideshare driver, the rideshare companies require the driver’s name to be on the insurance policy for that car, Campbell says. So the person named on the insurance, which should also be the driver, would be the one to foot the bill in the event of an accident.
Campbell says it’s important for drivers to understand that there are different coverage options available from different insurance companies, depending on the state where you live. The options range from obtaining a policy that accepts rideshare drivers without the threat of cancellation, but does not cover the driver while online, to policies that provide protection anytime you are driving regardless of the type of driving you’re doing.
“I know many drivers have the attitude, ‘I will take my chances with my current insurance,’ but this is not a good idea,” Campbell says.
If an insurance company cancels your coverage because you are a ride share driver, it will become much more difficult to obtain a new insurance policy elsewhere.
“Being cancelled is a strike against you when other insurance companies are measuring the risk of taking you on as a policyholder,” Campbell says. “The best advice is to work with an agent that understands the business of ride-share and understand your options.”
Car sharing: Renting out your own car
Car sharing presents fewer personal auto concerns for drivers than ride sharing, but experts encourage drivers to do a little research before sharing a car with someone else.
Barry suggests that drivers treat car sharing much like a car rental.
“The question is, is your private policy going to cover you if you go out and crash somebody else’s car? And if not, what do you need to do?”
But if you’re the owner of the car, your personal policy won’t cover your vehicle if you rent it out to someone else. For this reason, the car sharing organizations are usually the ones providing the coverage, and Perfetto says it’s up to the car’s owner to learn more about them and what they cover before participating in these programs.
“A consumer should make sure that whatever company they’re using to facilitate the car sharing is providing that coverage,” Perfetto says.
Whether taking part in ride sharing or car sharing, Barry says it’s important to keep in mind that the standard private passenger policy is not going to cover you if you’re using your vehicle for a commercial purpose.
Because insurance is regulated at the state level, Barry says it’s also worthwhile to visit your state insurance department’s website to see if there is any content covering ride-share or car-share issues.
Barry also suggests going to the websites of different insurers and seeing what type of insurance they provide. “The key words are ‘primary’ versus ‘secondary.’ When you see the word ‘secondary’ coverage, that means that only if your personal insurer declines to cover it, ours presumably will kick in,” he says. “As a consumer, I don’t know if I want to take that chance.”