Unresolved issues related to insurance have been sticking points in the growth of the sharing economy. Insurance Journal reported this week on an important development related to ride-sharing: Support for a joint legislative framework for insurance requirements, from a leading industry player (which sent out its own announcement on the subject) along with State Farm, Farmers, USAA and the American Insurance Association.
One of the big issues in coverage has been “Period 1.” That’s the time when drivers are logged in and available but do not yet have a fare. The proposed agreement sets minimum liability limits ($50,000 per person for bodily injury; $100,000 per incident for bodily injury; and $25,000 in physical damage) for Period 1, plus any other state compulsory coverage. Coverage is to be maintained by the Transportation Network Company or TNC (that’s what ride-sharing companies call themselves); the driver; or a combination of the two.
When the driver is on his way to pick up a passenger (Period 2) or carrying a passenger or passengers (Period 3) minimum liability coverage of $1 million applies, along with any other compulsory coverage.
The framework addresses other areas, as well. For example, insurers would be provided with a right to subrogation if they believe they have paid out a claim that should not have been covered.
This type of legislation is already under discussion in Tennessee, Maryland, Washington state and Kansas, and could be introduced in other states in the near future. It is designed to effectively close the gap between insurance coverage offered by ride-sharing companies and the driver’s personal insurance policy. That’s a big step for the TNCs, but it also represents a major change for insurers. It helps them shift from covering car ownership to a new “unit of risk” based on usage and role.
That should mean better pricing, better loss control, and, ultimately, greater profitability. We have urged insurers to take a leadership role in resolving these issues and it is great to see them doing so with this model legislation.