For almost a year I’ve watched the TNC industry (Transportation Network Companies like Uber and Lyft) grow from start-ups to financial behemoths. Most recently, Lyft plans to raise almost $1 billion from financiers. There’s even a Uber-style apps for tow truck services. As a father of four (the youngest of them graduated from college a year ago) I’m struck by how similar the evolution of the TNC industry has been to the development of a child. TNCs have made many errors during their first few months concerning insurance coverage, but ave Uber and Lyft used insurance to their advantage?
As much as I dislike many regulators and their blatant political actions, “but for” those regulators it is highly unlikely that these companies would have eaten their vegetables. They seem, in many respects, to want a steady diet of cake and candy.
From almost the beginning, the taxi industry has used the TNC’s lack of adequate insurance as a weapon to fight off this new competitor. And, the taxi industry was, and in some cases, is still right. Despite protests on the TNC companies’ blogs, there still appear to be holes in the coverage provided.
I have a bit of background in transportation insurance. As an underwriter for Allied Insurance (Nationwide) in the 1970’s I was the underwriter on the national account for one of the leading car rental companies. Later in that same decade I was the underwriter for Northfield Insurance Company when it was a start-up that insured physical damage on taxi’s throughout the nation. Over the years since I’ve been in and around the insurance end of the transportation industry. In the early 1990’s my agency was the largest producer in the nation of new private passenger auto policies for Metropolitan. I remain today a very large producer for several companies, including Travelers.
Is Everyone “Sharing” the Risk?
The implications of the new sharing economy have not been lost on me. The insurance industry is extremely slow to react to anything new. The industry prefers to be an empirical science in that they’re most comfortable when they’re basing their actions on past experience. Anything new and untried leaves them shaken. It will be years before the industry fully reacts to the exposures generated by the TNCs.
The TNC’s acted like infants in the beginning. At one time they called themselves “ride-sharing” companies. The cynic in me thinks that nomenclature was selected to circumvent their insurance “dilemma”. In many states private passenger auto insurance carriers are mandated to include coverage for “ride-sharing” in their policies. This is a response by regulators and legislators to the hoped for proliferation of car pools, which seemingly is in the public’s best interest and therefore should be nurtured.
The TNC companies stated openly in the beginning that since their users and drivers were involved in “ride-sharing” and the fares were “donations” their driver’s private passenger auto insurance would cover any losses that occurred.
Is a TNC a Disguised “Livery”
Last fall (2013) I canvassed the companies I represent in my insurance agency and found that the industry emphatically and unanimously said that they would deny coverage for any private passenger insured who was acting in a livery (transportation for profit) capacity.
Then the TNCs went toe-to-toe with the California PUC. The California PUC acted extremely strangely in granting the TNCs authority to operate. Watching that happen was like watching a contortionist in Cirque de Soleil. Their rulings bordered on incredulous and certainly smacked of bureaucrats bending over backward to be Solomon.
The TNCs had done a great job of wrapping themselves in a progressive flag. Their product was supposedly green and avant-garde, a tough combination to derail. The “app” generation embraced it as their own.
From my position in the cheap seats I watch with amazement as huge amounts of venture capital found the TNCs. It was obvious that astute investors had judged the insurance dilemma facing these companies as non-consequential or at least surmountable.
I’m in my fifth decade in the insurance industry. We are an industry that has long lived under the need to meet the “reasonable expectations” of our users. Much law has been written on that principle. Beyond the legal aspects, if an insurance company consistently fails to meet the “reasonable expectations” of their customers (insureds) they will have a serious customer retention problem and will struggle to maintain premium volume.
I believe any provider of public service has a duty to meet “reasonable expectations”. I think it is “reasonable” for a person paying a fare to assume that the conveyance they’re in has adequate insurance.
Is There an Uber Lyft Insurance Advantage?
From the start, the TNC used a Rubik’s cube of weasel words, sham policies, misconstrued statements of coverage and legalese to avoid their duty to their customers. Even today, they’re still trying to avoid what I would consider to be their base duty.
Perhaps the most appalling of their actions was to include what I would term a Draconian hold harmless clauses in the user and driver agreements that placed the ultimate responsibility for loss on the users and drivers, including covering the TNC’s legal expense if it came to that. My guess is that very few people actually read the Terms of Service they agree to when taking on the TNC’s app. After all, wouldn’t most people make the “reasonable expectation” that the TOS would be fair to all parties and NOT Draconian?
The TNCs have manipulated their Rubik’s cube to align some of the puzzle pieces with local regulators. Acting like spoiled children, they’ve pouted their way toward insurance policies that somewhat cover the public’s needs. Dragging their Buster Brown’s all the way, they’ve put in place driver selection policies and car inspection practices that should have been elementary the first day they opened their doors.
When one of these companies sent their risk management officer to Minneapolis, his meeting with city officials was reported in the paper. I checked his work history on LinkedIn and was surprised to see NO insurance experience.
The first time I reviewed Lyft’s insurance policy I was similarly surprised to note that the carrier was James River Insurance Company. My astonishment was due to two reasons.
- James River Insurance Company’s website has a long list of products. Not included are any transportation-related risks. It appeared to me that an inexperienced insurance buyer was being insured by a similarly inexperienced insurance purveyor, and,
- James River Insurance Company’s website states it operates on a non-admitted basis in all fifty states. There are many states that will not allow a non-admitted company to provide primary auto liability coverage. Specifically in my own state of Minnesota, not too many years ago, our regulators prevented a non-admitted company from providing primary auto liability for taxis.
There is a simple solution for the non-admitted problem. James River Insurance Company could have found an admitted insurance company to “front” for them. They would pay a nominal amount for that company to issue the policy and then reinsure that company 100% for losses and loss expense that occurs.
Of course that solution would have demanded some sophistication on the part of the TNC, their broker, or the insurance company.
Apparently instead of grasping a ready solution, acting like a recalcitrant child, the TNCs refused to meet the letter of the law, perhaps because they simply didn’t think it mattered.
“Liability” is not a simple word. It has been run through the courts millions of times. To be found liable a person must have failed to act “reasonably” and “prudently”. The “reasonable” standard is not set by how the average person would act. Instead our common law is that the reasonable standard is how our community believes a “reasonable” person SHOULD act.
It baffles me to think that the TNCs attorneys have told them that their cavalier actions have protected them from being found liable.
I’m utterly shocked that these TNCs with their humongous war chests believe that a hold harmless is going to shelter them from loss should a horrendous accident occur. Horrendous accidents do occur. During my career I’ve touched several losses that have gone into the millions. As Forrest Gump famously said, “It happens.”
What good is a hold harmless going to be to the TNC when it is discovered that the user is a penniless college student who is judgment proof? What good is an insurance policy going to be when the limits it provides is the grossly inadequate limits demanded by statute. . .statutes set by lawmakers who don’t even have the political will to enforce even those feeble limits. (One out of six drivers on the road today is uninsured.)
It’s “Clearly” Hard to Say What Will Happen
Years ago I was working for an insurance company who insured school districts. A youngster broke into the school at night and injured himself on a power tool in the schools woodworking shop. Clearly the child had trespassed. Clearly the insurance policy for general liability would not have to respond to his loss. “Clearly” the judge said, “Don’t talk to me about liability. That child is injured and someone has to pay. The district’s insurance company seemingly is the only one who has the ability.”
“Clearly” the TNCs need to put on “big boy” pants and understand that they’re going to be the deepest pocket when it comes to a horrendous loss. If their insurance program is inadequate the court will assess their corporate assets. That is “clearly” how it works.
It is time for the TNCs to quit playing games. They need to meet the “reasonable expectations” of their users regarding financial responsibility. They need to act as prudent risk managers.
They need to manipulate their insurance Rubik’s cube to a six-sided solution. There are people, brokers, and insurance companies who have solved Rubik’s cubes before.
Premium Per Hired Mile?
Since it is known that the average cab travels about seven times further each year that the average private passenger auto (70,000 miles versus 10,000) it would seemingly be easy to promulgate a rate per fare mile. The TNCs use GPS to track miles in order to charge fares. They could use the same method to log “fare miles”.
The company would extract the insurance cost before paying the driver a net amount.
The insurance would be primary, with the driver’s insurance responding only as an excess policy with normal exclusions to apply.
So simple you have to wonder if the TNCs aren’t even more cynical than I am. Is it possible they realized the amount of controversy they could create with a shoddy insurance program? Is it possible they knew they could generate $millions in free publicity through the insurance negotiation process? Perhaps the TNCs want to nurture a bad boy image that plays well with their prospective customers.
I prefer to think that the above is more probable than to assume the TNC management, their brokers and agents, the TNCs advisors, and the insurance companies all failed to create a simple solution many months ago.
Other Enhanced Insurance articles related to the sharing economy:
Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.
While the majority of people want an agent involved in their purchase of insurance, many people want to see if they can save money by buying direct from the insurance company. Others want to try a direct quote to make sure the premium they’re now paying through their local agent is fair. If you want a quote for your coverage, click on the competitive quote button on the right side of this page.