Last Updated 3/4/2020
Issue: Commercial ride-sharing companies, or transportation network companies (TNCs), have gained in popularity in dozens of U.S. cities over the past several years as a new option in the public transportation market. TNCs use mobile technology to connect potential passengers with drivers who use their personal vehicles to provide transportation for a fee. TNCs demonstrate how technological advances can lead to new business models that hold the potential to lessen traffic congestion, improve the environment, and enhance social connection.
However, the risks associated with participating in ride-sharing services are not yet completely understood and do not fit neatly into insurers current risk-pooling models, raising numerous insurance related questions. Specifically, there is increasing concern over the potential gaps in insurance coverage in the unfortunate event of an accident or injury. While every personal auto insurance policy differs, most contain exclusions when a person uses their vehicle for livery services. Several insurers have developed products to fill gaps in coverage created by commercial ride-sharing and the common use of livery exclusions in personal auto insurance.
Overview: A TNC is an organization offering prearranged transportation services for compensation using an online application or platform to connect passengers with drivers willing to transport them. Instead of hailing a cab or calling for a car service, consumers in need of a lift can download the app and connect with drivers who use their personal vehicles to pick up passengers. The app also allows users to get a price quote, track the driver’s location and pay their fare using a credit card on file. The three most popular TNCs are Uber, Lyft and Via.
Ride-sharing is different, however, than taking a traditional taxi or limousine. Taxis and limousines are typically licensed by the state and/or local transportation authority. The vehicles are required to be inspected and drivers must be properly licensed. In addition, taxi operators are required to have commercial insurance that protects a passenger and third parties (i.e., pedestrians or other drivers) in the event of an accident. TNCs may not be subject to the same requirements that apply to taxis and limousines. Additionally, commercial auto insurance for a TNC is typically more expensive than personal auto insurance because it presents more risk and therefore may be cost prohibitive for individuals only driving on a part-time schedule.
It is not uncommon for personal auto policies to exclude coverage for livery or receiving compensation for driving. As a result, a TNC driver’s personal auto insurance policy may not provide coverage when the driver is using his car to transport people in a ride-sharing arrangement for a fee. This applies to liability insurance, personal injury protection coverage in no-fault states, comprehensive coverage and collision, and UM/UIM.
Another significant concern is determining at what point in time a driver is operating the vehicle for hire. There are three periods in the ride-sharing business model: Period 1: App on, waiting for ride request; Period 2: Ride request accepted, no ride-share passengers in the vehicle; and Period 3: Passenger in vehicle. Additionally, many drivers may have apps for multiple transportation network companies active simultaneously. Most state laws regarding TNCs include similar language. Several state laws combine Period 2 and Period 3 as described above and require higher limits of insurance while the driver is actively engaged in a ride.
The largest TNCs have policies on their drivers that include commercial auto, liability, and collision coverage, with several offering $1 million single limit on primary liability coverage. Primary coverage typically applies only to periods 2 and 3, when a ride request is accepted or a passenger is in the vehicle. Some of the large TNCs say they have filled the insurance gap with extended excess policies, although such policies are mostly secondary and lack first party coverages such as comprehensive and collision. Additionally, insurers have responded by offering new insurance products. The coverage types and limits vary by insurer, but many of these products provide coverage through an endorsement for livery services particularly during period 1 when limited contingent coverage is provided by the largest TNCs. On-demand insurance startups, such as Slice Labs, are also creating products to give consumers the ability to quickly switch between being a commercial or personal driver through an app on their phone. More information on insurance issues surrounding TNCs can be found by reviewing the materials from CIPR’s The Sharing Economy webinar held on June 18, 2016.
Insurance regulators oversee insurance companies and insurance agents, not TNCs. The insurance laws and regulations apply to the insurance company and the insurance producer issuing the insurance policy to the TNC or the individual driver. However, as TNCs gained in popularity, state insurance regulators took action and worked with the TNCs to ensure consumers are adequately covered. The NAIC and many state insurance departments issued bulletins cautioning consumers of the potential limitations of insurance coverage. Subsequently, at least fifty-one states and territories enacted legislation to set insurance coverage rules and standards for TNCs. Many of the laws followed a basic framework developed in a coordinated effort between TNCs, personal auto insurers, and insurance trade associations. The framework became known as the TNC Model Bill.
The TNC Model Bill includes express permission of personal auto policies to exclude coverage for TNC-related driving, mandatory primary liability coverage during Period 1 of at least $50,000 bodily injury per person, $100,000 bodily injury per incident and $25,000 property damage depending on state law, and mandatory primary liability coverage during Period 2 of at least $1 million. Coverage may be maintained by the TNC, the TNC driver or a combination of the two. TNC coverage is not contingent upon a denial of claim payment from the person’s personal auto policy (PAP). Under the TNC Model Bill, personal auto insurers are granted a statutory right of contribution against TNCs for erroneously paid claims. The TNC Model Bill does not require coverage for medical payments, personal injury protection, collision and comprehensive (other than collision), as well as uninsured motorist (UM) and underinsured motorist (UIM) coverage.
The National Conference of Insurance Legislators (NCOIL) adopted a model act based on the TNC Model Bill to regulate insurance requirements for TNCs and their drivers. The NCOIL model includes two modifications from the TNC Model Bill. The modifications include language requiring disclosure if there is a lien on the vehicle to be used for TNC services and adding to the section on rating agencies used to determine which surplus lines insurers are eligible to provide coverage for TNCs.
The legislation and regulatory action ensure that drivers are not unknowingly driving without insurance coverage which is illegal due to financial responsibility laws in most states. Most of the enacted legislation does not require comprehensive or collision coverage while the app is on, but the driver is not connected with a passenger. This means the driver may lack physical damage coverage for their own vehicle during that time period unless the driver seeks additional coverage from a personal auto insurer. Coverage options for rideshare insurance are becoming more widely available to fill this gap in coverage. Drivers may also consider increasing the limits of Period 1 coverage as the TNC coverage may only meet the minimum liability coverage required by law. Additionally, some personal auto policies may help drivers pay the deductible required under the TNCs coverage.
Status: To study regulatory issues related to insurance coverage for transportation sharing and other emerging sharing economy products, the NAIC Property and Casualty Insurance (C) Committee appointed the Sharing Economy (C) Working Group in 2014. The Working Group developed a white paper regarding commercial ride-sharing, Transportation Network Company Insurance Principles for Legislators and Regulators. The white paper was adopted at the NAIC 2015 Spring National Meeting. The Working Group disbanded in 2018, but the Property and Casualty Insurance (C) Committee continues to monitor these issues.
Committees Active on This Topic
Map of state-level ridesharing laws
Property Casualty Insurers Association of America, 2017
The Sharing Economy (June 2016, CIPR Webinar)
Sharing a Ride, Not the Risk
February 2015, CIPR Newsletter
Transportation Networking Companies Coverage Report
January 2015, Colorado Division of Insurance
Commercial Ride-Sharing and Car-Sharing Issues
August 2014, CIPR Summer Event Materials & Audio
Ride-sharing: New Technology Creates Insurance Challenges
July 2014, CIPR Newsletter
Sharing a Ride, But Not Insurance: Protect yourself as a ridesharing passenger
December 2015, NAIC Consumer Alert
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Data Coordination and Statistical Analysis Manager