Tired of the 9-to-5 grind? Or just want to earn a little honest money on the side? Running a ridesharing business could be just the ticket. As of December 2014, Uber, the best known of the ridesharing companies, reported 162,037 active drivers in its pool, earning anywhere from $9 to $30 an hour, depending on the market. And that’s just Uber. There are also Lyft, Sidecar and a whole lot of local and regional operations giving traditional taxis a run for their riders. Commercial ridesharing companies, also called transportation network companies or (TNCs) are certainly a viable business model for folks who want to be their own bosses without making a huge commitment of capital or time. But if you’re thinking about signing up, you need to know what you’re getting into and what you could lose unless you have the right business insurance in place.
According to a recent article on NAIC.org, “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.” What that means in real-people speak is that you might think you’re properly insured but be in for a nasty surprise in the event of an accident or injury.
A different model
Ridesharing differs from traditional taxi and limousine operations, which are licensed by a state or local authority. That licensing process includes proper inspection of the vehicles for hire. It also requires that the drivers (or company they drive for) have commercial insurance to protect their passengers, pedestrians and other drivers. This not always the case with TNCs, where all you need pretty much is a car and smartphone app. To drive that car, you also need your state’s minimum personal vehicle insurance coverage. But, once you start accepting money from passengers, the rules change. See, the typical personal auto insurance policy strictly excludes “coverage for livery,” the insurance industry’s word for charging a fare to ferry folks around. In other words, when you’re using your car like a taxi and charging a fee, your liability insurance, personal injury coverage in no-fault states, comprehensive/collision coverage and uninsured/under insured motorist coverage don’t apply. If you aren’t sure what your personal auto insurance does or doesn’t cover, read the declaration and exclusions pages of your policy. Still not clear? Call your agent and ask.
Don’t the TNCs have your back? Maybe. Maybe not. NAIC reports that the largest TNCs do have policies for their drivers that include commercial auto, liability and collision coverage. Some TNCs also offer UI/UIM. And some claim they have extended excess policies that fill the insurance gap, although these haven’t been tested.
What you, as a potential rideshare driver need to realize is that many TNCs don’t even consider themselves to be in the transportation business. As far as they’re concerned, they are technology companies whose function is to facilitate a transaction between you and a passenger. Uber, for example, merely provides you with a license for a fee to use its software. Even if, like Uber and Lyft, they provide supplemental coverage to your personal policy, these are evolving businesses with fluid policies. Your best bet is to stay up to speed on what your TNC does and doesn’t cover.
Three periods - one big mess
One of the biggest concerns regarding ridesharing insurance coverage has to do with when you’re driving for hire. Essentially there are three periods in the ridesharing model:
1. Your app is on and you’re waiting for a passenger match
2. You’ve found a passenger match
3. The passenger is in your car
In question is when does commercial activity actually start? This is already causing claim disputes.
Commercial licensing is also an issue
Every state has different laws regarding who does and doesn’t need a commercial driver’s license and therefore commercial vehicle insurance. Some states require commercial licensing if hauling around passengers (or freight) is your full-time gig. The definition of “full-time” will vary from state to state, as well. To be sure and safe, check with your state’s DMV. Failure to comply with commercial licensing requirements could subject you to prosecution or even jail time in the event of an accident. It could also nullify your car insurance.
It’s up to you
As ridesharing continues to grow in popularity, many states are working to address the insurance issue. The National Conference of Insurance Legislators is also looking into a model act to regulate TNC insurance requires. The proposed model could help regulate insurance requirements for TNCs and establish that the TNCS provide primary liability coverage for all three ridesharing periods. But it would not require private vehicle policies to cover a driver’s TNC activities. Until this is adopted, or until your state clarifies its regulations suffice it to say that ignorance of the law is never a successful defense. You’re always better off operating with the assumption that the burden of adequate insurance is on Y-O-U. You can learn more and get commercial vehicle insurance quotes here.