TNCs, Insurers Square Off at California Hearing

Update: California Commissioner Dave Jones made his initial recommendations on insurance issues and transportation network companies.

Update: Excess and surplus carrier James River Insurance Co. said it’s not leaving the business despite reports from some TNCs at a public hearing last week that the company would no longer be writing policies to cover TNC activities and wouldn’t be renewing existing policies.

App-based rideshare operators and the insurance industry squared off Friday at a public hearing hosted by California Insurance Commissioner Dave Jones.

Jones called the hearing to discuss the insurance issues related to business run by ridesharing firms or transportation network companies (TNCs). The hearing included testimony from TNC representatives, the insurance industry and other stakeholders.

TNCs have become a hot topic, in part thanks to a perceived gap in insurance coverage, and an incident during which a TNC driver under contract with Uber struck and killed 6-year-old Sofia Liu. Her family has filed a lawsuit against Uber. Uber issued a statement saying the driver, 57-year-old Syed Muzzafar, was not responding to a fare and didn’t have a passenger in his car when he struck Liu.

Since then several states and local governments have been working on rules and regulations to oversee these TNCs. The Seattle City Council passed a measure Monday that puts some regulations on rideshare companies that use smartphone apps to connect passengers with rides from drivers using their personal cars.

In California, TNCs are regulated by the California Public Utilities Commission, which offered up an initial set of regulations for ridesharing activities late last year.

The hearing on Friday also included testimony by the general public, including several representatives of the taxi industry, which has argued that TNCs should be regulated like the taxi industry.

At issue between the TNCs and the insurance industry has been a gap between when drivers are heading to pick up a ride or if they have a ride (a period covered under the TNC’s typical $1 million commercial insurance policies) and when TNC drivers have their app on and may be seeking a ride.

The insurance industry had argued that the period when TNC drivers have their apps on but are not en route to pick up a fare or when they don’t have a passenger should still be considered a livery activity, which is excluded in most personal auto policies.

Uber said last week it now has new insurance to cover that gap between its personal and commercial policies when drivers are using the app-based ridesharing service, while the company’s CEO said the San Francisco-based firm is also working with insurers to develop more insurance products to cover the activity.

TNCs Lyft and Sidecar followed suit and announced they plan to offer similar coverages to fill the gap. All three TNCs have said that the gap coverage will provide coverage when the app is turned one.

However, the insurance industry still isn’t satisfied and has been working to ensure that TNC drivers’ personal insurance policies aren’t relied upon for what many in the industry see as a commercial activity.

“The business model does try to shift the cost to the drivers,” said Armand Feliciano, vice president of state affairs for the Association of California Insurance Companies, calling TNCs and their insurance “a lot like a square peg in a round hole.”

Feliciano’s and other insurer groups argued that TNC drivers log more miles, encounter more vehicular and pedestrian traffic and are likelier to engage in riskier driving behaviors. They also argued that TNC drivers may have multiple apps on while driving, which can be considered a distraction, and if they happen to pick up a passenger who may be in a hurry they could be encouraged to speed.

“Stop pushing this on personal insurance,” Feliciano said.

The Personal Insurance Federation of California and the American Insurance Association offered similar testimony.

Some TNC representatives at the meeting suggested that personal insurance companies could offer TNC drivers enhancements on their auto policies, while several said they have been having difficulty finding insurers that will work with them to offer enhanced coverage. They said the industry as a whole hasn’t expressed a lot of interest in the TNC business.

Geoff Mathieux, CEO of Wingz, which uses an app to schedule rides with other drivers, said the insurers offering coverage seem to be pulling back.

“Ninety-nine percent of insurance companies do not want to do business,” he said.

Wingz has a $1 million commercial liability policy similar to those held by Uber, Lyft and Sidecar.

According to Mathieux, Wingz’ policy has no exclusions, but if he had to shop around he’s pretty much limited to his current carrier, Berkshire Hathaway.

“To my knowledge they’re the only company willing to cover TNCs today,” Mathieux said.

Mathieux said James River Insurance Co. (Ube’s carriers), Nautilusand Gemini have indicated to him they are getting out of the business and don’t plan on offering renewals due to the uncertainty over rules and regulations around the nation.

“I don’t know if in a year if there’s going to be anyone who wants to do this because there’s so much ambiguity,” he said. “People who want to be able to participate in this sharing economy … should be able to pay for it on their personal insurance policy.

Representatives from the carriers couldn’t immediately be reached for comment.

Since this article was published, a representative from James River told Insurance Journal the company wasn’t planning to exit the business.

“The fact of the matter is we’re not [exiting]; we’re in it,” said John G. Clarke, James River’s senior vice president of marketing.

Clarke said the company wouldn’t comment on a specific insured or program, and he declined to state whether the company is developing any new programs for its client Uber or others.

John Zimmer, co-founder of Lyft, said right now there isn’t enough interest from the insurance industry to offer competitive pricing and develop innovative insurance products.

“There needs to be an insurance marketplace that’s available to address these things,” Zimmer said.

Zimmer and other TNC representatives at that meeting also argued that prior to a match being made between drivers and their rides, the driver could be doing other things that have nothing to do with looking for a ride, such as running a personal errand. In such cases their personal insurance should cover them, he said.

Drivers could also be using multiple ridesharing platforms, which means that driver would be covered under the insurance of several different TNCs, the representatives said.

Beth Stevens, general counsel for Sidecar, referred to a “moral hazard” created by this gap coverage if it becomes a requirement because it creates potential for fraud if drivers get in an accident and want to claim they have their app on when they in fact are using their vehicle for personal purposes.

“These drivers are smart,” Stevens said. “They can quickly game the system.”