Learning to Share

Get things straight. Vacation rental operator Airbnb currently has more than 36,000 users in Canada. UberX, the popular app-based ride-sharing service, uses “tens of thousands” of drivers in six cities across the country, reports a spokesperson for the parent Transportation Network Company (TNC).

Both companies are backed by either a “Host Guarantee” program (in the case of Airbnb) or contingent auto liability coverage (in the case of Uber). In the vast majority of Canadian cases, this coverage is secondary to the primary auto or personal property insurance coverage of the driver or homeowner. However, insurers require disclosure of any commercial usage on personal insurance policies (the alternative is to purchase far more expensive commercial insurance).

So how many “shared economy” participants are disclosing their commercial ventures to their personal insurance companies? And what would happen if there were a major accident or loss that slips through the cracks of coverage? This is currently not known.

Companies like Uber and Airbnb are tightlipped about their insurance policies and procedures. Insurers in Canada are not saying much either (of the Top 10 property and casualty insurers in Canada, all but one – The Co-operators Group Limited – declined to comment or deferred to Insurance Bureau of Canada, IBC).

The fallout is that there are significant coverage exposures for consumers, who may or may not understand the implications of their insurance policies. A potential range of risk scenarios exists – whether it is a renter using a house for short-term vacation stays that suffers substantial damage or an UberX driver carrying a loaded car of passengers involved in a fatal accident.

COVERAGE GAPS

“The concern is that consumers may be unaware about their insurance gaps, their risks and limits,” says IBC spokesperson Steve Kee. “There could be serious coverage implications,” Kee notes.

“Personal insurance products, such as auto insurance and many types of home insurance, are not meant to cover commercial risks. In fact, many of these policies state that they will not provide coverage if the auto or home is used for commercial purposes,” he says.

“Often, insureds engage in operations without contacting their insurance company or broker and assume they have coverage,” reports Jason Arbuckle, vice president, program specialist Canada/USA with Gen Re. “Others don’t disclose that they are engaging in commercial operations for fear that they will be charged additional premium,” Arbuckle points out.

“Personal lines policies are not designed to cover commercial operations so the insured may find themselves in a situation where they have no coverage,” he explains.

The lack of transparent, comprehensive and primary commercial insurance coverage is one major reason that several municipalities in Canada have either banned TNCs like Uber or sought court injunctions to block the ride-sharing service. While the company maintains a presence in Edmonton, Toronto, Ottawa, Montreal, Quebec City and Halifax, it is not operating in Vancouver and Calgary.

A three-day hearing into Uber’s future in Toronto was set to begin June 1 in Ontario’s Superior Court of Justice. The city’s position is that Uber is operating illegally and should be stopped over public safety, licensing and insurance issues.

USE DETERMINES INSURANCE

Insurers such as The Co-operators expect disclosure from clients taking part in ride-sharing services like UberX, which allows unlicensed drivers to offer rides in their own vehicles (the company also operates more traditional Uber Black limousine and Uber Taxi services).

“When The Co-operators sells an auto policy, we do ask if the client will be using the vehicle for any sort of business use, and services like Uber would fall into that category,” says company spokesperson Leonard Sharman. “That would be the case for any sort of compensation a person earns by providing services such as Uber – whether they receive cash payments or something else.”

Sharman says “there is certainly an expectation that that sort of activity would be disclosed either when the policy is purchased or when they start using the vehicle for that sort of thing, depending on the situation. Failing to disclose that could be a case of misrepresentation, which could void the policy and lead to denial of coverage.”

The same principle applies to personal property policies. “In terms of homeowners’ insurance, we do ask what the home being insured is going to be used for, and there is an expectation that if it is going to be used as an income generator and/or frequently used by people other than the clients’ family, such as a B&B or rental, that will be disclosed to us, so that we can reassess the risk,” Sharman says.

“In cases where it is going to be rented out through a service like Airbnb on a fairly regular basis, we would reassess the risk and might have the client purchase a home business package to have it properly protected,” he reports.

Asked about Uber’s insurance policy, spokesperson Susie Heath states: “Every ride on the UberX platform in Canada is backed by $5 million of contingent auto liability insurance covering bodily injury and property damage.

Heath notes that although the company’s “insurance policy is proprietary, Canadians can rest assured knowing that ride-sharing partners are well-covered by commercial auto insurance, in addition to any insurance coverage maintained by the driver. This $5 million of coverage is more than two times the standard requirement for taxi and limo insurance in all Canadian cities, and is written by an insurance company (that has an) A (Excellent) A.M. Best rating.”

Aside from public statements, Uber has been unwilling to disclose detailed information about its insurance policy – to the point that it has asked for a sealing order to protect its commercial insurance as a “trade secret” in the Toronto court case.

Justice James Diamond of Ontario’s Superior Court of Justice ruled in late March that he was “not satisfied that Uber has presented sufficient evidence to show that disclosure of the insurance policy would lead to a loss of any competitive advantage.”

If Uber introduces the insurance policy as evidence, it must be made public.

Also, unlike in the United States, where Uber’s stated coverage is a blend of primary and contingent, in Canada, it is only called “contingent” (or excess).

In a March 26, 2015 Globe and Mail article, Ian Black, general manager for Uber’s Ontario operations, was quoted at a luncheon conference in Ottawa stating that the company’s extra layer of insurance is an “interim” measure, “but it doesn’t remove some of the complication of the fact that existing insurance policies are not written in a way [that] contemplate ride-sharing.”

The article further reported that Black said Uber is working with insurers in Canada to create hybrid policies that cover drivers who use cars both for personal and commercial uses. “That’s the hardest part of the work that we need to do now.”

NEED FOR CLARITY

Philomena Comerford, chief executive officer of Baird MacGregor Insurance Brokers, who also attended the Ottawa luncheon meeting, is also quoted in the article: “I find it very strange that the business model doesn’t have the insurance issue bolted down correctly so that there’s no ambiguity.”

This “ambiguity” also appears to extend to Airbnb’s Canadian operations, whose “Host Guarantee” program is not defined as an actual insurance contract.

“The Host Guarantee is not insurance and should not be considered as a replacement or stand-in for homeowners or renters insurance,” notes information posted on Airbnb’s website. Notably, the program does not protect cash and securities, pets, personal liability or shared or common areas.

“The $1 million Host Guarantee may cover damages irrespective of whatever other insurance arrangements a host may or may not ha
ve,” says Airbnb spokesperson Jacob Kerr. “In the U.S., we have a liability insurance program called Host Protection Insurance. We’re working hard on finding ways to expand it internationally,” Kerr reports.

A major challenge for insurance companies is dealing with claims from a less-than-forthcoming ride- or home-sharing participant. “Each company has its own practices, but insurance claims in these circumstances may be denied,” Kee observes.

“For example, if you use your vehicle or your home for commercial purposes when the policy says no commercial use, your company could cancel the policy or deny coverage. For auto insurance, depending on the circumstances of the collision and where the collision happened, there could be limited or even no coverage for the driver and the passenger,” he explains.

Arbuckle emphasizes consistency is crucial in claims handling. “Insurers need to have a consistent approach to claims, but in the fledgling sharing economy there is really no precedent to look to,” he states.

“If, hypothetically, a company decides to treat not disclosing the carrying of passengers for hire as a misrepresentation, then will best practices dictate that they do that with all claims?” he asks.

“Consistency in the claims-handling approach is one of the keys to avoiding bad faith claims,” Arbuckle comments.

IN THE SPOTLIGHT

The coverage ambiguity of shared economy services is typically thrust into the spotlight when a major loss occurs. For Uber, that liability turning point happened in the U.S. when an Uber driver hit and killed a young pedestrian in San Francisco on December 31, 2013.

The family of the six-year-old girl filed a wrongful death lawsuit against Uber, alleging that the driver was logged into its app. Uber countered that the driver was “a partner of Uber” who was not providing services on its system at the time of the accident.

The family’s lawsuit in California state court notes that the girl’s mother and brother were seriously injured. (In the U.S., Uber faces multiple ongoing lawsuits from individuals, regulators, cab companies and others).

Given that there are tens of thousands of UberX drivers operating in Canada, this scenario could surely play out here, as well. In fact, the lack of clarity between primary and contingent liability insurance only makes the situation more complicated in this country – a literal accident waiting to happen.

In Canada, there have been some reported minor accidents involving Uber drivers. In one case reported in the Toronto Star March 22, 2015, Uber driver Waita Sindi was involved in a collision in Toronto in February while carrying three passengers.

“You’re kind of left wondering: What am I supposed to do, who am I supposed to contact, there’s no phone numbers – standard stuff, as you would with an insurance claim,” Sindi was quoted in the article as saying.

A high-profile case in Calgary in late April also showed some of the possible negative consequences for homeowners using services like Airbnb. Renters of a house owned by Mark and Star King caused more than $75,000 in damage in what media reports have termed a “drug-induced orgy.”

“In terms of property-sharing services, media reports on a recent case in Alberta had the service-providing company offering to pay for damage caused by the renter of the property,” Kee says. “In any case, it is always a best practice, for the peace of mind of those offering these services, to check with their insurance representative,” he advises.

LIABILITY READY?

Aside from individual cases, the bigger question may be this: Is the insurance industry (or regulators) in Canada prepared for the liability implications of shared economy services? The response so far has involved consumer warnings from various groups, including the Financial Services Commission of Ontario (FSCO), IBC, insurance companies and several brokerages across the country about the insurance impact of sharing services.

In late March, FSCO issued an online posting to consumers regarding the insurance-related risks of ride-sharing programs.

The infographic stated the following: “If you are intending to participate in a ride-sharing service as a driver, you should check with your auto insurance representative to ensure you have proper insurance that protects the driver, passenger and others. It’s also a good idea to seek independent legal advice before you sign on.”

When asked if there are any plans to regulate the insurance aspect of ride-sharing services, FSCO senior communications officer Malon Edwards responds that “FSCO does not regulate transportation network companies; however, we do regulate the insurance companies that would provide insurance coverage for their drivers and users throughout Ontario.” Adds Edwards: “FSCO’s other interest in these matters is ensuring that drivers and users have the right information to make informed decisions about their insurance protection.”

To date in Canada, no formal regulatory guidelines have been created to deal with the issue of sharing services such as TNCs and short-term home rentals. In addition, insurers have yet to introduce any targeted insurance products for ride-sharing programs.

Vancouver-based Square One Insurance, reports it has offered an insurance product for home-sharing hosts in Ontario, the Prairies and British Columbia since July 2013.

IBC’s Steve Kee says the bureau is in early stages of working with the insurance industry and regulators. “There is an opportunity for the Canadian insurance industry to lead in the development of solutions that both address the insurance gaps and facilitate small business enterprise,” he says. “IBC and its member companies are already looking… at the legislation, the regulations and the forms to see what, if anything, can be done to fill the gaps,” he adds.

“With respect to personal lines, there are certainly opportunities,” Arbuckle agrees. “However, the insurance industry in Canada could use some guidance from the regulators and courts before it can act,” he suggests. “Once that is done, homeowners and personal auto present the biggest opportunities, followed by personal umbrella.”

LESSONS LEARNED

Specific examples of a tangible insurance response exist in the U.S., where TNCs and insurers have developed a framework to accommodate shared-economy services. One of the key sticking points in ride-sharing services involves the potential insurance gaps in various stages of the ride pick-up process: Period 1, when the driver is logged in and available, but does not have a fare; Period 2, when the driver is on his way to pick up a passenger; and Period 3, when the driver is carrying a passenger(s).

In March, Allstate Insurance Company, the American Insurance Association, Farmers Insurance, Lyft (TNC), the National Association of Mutual Insurance Companies, Property Casualty Insurers Association of America, State Farm and Uber announced a “Compromise Model Bill” for proper auto insurance coverage for ride-sharing services.

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. 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 proposed agreement also deals with other issues, such as subrogation, claims investigation co-operation between auto insurers and TNCs, and the creation of “innovative new products” for ride-sharing programs.

“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,” Michael Costonis, executive director of Accenture’s insurance practice for North America, notes in a blog.

“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,” Costonis explains.

Colorado was one of the first states to authorize ride-sharing in the U.S., allowing companies such as Uber and Lyft to legally operate.

Insurance company USAA launched a pilot in Colorado that offers coverage to TNC drivers from the moment their ride-sharing mobile apps are turned on until they are matched with a passenger. The program, which began in February, extends a member’s existing auto policy coverage and deductibles.

Erie Insurance, for its part, announced a ride-sharing insurance program last December that covers a driver “before, during and after the hired ride” in Illinois and Indiana.

“In the U.S., some states have already passed bills or revised statutes to address ride-sharing,” notes Arbuckle. “As a result, insurance companies have developed personal auto products to sell the ride-share drivers. Some insurance companies have opted to add endorsements to their wordings while others are offering a combined personal and commercial form,” he reports.

EXPANDING MARKET

In fact, Arbuckle states that new technology and approaches to risk can help the ride-sharing market. “There will also be creative new ways to look at pricing this exposure,” he observes.

“Start with a TNC app measuring usage, add a dash of telematics and mix in an insurance company that charges by the kilometre, and you get a customized, comprehensive insurance solution,” Arbuckle suggests.

In the Accenture report, Lead the Pack or Follow the Leader: Insuring Risk in the Sharing Economy, the consulting firm notes that Forbes predicts that the global sharing economy will grow by 25% this year, reaching more than US$3.5 billion.

Frost & Sullivan has estimated the North American car-sharing economy alone will reach US$3.3 billion by 2016, with more than 9 million members participating.

The sharing economy also extends beyond cars and homes to include a varied range of services – everything from job-matching (Taskrabbit) to boat storage (Boatbound) to diners for home chefs (EatWith).

Costonis, author of the Accenture report, notes that insurers should see the upside of marketing to a growing sector of the economy. “While the lack of historical data and nebulous boundaries can prove problematic, the sharing economy also offers an opportunity for companies to rise above traditional insurance market dynamics and define the rules in an entirely new playing field,” he writes.

“The sharing economy represents a phenomenal opportunity for those insurers that become first-movers in this arena,” Costonis suggests. In particular, he reports that insurers can seek to expand their client base through shared-economy services.

“For example, an innovative insurer might design an offering or a technology that not only allows it to interact with the owner of a car or home, but also with all the renters that conduct business with that owner,” he says.

“Insurers who present solutions to their sharing-economy customers are also likely to build strong loyalty that strengthens retention,” he adds.

In Canada, the impact of the sharing economy is spreading to insurance companies whether they are prepared for it or not. A classic case of a “disruptive” player in the economy, ride- and home-sharing services seem destined to expand rapidly over the next several years. Will insurers see these “new economy” services as an obstacle – or as an opportunity?

“There will be opportunity to write business, both in commercial and personal lines,” Arbuckle predicts.

“To achieve sustainability, companies must make underwriting profitability a foremost priority. Exposures must be thoroughly evaluated, and business must be underwritten and priced with appropriate discipline. In addition, claims must be handled in a manner that is fair, consistent and prudent,” he says.

“The shared economy is a new industry,” says Kee. “For insurance companies, there are new exposures and new risks. The competitive insurance market will, no doubt, see opportunities to create and sell new coverages.”