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Companies like Uber, Lyft blurring the lines between U.S. personal and commercial insurance coverage: A.M. Best


September 18, 2015   by Canadian Underwriter


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Transportation network companies (TNCs) are raising questions about insurance coverage – and gaps in that coverage – but represent a potential area of growth for insurers if protective measures are taken, notes a briefing from A.M. Best.

The demand for coverage in the TNC space south of the border is growing, states Transportation Network Companies – Challenges and Opportunities for Insurance Carriers, released Thursday by A.M. Best.

Ride-sharing companies blurring lines for insurance coverage

“While relatively small, the potential growth in this segment may provide some opportunities for insurance carriers given the overall highly competitive market conditions in the broader personal auto space,” notes the briefing. “Although there are challenges, insurers will need to be responsive if they want to take an active role in providing coverage for this new market.”

A.M. Best points out that despite the growing popularity of TNCs – the most widely used in the U.S. being Uber and Lyft – regulation of the companies is in its infancy. The major differences between companies like Uber and Lyft and taxis and traditional car services are their pricing structure, how customers arrange a ride and regulatory status, the briefing states.

Add to this that the insurance industry is “trying to adapt to this new technology with revisions to existing products, the introduction of new products and efforts regarding coverage clarifications.”

This is all unfolding while there remain gaps in coverage for TNC drivers. “The TNC terms and conditions generally indicate that the TNC is not the transportation provider and denies any claim to the safety of the driver, among other disclaimers and notices. At a minimum, TNCs typically have driver requirements such as a valid driver’s licence, minimum age limits, current vehicle registration and insurance,” A.M. Best reports.

The chief issue that arises from insuring Uber- and Lyft-type vehicles is between personal and commercial insurance coverage(s). Uber drivers (through the UberX ride option) and Lyft drivers use their own vehicles – as such are covered under a personal insurance policy – for the commercial purpose of picking up a fare, the briefing explains. Does insurance coverage begin upon picking up and dropping off the fare or does it begin upon turning on the app, regardless if the driver has picked up the fare?

“Even though the largest TNCs provide commercial coverage, those TNC policies may not provide the same uninsured/underinsured motorist coverage, medical payments coverage, comprehensive coverage or collision coverage that the drivers had purchased in their personal auto policies,” the briefing states.

A.M. Best cites three exposure periods in the TNC business model: when the driver logs into the TNC application, but is not matched with a passenger; when a match is made and accepted, but the passenger has not yet entered the vehicle; and when the passenger has been picked up and is occupying the TNC driver’s vehicle. Gaps in coverage exist at all three levels, it notes.

“Insurers are also concerned that TNC drivers are not disclosing the fact that they drive for a TNC,” the briefing states, which can create additional costs for the insurer that are eventually passed on to all policyholders. “Since TNC-related claims affect both the duty to indemnify and the broader duty to defend, insurers may have to pay defence costs even if they can prove that the accident occurred during an excluded time period,” A.M. Best points out.

While questions that need to be addressed remain, A.M. Best adds that TNC activities open up a range of possible solutions. “Coverage on a full-time basis would be the best possible scenario, whereby the TNC affords full coverage for all three activity periods. On the other hand, commercial auto coverage purchased by the TNC driver is probably not a likely option at this time due to its high cost,” the briefing explains.

In the U.S., A.M. Best notes policy endorsements and “hybrid” insurance products are being developed for personal auto policies (PAP) to fill these coverage gaps, making it a useful tool for TNC drivers willing to purchase them.

Related: Intact to write insurance for Uber ride sharing

In Canada, Intact Financial Corporation announced in September that it intends to offer “tailored insurance products” for Uber. The insurer will share more details on its insurance products for Uber when they are made available.

A.M. Best notes in the briefing that beyond addressing coverage gaps, U.S. insurers providing TNC coverage would be well-advised to have an appropriate claims structure in place. “It is also important for TNC companies and drivers to understand the legal and regulatory landscape that they are operating under to make sure that these programs are compliant, and for insurers to make sure that they are providing coverage for the intended exposures,” the briefing states.

“With data from experience building over the near-term, insurers will be able to underwrite the risks more effectively and sound risk management programs will be developed,” it suggests.