Taken for Ride?

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As a former Californian and insurance regulator in South Carolina, I have watched the recent regulatory discussions regarding ridesharing. I know first-hand the importance of government providing a regulatory framework to protect consumers. However, such a framework needs to allow for growth and innovation.

As governments grapple with innovations and new industries like ridesharing, there is a temptation to force the innovative companies into the old framework designed for different and often times outdated models. Colorado recently took the lead on doing it right and adopting a legislative framework that protects drivers and riders while recognizing the unique nature of the ridesharing model. The California Public Utilities Commission has also recognized this new industry and established regulatory requirements for ridesharing companies to operate in the state.

However, it is quite revealing that the rules proposed by California Insurance Commissioner Dave Jones are contrary to the law he sponsored and which passed in the Assembly, rules that are inconsistent with requirements for other similar activities in California. Behind these efforts is a well-entrenched and powerful opposition group that includes insurance industry lobbyists, Big Taxi conglomerates and trial lawyers. Their objective is nothing less than bullying the ridesharing competition into premature extinction. 

Ridesharing is nothing more than a distinct logistical matching process – cashless, seamless, reliable and convenient. Consumers who need a ride push a button on a smartphone app belonging to a transportation network company and are matched with a driver.

The special interests are lobbing false claims about an “insurance gap” when none such exists. They are using scare tactics on a new service in order to protect their turf and to make more profits for themselves at the expense of drivers and consumers.

I’ve reviewed the coverage plans and there is no insurance gap. The crux of these opponents’ fallacious position is this: Ridesharing drivers rely on two insurance policies to cover their cars. One is the driver’s own personal auto policy designed for private use, the other a business auto policy supplied and paid for by the ridesharing company. Personal policies exclude use of the car for “livery” – transporting people for pay. Business policies cover “livery.” The fallacy of the opposition group’s position rests in the allegation that “livery” starts when the driver steps into his car and opens the app. Ridesharing companies think that is absurd – and I concur.

Here is why: When ridesharing driver X logs in there is no passenger in the car; there might not even be a prospect on the horizon. There is no pending transaction, there is no payment and there has been no service. There is no act of transportation, no livery and no added risk. There is no mutual contractual consent between two parties for the rendering of services. The parties haven’t even matched or met. 

No matter, says the opposition: Driver X then goes “trolling.” But for what purpose? There are no casual curb pickups because the logistics of the transaction have to be prearranged via the transportation network. And yes, like it or not, most personal auto policies today do cover trolling at least until the livery service – the paid act of transportation begins. 

Policy carriage

Ridesharing companies have been exemplary corporate citizens, caring to do the right things for both passengers and drivers. Uber, for instance, has a $1 million per occurrence business policy for liability and added coverage for uninsured and underinsured motorists in place. Most taxicabs are not required to carry these limits. It also secured a policy with limits of $50,000 per injury, $100,000 for total injuries and $25,000 for property damage – three times the state’s requirement – to back up the drivers’ personal policy while they are waiting for a request for a ride. The California Insurance Department, for faulty reasons, has asked for $1 million coverage from the moment Driver X opens the app along with other coverages not required of taxis or limos anywhere in the state. That is simply inappropriate, irrational and lousy public policy. It is not based on any facts and is so far above the requirements of even the most traditional car services.

In fact, the Insurance Department, as recently as this year, has approved business policy forms and rates that specifically contemplate use of personal vehicles with personal policies in the course of a business. This is how Californians who are pizza delivery guys and nurses who make paid visits to at-home patients and transport them to their care providers are insured while using their personal vehicles and have been for decades. These business policies are sold by many of the very same insurers that oppose ridesharing.

Get ready, California consumers. If this ridiculous recommendation succeeds, you’ll once again be hailing a clunking yellow-colored cab, climb out of the rain into a cramped back seat with a police-car-like glass partition, only to face a rude and maniacal driver who’ll expect a hefty tip. The opposition’s position – developed and driven by auto insurance lobbyists – is inconsistent with its own industry practice, defying both law and common sense. 

Ernie Csiszar is a former chief executive of an insurance company; former regulator; former president of the National Association of Insurance Commissioners; and former chief executive of Property Casualty Insurers Association of America, parent of the Association of California Insurance Cos. He is currently clinical professor of insurance and risk management at the University of South Carolina.  

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