She’s Got a Ticket To Ride - But Who’s Picking Up The Liability Tab?
From coast to coast, the ridesharing concept has gone into overdrive. Transportation Network Companies (or TNCs), such as Uber, are thriving as part of a collaborative consumption culture that promotes goods and services sharing via the Internet and mobile apps.
The number of TNC competitors is growing but they have more or less the same basic business model: They connect drivers and passengers through an app downloaded to your smartphone. Essentially, you use the TNC app to notify the TNC that you need a ride somewhere. The app locates you and sends a TNC driver to pick you up and drop you at your destination. The app debits your fare and a tip from your credit card.
Typically the driver gets about 80% of the fare, though each TNC has its own version of the arrangement. For instance, one service may have a pre-determined fare while another service may allow the passenger and driver to negotiate the amount.
TNCs are not all small start-up companies any longer and some are valued in excess of $1 billion - Uber could be worth as much as $18 billion. Competition is growing among them and deep discounting or free rides when using the service on certain holidays, for example, is now common.
Not surprisingly, legal liability and insurance coverage is a burning issue. The line between business and personal isn’t always clear and important questions like “At what point is the driver operating as a commercial car service?” and “Should his personal auto liability coverage pay for damages while he is trolling for business?” remain unanswered.
As a result, many state and local governments are pushing for legal clarity, frequently focusing on the on/off status of the driver’s app as a means of determining liability. For lots of reasons, that’s proving problematic, however.
For its part, the insurance industry sees the business model seeking to shift costs from commercial to personal insurance – which wasn’t designed or underwritten to cover commercial activities. Accordingly, most insurers want TNCs to assume the burden of providing primary liability coverage.
The insurance industry’s argument maintains that commercial insurance is one of the costs of doing business and TNCs should accept that fact. They are commercial enterprises and should be subject to the same regulations, laws and fees as all other commercial enterprises operating as public livery conveyances.
One thing is for sure. The TNC concept will keep expanding and, despite the growing pains, there will be opportunities for insurers to work with TNCs, many of which are trying to address public concerns about the absence of more comprehensive insurance coverage.
But for now, the onus will be on insurers obtaining the underwriting, claim and legal support needed to understand this dynamic sector’s complex exposures and trends.
Read my article in our Insurance Issues publication to find out more on the liability issues surrounding Transportation Network Companies.