I co-moderated a panel discussion at the Bar Association of San Francisco entitled “Insurance Issues In The Sharing Economy.” We had a lively and informative panel discussion between Kate Sampson, Managing Director at Marsh Risk & Insurance Services (and former VP of Insurance Solutions at Lyft), Chris Shultz of the California Department of Insurance, and Dan Wade of United Policyholders, a consumer advocacy group.
We started off distinguishing between, and defining, the “App-Based Economy” and the “Sharing/Collaborative Economy.” The former refers to any app-based purchasing platform, while the latter refers more specifically to the concept of private individuals offering to share a private space/asset with another person for compensation. And despite the proliferation of these types of companies, what they do is not without precedent. As Chris Shultz pointed out, “people have always delivered goods and products for cash, the ability to do it more broadly is what’s new.”
From an insurance perspective, how “disruptive” sharing economy companies are depends to a large extent on how heavily-regulated their insurance requirements are. For example, there are no specific regulatory requirements for home-sharing, and insurance products already exist (landlord liability policies or endorsements). The same is true of delivery services: pizza delivery guys have been an institution for decades.
But the same is not true for “ride-sharing” companies, which provide prearranged transportation services for compensation using an online-enabled application or platform to connect drivers using their personal vehicles with passengers. The space in which these companies operate has very heavily-regulated insurance requirements.
The California, Public Utilities Commission created an entire separate classification for these companies: Transportation Network Companies (TNCs) www.cpuc.ca.gov/PUC/Enforcement/TNC/. The California Department of Insurance, in turn, has established a Three-Period Insurance Requirement for Auto Sharing:
- Period 1 – App is open; driver waiting for a match. TNC must carry minimum
- $50,000 for death or personal injury per person
- $100,000 for death or property damage
- $30,000 property damage coverage
- Period 2 – Match accepted, but passenger not yet picked up. TNC must carry minimum $1 million in coverage. Either the driver or the TNC can provide this insurance.
- Period 3 – Passenger in vehicle and until passenger exits vehicle. In addition to insurance specified in Period 2 above, $1 million in uninsured motorist coverage required.
Most of the debate in this regulatory framework revolves around “Period 1.” The inclusion of “Period 1” insurance requirements, albeit with lower required limits, represents a compromise between regulators and TNC companies. The TNC companies contend that during Period 1, no ride has been initiated, so arguably the risk should be borne entirely by the driver’s personal insurance. But regulators contend that a driver who is driving around waiting for a possible ride may be on the road, in high density areas, far more than the average driver. Thus, from a regulatory perspective, the driver may present a different class of risk and isn’t in the same category as “ordinary” drivers.
We also talked about the nationwide debate concerning whether such drivers are employees (a debate which could easily apply to many sharing economy companies, not limited just to TNCs). From an insurance perspective, workers compensation insurers need certainty. They agree to insure a company’s entire workforce. If it turns out the company had more employees than the insurer thought when it issued the policy, then the insurer can usually do a premium audit to charge for that. But the right to conduct a premium audit expires after a period of time. If a court determines now that individuals classified as independent contractors four years ago were in fact employees, the workers’ compensation carrier will be put in the position of having to pay compensation claims brought by employees for whom it was never able to collect premium.
This conversation led to a discussion regarding the public safety and consumer protection concerns surrounding sharing economy companies. Both insurance regulators and consumer advocacy groups want to make sure that those who earn a living through the sharing economy understand the various potential insurance protections they are giving up: workers’ compensation insurance, employer-provided health insurance, etc. In the case of TNC drivers and users, many do not understand how the available insurance products work and how they overlay with the driver’s personal insurance. Interestingly, United Policyholders has conducted educational seminars for TNC drivers on this topic.
Thanks to the three panelists for an excellent discussion, and to the many who attended the presentation!