R IDESHARE C OMPANIES : I NSURANCE & R EGULATORY I SSUES FOR S TATES Griffith Foundation & Council of State Governments Webcast | 23 June 2015 K IM B. S TAKING C ALIFORNIA S TATE U NIVERSITY , S ACRAMENTO
“You ¡never ¡change ¡things ¡by ¡fighting ¡the ¡existing ¡reality. To change something, build a new model that makes the existing model ¡obsolete.” ― R. Buckminster Fuller R IDESHARING I NTRODUCTION AND B ACKGROUND
H ISTORY OF THE S HARING E CONOMY T HERE IS NOTHING NEW UNDER THE SUN ! • Some assets are too expensive for most individuals • It is convenient to share some assets
U NLOCKING V ALUE IN U NDERUTILIZED A SSETS In the sharing economy, individuals are able to unlock the value of existing assets. These can either be stores of value or wasting assets . The latter are more common. This creates value for both sides of the transaction.
U NLOCKING V ALUE IN W ASTING A SSET A UTOMOBILE D EPRECIATION OVER 5 YEARS 35,000 19.1% 8.6% 10.5% 11.47% 10.6% 9.4% 8.5% 30,000 - 2,559 5,687 9,294 25,000 12,467 15,280 17,804 20,000 15,000 29,873 27,314 24,186 20,579 10,000 17,406 14,593 12,069 5,000 - New Minute 1 Year 1 Year 2 Year 3 Year 4 Year 5 Value Accumplated Depreciation Source: http://www.edmunds.com/car-buying/how-fast-does-my-new-car-lose-value- infographic.html (Retrieved 6/16/2015). Assumes $15,000 miles per year. Does not include the cost of fuel, maintenance, insurance, etc.
M ONETIZING AN U NDERUTILIZED A SSET Drivers VIA A T ECHNOLOGICAL P LATFORM Unlocks value of underutilized assets to Technological provide income Platform (TNC) Connects drivers & passengers via smartphone Manages payments Reduces asymmetric information Passengers Extracts economic rents Don’t ¡need ¡to ¡ purchase an underutilized W IN … ¡ ¡ ¡ W IN … WIN! assets
R EGULATORY I SSUES – PUC Transportation Network Companies (TNC): Are TNCs and Ridesharing subject to regulation? Should TNC regulation be similar to taxi/livery services? Background checks of drivers
J UDICIAL I SSUES – C OURTS Ongoing Legal Questions Regarding Transport Network Companies (TNC) Is Ridesharing Legal? Who is responsible for paying claims? Independent contractors or employees? Confusion when legislation and regulation not clear
R EGULATORY I SSUES – I NSURANCE T RANSPORT N ETWORK C OMPANIES (TNC) / D RIVER Who is responsible in case of accident? Is ¡driver’s ¡personal ¡auto ¡insurance ¡ sufficient? Is commercial insurance needed? Is insurance coverage provided by TNC sufficient?
“Taking ¡a ¡new ¡step, ¡uttering ¡a ¡new ¡word, ¡is ¡what ¡people ¡fear ¡most.” ― Fyodor Dostoyevsky I NSURANCE I SSUES N EED FOR INNOVATION | C OMING UP WITH SHARED SOLUTIONS M ARKET DRIVEN VS . R EGULATOR DRIVEN A PPROACHES
“N EXT TIME , LISTEN TO YOUR ACTUARIES !”
E CONOMIC I NCENTIVES VIS - À - VIS I NSURANCE What incentives are created by existing rideshare insurance structure? E SPECIALLY UNDER C ONTINGENT C OVERAGE ( BUT IN ALL TIME PERIODS FOR MINOR DAMAGES )
I NSURANCE G APS Passengers: • Generally equal or better coverage than taxis Drivers: • Low level of coverage during the contingent period • Currently ¡no ¡worker’s ¡compensation ¡coverage • Drivers are on their own to get life and medical insurance
I NSURANCE G APS Ridesharing Companies Transportation Network Companies (TNCs) • Court cases challenging independent employee status • Legislation regarding legality in states and cities • Risk of piercing the corporate vale in event of major accident
N EED FOR I NNOVATION IN I NSURANCE M ARKETS Bi Big g TNCs are working with selected Dat ata a insurers to design policies for Prob Pr oblem lem Rideshare drivers Why the Delays?
C HANGING I NSURANCE M ARKETPLACE I NSURERS ARE BEGINNING TO PROVIDE COVERAGE AS P ILOT P ROGRAMS Metromile (California): Purchase insurance per mile driven. Specifically includes ridesharing. Cost 5-6 cents per mile. Does not charge for miles when the app is on. Uber only. Erie Insurance (Illinois, Indiana): Amendment to allow ride sharing coverage in personal policy as excess insurance for TNC activity for any insured with a business classification on personal auto. Excludes livery restriction. Allstate (Colorado, Illinois, Texas, Colorado): Ride for Hire endorsement. Expect $15 to $20 a year to a driver's bill.
C HANGING I NSURANCE M ARKETPLACE I NSURERS ARE BEGINNING TO PROVIDE COVERAGE AS P ILOT P ROGRAMS Farmers (Colorado, California). Extends cover through contingent period. Expect 8% increase in customer's premium MetLife (Colorado): Extends coverage through contingent period. Lyft only. Geico ( Virginia). Policy offers coverage during all phases of driving. Expects pricing to fall somewhere between personal and commercial policy. Liberty Mutual is only providing coverage for non-rideshare (personal) related driving. No coverage when app is on. Must be part of multi-car policy.
R IDESHARE C OMPANIES : I NSURANCE & R EGULATORY I SSUES FOR S TATES Griffith Foundation & Council of State Governments Webcast | 23 June 2015 QUESTIONS?
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R EFERENCES Benecke, Chris, Denise Brown, Joe Dillon, Brian Gerritsen, Leah Heller & Kim B. Staking. (2015). Risk Management Implications of the Sharing Economy. CPCU Working Paper (Golden Gate and Sacramento CPCU Societies). Retrieved from http://www.goldengatecpcu.org/files/public/CPCU_Sharing_Economy.pdf on 4/23/2015 California Legislative Information (n.d.), AB-2293 Transportation network companies: Insurance coverage (amended in Senate August 26, 2014). Retrieved from http://leginfo.legislature.ca.gov/faces/billTextClient bill_id=201320140AB2293.xhtml on August 27, 2014. California Public Utilities Commission (2013, September 19). Decision adopting rules and regulations to protect public safety while allowing new entrants to the transportation industry. Decision 13-09-045 (issued Sept. 23, 2013). Retrieved from http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M077/K192/77192335.pdf on September 13, 2014. California Public Utilities Commission (2014, June 10). PROPOSED Order Instituting Rulemaking on Regulations Relating to Passenger Carriers, Ridesharing, and New Online-Enabled Transportation Services. Agenda Item #13072 (Rev. 1) 13-09-045. Retrieved from http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M098/K126/98126852.pdf on August 14, 2014. Casualty Actuary Society. (2014, Dec 11). Actuaries Debate Insurance Issues in Ridesharing. Press Room . Retrieved form http://www.casact.org/press/index.cfm?fa=viewArticle&articleID=2740 on May 20, 2015 Harrison, Sheena. (2015, February 15). Uber, Lyft could be forced to provide drivers with workers comp benefits. Business Insurance . Retrieved from http://www.businessinsurance.com/article/20150215/NEWS08/302159993/uber-lyft-could-be-forced-to- provide-drivers-with-workers-comp?tags=%7C69%7C92%7C304 on May 20, 2015. Isaac, Mike & Natasha Singer. (2015, June 17). California Says Uber Driver Is Employee, Not a Contractor, New York Times : Technology . Retrieved from http://www.nytimes.com/2015/06/18/business/uber-contests- california-labor-ruling-that-says-drivers-should-be-employees.html on June 18, 2015.
R EFERENCES Independent Insurance Agents and Brokers of America, Inc. (2015.) ¡ISO ¡Files ¡New ¡PAP ¡“Car ¡Sharing” ¡ Endorsements. Virtual University . Retrieved from http://www.independentagent.com/Education/VU/Insurance/Personal-Lines/Auto/Rental- Cars/Wilson2015ISOTNCPAPFiling.aspx on May 14, 2015 Jones, David (2014, April 14). Letter to Michael R. Peevey, President of California Public Utilities Commission related to insurance issues and Transportation Network Companies. Retrieved from http://www.scribd.com/doc/217289190/Insurance-Commissioner-Rideshare-recommendations-to-California- Public-Utilities-Commission-on-Lyft-Sidecar-Uber#scribd on February 10, 2015 Knowledge@Wharton (2014, July 16). Kicking the Tires on Uber’s $17 Billion Valuation: Is It Worth That Much? Retrieved from http://knowledge.wharton.upenn.edu/article/kicking-tires-ubers-17-billion-valuation-worth- much/ on July 15, 2014. Knowledge@Wharton (2014, Nov. 5). Sharing economy 2.0: Can Innovation and Regulation Work Together? Retrieved from http://knowledge.wharton.upenn.edu/article/the-next-phase-for-the-sharing-economy/ on November 6, 2014. National Association of Insurance Commissions. (2015). Transportation Network Company Insurance Principles for Legislators and Regulators. Retrieved from http://www.goldengatecpcu.org/files/public/NAIC_2015.pdf on May 14, 2015 Singer, Natasha (2014, August 16). In the sharing economy, Workers Find Both Freedom and Uncertainty. The New York Times. Retrieved from www.nytimes.com/2014/08/17/technology/in-the-sharing-economy-workers- find-both-freedom-and-uncertainty.html?_r=0 on November 25, 2014. Vallet, Mark. (2015, June 18). Insurers roll out ridesharing policies. Insuracne.com. Retrieved from http://www.insurance.com/auto-insurance/coverage/insurance-rideshare-uber-lyft.html Wood, Robert W. (2014, Jan 8). Big Liabilities For Uber, Sidecar And Lyft? Forbes . Retrieved from http://www.forbes.com/sites/robertwood/2014/01/08/big-liabilities-for-uber-sidecar-and-lyft/ on May 14, 2015.
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