As ride-sharing services like Uber and Lyft continue to expand in cities around the country, the services have been dogged by questions about whether their drivers are fully insured.
Major auto insurers like State Farm, Geico and Progressive have made clear that personal policies exclude coverage for rides when a driver is paid. Some insurers will go so far as to reject any applicant who reports driving for a ride-sharing company.
Meanwhile, the kinds of commercial policies carried by full-time limo drivers can be as much as 10 times as expensive as personal auto policies, rendering them largely unaffordable for drivers who may do ride-sharing for only a couple hours per week.
The major ride-sharing services have responded by buying specialized coverage for themselves and their drivers' liability, although some regulators and the taxi lobby have charged that even this coverage contains gaps.
But the debate does raise the question: Why don't insurers simply create new products to accommodate this new and growing risk?
It isn't that personal auto insurers are completely unwilling to write commercial coverage. According to data from SNL Financial, among the top 20 writers of personal auto insurance coverage in 2013, 15 also wrote commercial auto insurance. Nine companies would count among the top 20 in both lines of business.
But so far, such products have not come to market. Discussions with major auto insurance underwriters suggest four major reasons why:
It's still unclear whether courts will find the major ride-sharing companies liable for accidents involving their drivers. The companies have a reasonable case that they are simply acting as match-makers between independent drivers and potential riders.
Even if they are ultimately found liable, courts also will be asked to weigh in on whether a driver who is logged in to a ride-sharing app, but not transporting a rider, will be held to the heightened standards-of-care traditionally applied to common carriers like taxicabs and limousines.
Insurers have decades of data on personal driving behavior and other relevant factors — from credit scores to ZIP codes — on which to base rates. Meanwhile, commercial auto insurers have their own underwriting data, as well as relying on local licensing requirements to screen out the worst drivers.
By contrast, ride-sharing — that is, professional transportation offered by unlicensed, amateur drivers — is a new risk for which credible data does not yet exist. The elements that make one a safe driver for the purposes of a personal auto insurance policy may not be identical to those required of a driver for hire.
Some states do not allow companies to insure commercial activity as a part of a personal policy. Even where it is allowed, states generally ask insurers to produce data that justifies the rates and terms they set — data that largely doesn't yet exist.
In fact, some states, like California, will only allow insurers to consider factors that are expressly permitted by law, which confounds insurers' ability to bring innovative products to market quickly.
It's still unknown just how large the ride-sharing market will be. Polling conducted in August found that, even among residents of urban areas where Uber or Lyft are already operating, just 14 percent had ever used a smartphone application to order a ride.
Moreover, depending on the legal and regulatory framework that evolves, it may prove more cost-effective for ride-sharing services to purchase master policies that cover all of their drivers, rather than having each driver procure his or her own coverage.
Insurers could certainly still roll out new products in the coming months and years to better fit the ride-sharing drivers. If history is any guide, such products likely will originate in the surplus lines market, where underwriters do not face the same regulations of forms and rates.
Alternatively, ride-sharing drivers could form their own mutual insurance company, the way taxi drivers did when they formed the Public Service Mutual Casualty Insurance Corp. in 1925.
But for the major auto insurers to buy into ride-sharing in a big way — crafting new hybrid products and offering special riders or endorsements on existing personal policies — there are still a number of looming questions that need to be answered.
R.J. Lehmann is editor-in-chief and senior fellow with the R Street Institute in Washington, D.C. He is author of the new paper, “Blurred Lines: Insurance challenges in the ride-sharing market.”