Personal auto insurance may not be enough to cover rideshare drivers in an accident.
It’s a whole new world of risk for auto insurers. Skyrocketing claims due to increasingly expensive car repairs have eaten into insurers bottom lines, leading companies to rely on data analytics to more accurately assess and price risk. As if that weren’t enough to keep auto underwriters up at night, driverless vehicles loom on the horizon, upending insurers’ traditional reliance on driver demographics to determine rates. Autonomous cars’ complex sensors and technology demand insurers underwrite risk based on those digital systems, not human factors.
Another challenge auto insurers now face is insuring drivers who work for ridesharing services like Uber and Lyft. If an accident occurs while a driver operates their vehicle for an on-demand apps, the driver’s personal policy may not cover accident claims. In response, several insurers have designed coverage to bridge the gap between a personal auto policy and one that covers drivers when they use their vehicle for commercial purposes.
Why a Rideshare Policy is Needed
An Insurance.com article notes that personal auto insurance policies typically exclude coverage when the driver undertakes commercial activities, such as food delivery or picking up passengers as a taxi would. Uber and Lyft offers drivers coverage, but the liability limits differ depending on the phase, or period, of the journey. As detailed in NerdWallet, when a driver has accepted a ride request and has a person in the vehicle — sometimes referred to as Period 2 — the Uber and Lyft policies set maximum liability at $1 million for each incident. If a driver has the app on while in the car, but has yet to book a ride or pick up a passenger (Period 1), the liability limit plunges to $100,000 per incident.
That may appear to insure drivers during all stages of the rideshare. However, Insurance.com points out that most states require drivers to file a claim with their insurers first before the rideshare company’s coverage takes effect. This leaves rideshare drivers with two choices: File with their personal auto insurer and risk cancellation, or buy expensive commercial insurance.
“Commercial policies are more expensive than personal auto insurance for a reason,” Penny Gusner, Consumer Analyst for Insurance.com, said. “An injured person might press harder for damages if there is a perception that the driver was working for a multibillion-dollar company at the time — even if that isn’t exactly the case for Period 1 drivers who are seeking a fare but don’t have a passenger on board yet.”
To fill any coverage gaps, several insurers have structured rideshare policies, which are generally less costly than commercial insurance. Othello Powell, GEICO Director of Commercial Lines, warns rideshare drivers could be liable if they depend solely on their personal policy. “Most personal auto policies were never designed to protect you or your vehicle for commercial purposes,” he said in Insurance Journal.
GEICO recently launched ridesharing and on-demand coverage in 36 states and the District of Columbia. According to the company’s website, the “hybrid auto policy” covers drivers whether the app is off, activated with no passengers in tow, and with passengers in the vehicle (subject to certain conditions and exclusions).
CoverHound, a San Francisco-based insurtech outfit, has entered the rideshare market as well. Through its digital platform, rideshare drivers apply for coverage from a list of major carriers and obtain a policy. A profile of the company in Insurance Journal stated that CoverHound promises a quote within five minutes. Now available in 24 states, CoverHound expects to be nationwide by the end of this year.
CoverHound currently partners with Mercury Insurance Group, Safeco Insurance, Foremost Insurance Group, Progressive, State Auto, CSE Insurance, Kemper, and National General Insurance, according to CoverHound CEO Keith Moore. “As carriers add more products, we’re actively putting them on the platform,” he said. “We may work with carriers in the future to have more specific products developed for the rideshare community.”
Moore told Insurance Journal that he and other company executives noticed “a lot of confusion” regarding insurance among rideshare drivers when they traveled around the country. Drivers, he said, need to understand the benefits of carrying this type of insurance.
As Moore alludes to, many rideshare drivers may be unaware of the potential liability of logging onto an app if all they carry is personal car insurance. And coverage offered by Uber and Lyft could leave them uncovered in certain circumstances.
Agents, therefore, should ask clients and prospects whether they use or plan to use their vehicle for ridesharing purposes. Explain to them the risk of operating their vehicle commercially with only personal auto coverage. If available in your state, encourage your client to purchase rideshare insurance from a major carrier covering all points along the rideshare journey — from log on to drop-off.
In states where rideshare insurance isn’t sold, your client can obtain a commercial policy. The extra expense will be well worth it to protect your client in the event of an accident during a rideshare service.