R IDESHARE C OMPANIES : I NSURANCE & R EGULATORY I SSUES FOR S - - PowerPoint PPT Presentation

RIDESHARE COMPANIES: INSURANCE & REGULATORY ISSUES

FOR STATES

Griffith Foundation & Council of State Governments Webcast | 23 June 2015

KIM B. STAKING CALIFORNIA STATE UNIVERSITY, SACRAMENTO

RIDESHARING

INTRODUCTION AND BACKGROUND

“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

HISTORY OF THE SHARING ECONOMY

THERE IS NOTHING NEW UNDER THE SUN!

• Some assets are

too expensive for most individuals

• It is convenient

to share some assets

UNLOCKING VALUE IN UNDERUTILIZED ASSETS

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.

UNLOCKING VALUE IN WASTING ASSET

AUTOMOBILE DEPRECIATION OVER 5 YEARS

29,873 27,314 24,186 20,579 17,406 14,593 12,069

• 2,559

5,687 9,294 12,467 15,280 17,804

• 5,000

10,000 15,000 20,000 25,000 30,000 35,000 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.

8.6% 10.5% 11.47% 10.6% 9.4% 8.5% 19.1%

Drivers

Unlocks value of underutilized assets to provide income

Passengers

Don’t ¡need ¡to ¡ purchase an underutilized assets

Technological Platform (TNC)

Connects drivers & passengers via smartphone Manages payments Reduces asymmetric information Extracts economic rents

MONETIZING AN UNDERUTILIZED ASSET

VIA A TECHNOLOGICAL PLATFORM

WIN … ¡ ¡ ¡WIN … WIN!

REGULATORY ISSUES – 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

JUDICIAL ISSUES – COURTS

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

REGULATORY ISSUES – INSURANCE

TRANSPORT NETWORK COMPANIES (TNC) / DRIVER

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?

INSURANCE ISSUES

NEED FOR INNOVATION | COMING UP WITH

SHARED SOLUTIONS

MARKET DRIVEN VS. REGULATOR DRIVEN APPROACHES

“Taking ¡a ¡new ¡step, ¡uttering ¡a ¡new ¡word, ¡is ¡what ¡people ¡fear ¡most.” ― Fyodor Dostoyevsky

“NEXT TIME, LISTEN TO YOUR

ACTUARIES!”

ECONOMIC INCENTIVES VIS-À-VIS INSURANCE

ESPECIALLY UNDER CONTINGENT COVERAGE (BUT IN ALL TIME PERIODS FOR MINOR DAMAGES)

What incentives are created by existing rideshare insurance structure?

INSURANCE GAPS

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

INSURANCE GAPS

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
• f major accident

NEED FOR INNOVATION IN INSURANCE MARKETS

Bi Big g Dat ata a Pr Prob

• blem

lem

TNCs are working with selected insurers to design policies for Rideshare drivers

Why the Delays?

CHANGING INSURANCE MARKETPLACE

INSURERS ARE BEGINNING TO PROVIDE COVERAGE AS PILOT PROGRAMS

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.

CHANGING INSURANCE MARKETPLACE

INSURERS ARE BEGINNING TO PROVIDE COVERAGE AS PILOT PROGRAMS

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.

RIDESHARE COMPANIES: INSURANCE & REGULATORY ISSUES

FOR STATES

Griffith Foundation & Council of State Governments Webcast | 23 June 2015

QUESTIONS?

Questions?

Please submit them in the question box

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REFERENCES

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.

REFERENCES

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.

DUELING COST ESTIMATES

Uber

Frank Chang, Lead Actuary

• Study by Milliman to measure the

impact of ridesharing drivers on Period 1 in Colorado;

• Net result on the personal auto

insurance would increase all policies was $0.70 / policy.

• However, each passenger in a

ridesharing vehicle is one less driver on the road. This reduces the miles covered by personal insurance.

• Giving bar-hoppers a safe way

home, ridesharing actually makes roads safer.

Property Casualty Insurers

Laura Maxwell, Pinnacle Actuarial Resources

• Drivers tend to look for rides when

demand is high. Later at night and in bad weather.

• Rideshare drivers also tend to be more

distracted, Maxwell said, while checking their apps and finding their fares

• Par-time Rideshare drivers (1,000

miles/year) Expected cost $100 to $200

• Full-time drivers in Colorado would pay

$1,000 to about $1,500

• Full-time drivers in San Francisco would

pay an additional $3,000.

Source: Actuaries Debate Insurance Issues in Ridesharing http://www.casact.org/press/index.cfm?fa=viewArticle&articleID=2740#sthash.DxyWHzIi.dpuf