RIDESHARE COMPANIES: INSURANCE & REGULATORY ISSUES

Transcription

1

2 RIDESHARE COMPANIES: INSURANCE & REGULATORY ISSUES FOR STATES Griffith Foundation & Council of State Governments Webcast 23 June 2015 KIM B. STAKING CALIFORNIA STATE UNIVERSITY, SACRAMENTO

3 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 RIDESHARING INTRODUCTION AND BACKGROUND

4 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

5 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.

6 UNLOCKING VALUE IN WASTING ASSET AUTOMOBILE DEPRECIATION OVER 5 YEARS 35,000 30,000 25,000 20, % 8.6% 10.5% 11.47% 10.6% 9.4% 8.5% 2,559 5,687 9,294 12,467 15,280 17,804 15,000 10,000 5,000 29,873 27,314 24,186 20,579 17,406 14,593 12,069 - New Minute 1 Year 1 Year 2 Year 3 Year 4 Year 5 Value Accumplated Depreciation Source: (Retrieved 6/16/2015). Assumes $15,000 miles per year. Does not include the cost of fuel, maintenance, insurance, etc.

7 Drivers Unlocks value of underutilized assets to provide income Passengers Don t need to purchase an underutilized assets MONETIZING AN UNDERUTILIZED ASSET VIA A TECHNOLOGICAL PLATFORM WIN WIN Technological Platform (TNC) Connects drivers & passengers via smartphone Manages payments Reduces asymmetric information Extracts economic rents WIN!

8 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

9 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

10 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?

11 Taking a new step, uttering a new word, is what people fear most. Fyodor Dostoyevsky INSURANCE ISSUES NEED FOR INNOVATION COMING UP WITH SHARED SOLUTIONS MARKET DRIVEN VS. REGULATOR DRIVEN APPROACHES

12 NEXT TIME, LISTEN TO YOUR ACTUARIES!

13

14 ECONOMIC INCENTIVES VIS-À-VIS INSURANCE What incentives are created by existing rideshare insurance structure? ESPECIALLY UNDER CONTINGENT COVERAGE (BUT IN ALL TIME PERIODS FOR MINOR DAMAGES)

15 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

16 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 of major accident

17 NEED FOR INNOVATION IN INSURANCE MARKETS Big Data Problem TNCs are working with selected insurers to design policies for Rideshare drivers Why the Delays?

18 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.

19 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.

20 RIDESHARE COMPANIES: INSURANCE & REGULATORY ISSUES FOR STATES Griffith Foundation & Council of State Governments Webcast 23 June 2015 QUESTIONS?

21 Questions? Please submit them in the question box of the GoToWebinar taskbar.

22 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 on 4/23/2015 California Legislative Information (n.d.), AB-2293 Transportation network companies: Insurance coverage (amended in Senate August 26, 2014). Retrieved from bill_id= ab2293.xhtml on August 27, 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 (issued Sept. 23, 2013). Retrieved from on September 13, 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) Retrieved from on August 14, Casualty Actuary Society. (2014, Dec 11). Actuaries Debate Insurance Issues in Ridesharing. Press Room. Retrieved form 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 on May 20, Isaac, Mike & Natasha Singer. (2015, June 17). California Says Uber Driver Is Employee, Not a Contractor, New York Times: Technology. Retrieved from on June 18, 2015.

23 REFERENCES Independent Insurance Agents and Brokers of America, Inc. (2015.) ISO Files New PAP Car Sharing Endorsements. Virtual University. Retrieved from 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 Public-Utilities-Commission-on-Lyft-Sidecar-Uber#scribd on February 10, 2015 (2014, July 16). Kicking the Tires on Uber s $17 Billion Valuation: Is It Worth That Much? Retrieved from on July 15, Knowledge@Wharton (2014, Nov. 5). Sharing economy 2.0: Can Innovation and Regulation Work Together? Retrieved from on November 6, National Association of Insurance Commissions. (2015). Transportation Network Company Insurance Principles for Legislators and Regulators. Retrieved from 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 on November 25, Vallet, Mark. (2015, June 18). Insurers roll out ridesharing policies. Insuracne.com. Retrieved from Wood, Robert W. (2014, Jan 8). Big Liabilities For Uber, Sidecar And Lyft? Forbes. Retrieved from on May 14, 2015.

24 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

25