As Uber, Lyft and other trendily-named transportation network companies (TNCs) duke it out for the right to peddle their wares, insurance has emerged as one repeated point of contention. That represents a new opportunity for the insurance industry, according to a recent paper out of a Boston-based research firm.
“I think insurance companies should pay attention to ridesharing. It’s a rapidly growing market. It is a meaningful market,” said Gwenn Bezard, research director at Aite Group and the author of “Ridesharing: Opportunities for Insurers.”
According to Aite Group, 55 percent of the U.S. population last year had access to Uber and that figure rose to 68 percent this year. Aite found that almost 12 percent of U.S. adults had used a ridesharing service last year, a figure that jumped to 19 percent so far this year. Though much of the debate around TNCs focuses on their displacement of the traditional taxi industry, Aite found that 60 percent of ridesharing customers would not have chosen a taxi, had the TNC not been available; rather, they would have driven themselves or used public transit.
And finally, while Aite estimated that TNCs generated about $8 billion in gross revenue this year, that figure is projected to increase to around $36 billion by 2020.
Though TNCs typically do provide some form of commercial insurance for their drivers, that insurance doesn’t kick in until the driver is on his or her way to pick up a passenger, during what’s called Period 2. There are three distinct periods during which a personal auto policy would not cover a TNC driver. In Period 1, a driver is logged into the app, but not yet matched with a passenger; in Period 2, a driver is matched with and en route to meet a passenger; and in Period 3, the passenger is physically in the TNC driver’s car.
The dearth of industry-specific insurance policies poses problems for both passengers and drivers. A passenger injured in an accident that happens while ridesharing may not be able to recoup the same damages they would in a traditional taxi. And that first period, when the driver’s personal policy lapses and the TNC’s policy has yet to kick in, is when the driver is most vulnerable.
Sharing Is Caring
But while the market is ripe and opportunities abundant, insurance companies can’t just draft up policies and sell those products to their extant customers. Perversely, it’s a lack of regulation that holds up insurers in some states.
“I don’t think the public generally knows that insurance is regulated at the state level, so before any policy gets into the hands of a Massachusetts driver, the Division of Insurance needs to review and approve that policy,” said Michael Barry, spokesman for the Insurance Information Institute.
Right now, regulation is scattershot. California and Colorado last year crafted legislation to regulate TNCs, also providing a regulatory framework for insurance, and a few other states have followed suit. Others have filed pending legislation and some have yet to move at all.
After some friction, Uber and Lyft collaborated earlier this year with several insurance companies and trade associations to draft up its “TNC Insurance Compromise Bill.” Sent to lawmakers nationwide, that letter suggested key elements that potential TNC insurance regulation might include.
Yet another challenge is data. Insurance companies like to have lots of it, and ridesharing companies guard it carefully.
“It’s a fact that ridesharing companies have been, for the most part, unwilling to share data with insurance companies, unwilling to open up and enable insurance companies to take a look at what’s really going on,” Bezard said. “They’ve been very, very private about their data. That has been another challenge.”
Uber’s representative said in a statement that “the privacy of driver-partners and riders is important to us; thus, we take our role in handling data involving personal information very seriously.”
On top of that, the ridesharing industry is still fairly nascent. Regardless of whether the companies are willing to share their data, the businesses still don’t have very much of it yet.
Moreover, insurers will have to confront the challenges of issuing policies for a population with wildly variant behaviors. One TNC driver may log into the app for just a few hours a week, maybe to earn beer money, while another may treat the gig as a part-time job, perhaps to supplement a freelancer’s income.
That’s a good opportunity for insurers to potentially roll out usage-based insurance, like Metromile, Bezard said.
Most vitally, he said, it’s important for the insurance industry to wrap its head around the problem now; ridesharing, after all, is just one piece of the larger sharing economy. “It’s not just a small phenomenon that’s going to be at the fringe of the taxi industry,” Bezard said. “It’s going to be much, much bigger even than we already have today.”
