WASHINGTON (October 7, 2014) – Emerging markets in the ride-sharing industry have created an opportunity for new insurance products that encompass both personal and commercial lines, according to an R Street Institute study released today.

“Blurred lines: insurance challenges in the ride-sharing market,” authored by R Street Editor-in-Chief and Senior Fellow R.J. Lehmann, examines the unique challenges faced by ride-sharing companies and drivers with regard to ambiguous questions of liability before and during the transport of passengers.

“Most personal auto insurance policies currently on the market exclude coverage for a vehicle being used as a livery conveyance,” said Lehmann. “The fact that insurers do not offer coverage for ride-sharing has prompted regulators to issue consumer bulletins and warnings; in some cases this gap has prompted lawmakers to pass onerous restrictions on ride-sharing in their jurisdictions.”

In the absence of personal lines insurance products to cover ride-sharing risks, drivers would theoretically be forced to turn to the commercial auto insurance market. However, rates for commercial auto insurance to cover livery services are unlikely to be affordable for most part-time drivers.

Innovative insurance products that over part-time drivers for ride-sharing services would appear to be a simple way of addressing these issues. However, insurance companies to date have not created these new products. Uncertainties in many complex environments have proven to be an effective barrier to product innovation.

“When insurers become convinced that the liabilities, regulatory barriers, rating and underwriting factors and market demand presented by ride-sharing services merit new products, new products will be brought to market,” said Lehmann. “Alternatively, the ride-sharing companies could form captive insurance companies to cover their drivers’ risks, or ride-sharing drivers could form their own mutual insurance company to offer coverage not readily available on the open market.”

In the meantime, Lehmann urged lawmakers to follow a set of guidelines as they examine insurance challenges in the ride-sharing industry.

“A transparent and thoughtful process, requiring disclosure, uniform coverage requirements, a common law standard-of-care, underwriting freedom and product flexibility is crucial in any new regulations set forth,” he said. “An overzealous regulatory response can crush a new and innovative industry in its cradle.”

The policy study can be found at: http://www.rstreet.org/policy-study/blurred-lines-insurance-challenges-in-the-ride-sharing-market/ 

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