Governments are having a difficult time keeping up with changes in the culture and in the economy these days. One of the top issues for governments everywhere is how to deal with services that are partly clearly commercial in nature, but where personal elements also affect the transaction substantially. One popular service accruing particular attention are “transportation network companies” like Uber, Lyft and Sidecar, which feature drivers who use their own vehicles to provide a ride.

Battalions of lobbyists are joyfully running up the charges in state capitols, thanks to the standoffs between TNCs, traditional taxi companies and auto insurers.   Since most of the nation’s personal injury lawsuits are related to auto crashes, striking a public policy balance between all forms of transportation and offering protection for those who use them is a high priority in many state legislatures this season.

Leaving aside the financial imperatives for each element of the transportation industry, we like to focus on the impact to the passengers. We at R Street have produced an interactive map on transportation friendliness for major cities across the country, available here, and published a paper on insurance principles for the ridesharing industry last fall.

The concern for passengers arises from several fights over coverage, and many more perceived fights going forward over coverage. Personal insurance carriers have maintained that carting passengers around for pay is a commercial activity which warrants commercial insurance. The area of confusion has been that drivers in their own cars are not always providing a commercial service, and it might frustrate their opportunity to have part-time employment if they had to bear a full-time cost burden equal to people who drive a cab, say, for a regular shift every day.

Much of the discussion has focused on the period of time that begins when a TNC driver has prepared to seek out passengers by turning on a smartphone application that broadcasts his willingness to pick up passengers for hire. It ends when a prospective passenger has summoned this driver for a ride. A proposed Missouri law, for instance, mandates that if there is more than one policy providing coverage during this period there, the driver’s own insurance cannot be primary. The TNC insurance would be primary and the driver’s personal insurance could only come in on an excess basis.

We’d like to see markets provide choices here, because it is already obvious that auto insurance carriers are anxious to compete by offering products that address whatever their appetite for risk is, provided they are allowed to charge an appropriate price. To establish by government fiat that one kind of insurance will always predominate in a situation stifles both innovation and competition, and can lead to other distortions as well.

It seems clear that government has a good claim, in well-established public policy, to see that insurance coverage exists to protect those who are injured. But it is not a particularly good idea to establish that only one party can provide the underlying coverage to pay first.

The rule for us is that governments should insist on essentials, but not legislate preferences. This creates a lot of trouble and unintended consequences.

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