A committee of regulators led by California Å˽ðÁ«´«Ã½Ó³» Commissioner Dave Jones is working on standards on ridesharing that departments of insurance in states across the U.S. can look to as an example.
Whether the National Association of Å˽ðÁ«´«Ã½Ó³» Commissioners Sharing Economy Working Group’s efforts will eventually yield recommendations, guidelines, or even a model law, remains to be seen. They may just offer what amounts to a friendly suggestion.
This isn’t merely a question of semantics.
Asked to detail the goals of the committee, California Deputy Commissioner Chris Shultz pointed out that the NAIC has a process for guidelines or model laws, but what is underway now is a working white paper.
Pressed if the committee may eventually come out with guidelines or a law, Shultz did his best to characterize the committee’s objective without committing to anything beyond the white paper.
“Commissioner Jones and the NAIC Sharing Economy Working Group are trying to provide a set of things to think about,” he said.
Shultz was cautious about his wording, he said, because he doesn’t want it to seem like the committee is planning to act authoritatively and by seeming to tell other states what to do.
But one conservative political think tank believes the caution being shown is so the Democrat and former state Assemblyman, and Harvard University law school graduate, doesn’t come off as being politically motivated.
Next Campaign
Ian Adams, Western Region Director at R Street Institute, believes Jones is using his role on the commission as a podium to campaign for his next office as he enters his final four-year term in office and begins looking down the road.
There those who believe Jones has his eye on California Attorney General Kamala Harris’ post. Harris in January formally entered the U.S. Senate contest to replace retiring Sen. Barbara Boxer. Harris is so far considered by most to be the front-runner.
“You’ve got Kamala Harris, who in two years will be leaving office early, and I think Dave Jones does have his eye on higher office and he probably likes the idea of attorney general,” Adams said. “Jones is going to be essentially campaigning for the next three-and-a-half years for whatever office comes next.”
Jones hasn’t announced his intentions, but he wouldn’t be the first California commissioner to ride the office and a reputation for consumer protection to higher success.
Congressman John Garamendi, a Democrat from Central California, served as the state’s insurance commissioner from 1991 to 1995 and again from 2003 to 2007, before becoming lieutenant governor and then getting elected to Congress.
Like Garamendi, Jones has positioned himself as a staunch consumer advocate, and in 2014 he turned his pro-consumer stance up a notch when he stood behind propositions 45 and 46 on the November 2014 ballot. Prop. 45 was a measure to require approval before health insurers can change rates, and Prop. 46 would have raised the medical malpractice cap on pain and suffering.
Both consumer advocate-backed initiatives were defeated, but they turned into high-profile battles with Jones’ name attached.
Jones this year was handed a major victory against Mercury Casualty Co. and a slew of insurance associations when the Sacramento Superior Court issued a decision rejecting a challenge on the regulations under Proposition 103 that limit the amount of advertising costs insurers may pass on to consumers through insurance premiums.
“He’s really doing a lot of things that are designed to get media attention,” Adams said.
Chairing an NAIC committee on a hot topic like ridesharing is a way for Jones to call attention to the fact that California has led the way on ridesharing regulation, and a way for him to show everyone he can help lay groundwork for dealing with issues of national importance, Adams said.
“If he does have another office in mind this is a great way of raising his profile,” Adams said. “There’s been a larger push by the California Department of Å˽ðÁ«´«Ã½Ó³» with consumer-friendly, relatively high-profile, attention-getting moves.”
California Showing Way
The 2014 NAIC committee was comprised of Jones and several insurance commissioners whose states are tackling the ridesharing conundrum – how to regulate and mandate insurance for these app-based ad hoc taxi services.
Members include: Connecticut Å˽ðÁ«´«Ã½Ó³» Commissioner Thomas B. Leonardi; Nevada Å˽ðÁ«´«Ã½Ó³» Commissioner Scott J. Kipper; Oklahoma Å˽ðÁ«´«Ã½Ó³» Commissioner John D. Doak; and Washington Å˽ðÁ«´«Ã½Ó³» Commissioner Mike Kreidler.
Most if not all are expected to return to the committee for the 2015 year, according to committee staff member Jennifer Gardner, an NAIC research analyst.
The group has put out a draft white paper that outlines suggestions from the committee. An open comment period on the paper is nearing a close on Feb. 20.
Mirroring California
So far, suggestions in the white paper closely resemble the laws and regulations in place in California for dealing with ridesharing companies. That’s not surprising because Jones is chairing the committee, however there is a solid argument that the state has led the way when it comes to dealing with this issue and that California should serve as an example for the rest of the states to consider following.
“From our perspective it’s a good model with which to build and hopefully use around the county,” said Jim Whittle, assistant general counsel and chief claims counsel for the American Å˽ðÁ«´«Ã½Ó³» Association.
Since California passed its regulations, AIA through lobbying efforts and informal conversations has pushed California as a model for other states to consider, Whittle said.
“We’ve been putting it out there in a lot of places and we’re getting a lot of interest,” he said. “I’ve seen this legislation pretty much around the country now showing up as drafts and bills.”
States like Iowa, Georgia and Maine seem to be closely following in California’s footsteps, he said, adding, “I think all of the states are looking at what California has done.”
One of the most notable breakthroughs California made was to deal quickly with the gaps between ridesharing activities – when a TNC driver has an app on, but hasn’t gotten a ride match, according to Whittle.
Regulations pushed for by Jones and proposed by California’s Public Utilities Commission, which oversees ridesharing operators in the state, define ridesharing operators – transportation network companies – and ridesharing activities and require a $1 million commercial liability policy to be in place whenever a TNC driver has a smartphone app turned on to accept rides.
Before that there was a coverage gap in question pertaining to when a TNC driver was covered under a personal policy, or a TNC’s commercial auto policy. California is also considered to be the first state to divide the ridesharing process into three periods – when a smartphone app is on and when a driver is looking for a ride, when there’s a match and a driver is on the way to pick up a ride and when a driver has a ride.
“I think that’s why we, as an industry, and other state legislatures are looking at California,” Whittle said.
Cited throughout the white paper are measures taken to address ridesharing and insurance taken by California, which was the focus early on for calls for greater regulation of the ridesharing industry following a tragic accident that kicked off the ridesharing debate when an Uber driver whet through a San Francisco crosswalk and killed 6-year-old Sophia Liu.
White Paper
Shultz said the committee has yet to decide how to follow up on the white paper, or whether to follow it up. The committee is also tasked with examining other parts of the evolving sharing economy, such as rental property sharing – like Airbnb – so members may move on to other topics after the white paper is completed and approved, he said.
There is a lot to be looked at in terms of the sharing economy, which has myriad insurance implications. PricewaterhouseCoopers estimates that the five traditional sharing economy sectors – equipment rental, bed and bath and hostels, car rental, book rental and DVD rental – generate roughly $22 billion in global revenues, making up just 5 percent of total revenue generated by the 10 sectors PwC looked at.
However, by 2025, these same five sharing economy sectors could generate more than half of overall sales in the 10 sectors for a potential revenue opportunity worth $508 billion.
The committee hopes to adopt the white paper at the NAIC Spring National Meeting, then send it to the Property and Casualty Å˽ðÁ«´«Ã½Ó³» Committee – called the C Committee.
The Executive Committee gets a crack at it, and then the Plenary Committee is the last stop. Typically once it’s adopted by the C Committee, such a document is unlikely to change and will probably remain in it’s in final form at that point, Garner said.
“I think we can expect that it will be finalized by the C Committee by hopefully spring, and then it’s pretty much out there and available for the states,” Garner said.
Among its assertions, the 23-page white paper points out that rideshare operators initially relied on drivers’ personal auto insurance policies for coverage, which conflicted with the livery exclusion in most policies. It was a practice that drew calls by insurer associations like the Property Casualty Insurers Association of America and AIA for regulators to run interference with rideshare operators by demanding they provide their drivers coverage.
The white paper states:
“From the personal auto insurer’s perspective, this activity translates into increased risk of loss due to: 1) additional miles driven; 2) heightened geographic hazard caused because TNC drivers typically find matches in urban, high traffic locations; 3) more people in the car that can be injured; and 4) the additional risk caused as drivers rush to accept matches and pick-up and deliver passengers in a timely manner.”
Recommendations in the white paper include advice on how to deal with gaps in coverage in the face of new insurance products coming on the market.
Assuming hybrid policies become readily available, regulators may be able to require TNCs and TNC drivers to share the burden of insurance for ridesharing activities, the paper suggests regulators require:
- TNC drivers to maintain coverage in period 1 (app on but no ride accepted) and TNCs to maintain coverage in periods 2 (when there’s a match and a driver is on the way to pick up a ride) and 3 (when a driver has a ride).
- TNC drivers to maintain primary coverage up to a certain limit (for example $100,000), while requiring TNCs to maintain excess coverage that pays for accidents resulting in damages above the primary limit.
- TNC drivers to maintain primary coverage in period 1 up to a certain limit (for example $100,000), while requiring TNCs to maintain excess coverage in period 1 and primary coverage in period 2 and 3, or various combinations of the above.
One of the more conservative suggestions in the white paper is to recommend that regulators consider requiring underinsured/uninsured motorists coverage in the same amount as liability coverage.
“While TNCs argue that some taxicabs are not required to provide UM/UIM, the better practice is to require TNCs to maintain this coverage,” the white paper states. “Otherwise, a passenger injured in an accident caused by an uninsured or underinsured motorist may be left without recourse.”
Spokespersons for major TNC providers Uber, Lyft and Sidecar did not immediately respond to a request for comment. All three groups are free to offer input into the white paper, but to date Gardner the NAIC staffer for the committee says she has yet to receive any input – although she did say that on such documents most people wait right up until deadline to submit comments.
One area Whittle with AIA sees as a potential sticking point for Jones and his NAIC committee is if they push for higher limits.
“The truth is when talking about these things you probably don’t want insurance limits so high for insurers will want to take that on,” he said. “If it’s a big mandatory minimum coverage, you can see some saying ‘That’s too rich for our blood.’ They need to look carefully at manage the needs to the public, the needs of the businesses so we have good lively products that are priced well and everybody can be satisfied.”
R Street’s Adams agreed there’s a real fear that committee could make overreaching suggestions in terms of insurance coverage and make future innovations from the budding ridesharing more onerous for companies to introduce.
“You don’t want to strangle the industry in the crib,” Adams said. “I think there will be a lot of pushback on the issue of coverage expansions across the board in terms of coverage amounts.”
Endorsements
Also budding are insurance products for ridesharing activities. Early this year policy endorsements began to be offered for personal auto policies to fill coverage gaps. The white paper describes these endorsements as “a valuable tool to close gaps for TNC drivers willing to purchase them.”
These hybrid insurance products, which add some level of coverage for TNC activities onto personal auto polices, are being introduced by innovative insurers willing to take on the risk and gain market share in an evolving and growing space, according to the white paper.
“Because the products are not being standardized, but are being developed by different insurers, they will likely establish coverage via different methods for different time periods,” the white paper states. “The new products present many concerns for insurance regulators, including but not limited to, the cost for the new hybrid coverage.”
Earlier this month Jones approved a filing that will enable Uber drivers purchasing coverage through Metromile, which has partnered with National General Assurance Co. to add a new coverage endorsement to their personal auto policy. The endorsement will provide insurance coverage during period 1, when the ridesharing app is open but the driver is not matched to a passenger.
Outside of California Erie Å˽ðÁ«´«Ã½Ó³» Co. began offering an endorsement that makes the TNC driver’s personal policy excess for TNC activity for any insured with a business classification on their personal auto. It covers all three time periods, but is currently available only in Illinois and Indiana.
USAA announced its plans in January to offer coverage in Colorado for TNC drivers from the moment their mobile apps are turned on until they are matched with a passenger.
The pilot program, which will begin in February, extends a member’s existing auto policy coverages and deductibles, and costs about $6-$8 more per month, or roughly $40-$50 more for a six-month insurance policy, according to the carrier.
“In developing these new hybrid insurance products, TNCs may need to share with participating insurers any statistical information they track regarding driver and passenger characteristics, delivery patterns, hours of operation and any other factors relevant for determining insurance rates,” the white paper states. “One way to accumulate information on TNC driver behavior may be the use of telematics installed in driver vehicles.”
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