March 1, 2015

Public Transportation Network Companies: Are You Fully Covered?

Recently a number of transportation companies that utilize the internet and phone apps have come into prominence.  These companies have been labeled “Transportation Network Companies.”  Perhaps the most well-known of these companies is “Uber.”  It recently had a public offering which resulted in it being valued at more than $40 billion.

Not to be outdone, a number of copy-cat companies such as Lyft, Sidecar and Wingz have formed.  All of them generate income through their smartphone-based applications that allow individuals to connect with drivers willing to provide them a ride to an agreed location in exchange for a fee.  Typically, the fee is less than a taxi or public van would cost, and provides service within a few minutes of the request from the smartphone.  This arrangement supposedly is a “win-win-win” situation.  The passenger gets a ride at a reduced rate, the driver gets income to offset car and gas costs and the app-based transportation company gets revenue.  However, there are a number of issues that have appeared with this model that may be worth considering before you decide to jump on this bandwagon.

To begin with, there are concerns about the drivers who use their personal vehicles to transport passengers for a fee.  Although Uber and the other app-based transportation companies indicate they do a thorough background check of the drivers before they are allowed into the program, there are many who believe the drivers are not checked significantly before they start working for the company.

Concerns about the drivers involve a number of issues.  First and foremost, are the drivers trained sufficiently to safely drive passengers from one location to another?  Secondly, there are questions about the vehicle that are used.  Are they in good working order, do they have all of the proper safety equipment like air bags and seat belts and is the equipment in good working condition?  Finally, what about the backgrounds of the drivers regarding their past criminal history?  Could some of the drivers potentially have convictions for assault, rape, robbery or other violent crimes?

Although the companies all indicate they conduct background checks to rule out these drivers, the background checks are not as extensive or as in-depth as the evaluation that drivers for taxi or other transportation companies conduct for their workers.  The second issue with these companies is that they are providing transportation services that compete with licensed and bonded taxi and livery service companies, that have spent years and significant sums of money to legally provide public transportation.  Allowing these app-based companies to operate without the same requirements as other transportation companies circumvents the laws and regulations that have been created to protect society and offer fair, safe competition.

The third issue involves insurance.  Most of the drivers working for the app-based transport companies use their personal vehicles to transport the passengers.  All personal lines insurance companies specifically exclude coverage in their policies for individuals who use their vehicles for transportation of persons or property for a fee.  Personal lines insurance companies consider driving others for a fee to be a commercial exposure which should be covered by a commercial automobile insurance policy.

The potential for significant liability and medical losses with a driver who is transporting passengers for a fee is not something contemplated or rated for in standard policies.  So when an Uber driver picks up a passenger, there is no coverage under a personal automobile insurance policy for any accident that the driver is involved in while transporting that passenger, for the driver, the passenger or the other driver.  Passengers may want to consider that limitation when using this type of service.

The driver should also be aware that there is no coverage for any other losses that occur while driving for a fee, such as collision losses or other physical losses to the vehicle.  Since personal automobile coverage excludes coverage for this activity, drivers will be personally responsible for any loss that may occur while driving for the service.  A severe injury or death from an accident could result in an award of thousands of dollars against them, which would not be paid by their auto insurance company.  The app-based transportation companies indicate they have secured excess insurance coverage for these situations; however the excess coverage only pays after the driver’s personal policy pays—not a real comfortable position in exchange for a few dollars of income.

App-based transportation services are increasing options in many countries across the world, but drivers and passengers need to consider all of the concerns related to this new mode of transportation before they decide to use the service.  Western Growers Insurance Services can assist members with all of their insurance needs.

If you are interested in getting more information, contact Greg Nelson, vice president of Western Growers Insurance Services.