Tag Archives: car-sharing

What Implications From Car Sharing?

Although ride sharing and home sharing are the mainstays of the sharing economy, a new field is rapidly presenting challenges and opportunities. This is the rise of car sharing.

Car sharing refers to an online marketplace where travelers can connect with a community of local car owners and rent any car they want, wherever they want it.

Two Types of Car Sharing

1. Fleet car sharing

This is where businesses such as car2go or communauto purchase and insure a large fleet of vehicles. These may be based in one location or free-floating. There are even companies that specialize in car sharing at airports.

2. Peer-to-peer (P2P) car sharing

The second type of car sharing is where individual car owners rent their personal vehicles to private individuals.

They do this using a peer-to-peer company that acts as a broker and insurer. Currently, two of the largest players in the peer-to-peer car sharing industry are Turo and GetAround.

See also: What to Learn From Sharing Economy  

How does it work?

Once car owners have registered their cars with Turo (for instance), they can use an app on their smartphone to notify potential clients that their vehicle is available for hire at a set location and for a set period.

For example, the owners can drive to work in the morning and park their cars; while they are at work, a renter can pick up a car to run a few errands and then return it before the end of the workday.

Turo Offers Significant Benefits

Based on U.S. statistics in 2015, Turo anticipates that Canadian drivers can expect to earn approximately CAN$500 per month. Of course, individual earnings will vary depending on the value of the vehicle and how often it is available.

In the U.S., one authority claims that car sharers can earn anywhere between $600 and $1000 a month, depending on the type of car. Might not get much for this:

Screen Shot 2016-11-29 at 6.03.17 PM

But this:

Screen Shot 2016-11-29 at 6.03.52 PM

Oh, baby!

Turo also offers insurance packages for its participants. According to its website, Turo provides “protection against physical damage up to its actual cash value, for collision and most ‘comprehensive’ causes, including theft.” Turo also promises that participants will be covered by $1 million in liability insurance.

The Love-Love-Love Relationship of Car Sharing

Car Owners Love It

This marketplace allows car owners to earn extra money to help offset the cost of owning a vehicle. And because technology has made it possible to connect people with little or no advance notice, we are seeing a growing number of car owners capitalizing on the trend and using their vehicles to generate extra income.

Consumers Love It

Consumers without cars also love car sharing. Whether they live locally or are traveling for business or pleasure, car-sharing is an attractive option because it’s a great alternative to typical rental companies. In some cases, it even allows people to forgo car ownership altogether because they can simply rent a vehicle whenever they need it.

Pete Moraga, the spokesperson for the Insurance Information Network of California, says, “You’re seeing it primarily in college cities because it works very well for a college campus where students just need cars to do errands and not for the full day.”

Further, recent research found that car sharing services are now available in more than 33 countries and account for almost 5 million users. Not bad… and the growth continues.

See also: The Sharing Economy and Accountability

Environmentalists Love It

Those who care deeply about our environment love car sharing because it means fewer vehicles on the road, less money invested in non-renewable resources and a reduction in the carbon footprint on the environment.

Unique Challenges for Insurers

So what does this mean for the insurance industry? A lot.

Not surprisingly, car insurance companies haven’t quite fallen in love with this new world of car sharing as they are finding that it poses some interesting challenges.

Here are several problems that could affect basic coverage for clients:

  1. LIVERY – Will clients’ personal policies cover their cars if they rent out their vehicles? Most P2P companies understand the need for commercial auto insurance, but it’s always best to confirm that the coverage is adequate.
  2. WHO IS DRIVING? Vehicles that are involved in car sharing are exposed to a greater risk of accidents because they are being driven by drivers who are unfamiliar with the vehicles. Add bad weather and heavy traffic, and owners are putting their vehicles at serious risk. The concern for insurers is whether the client’s premiums are accurately reflecting the increased risk involved.
  3. LIABILITY – This is one of the most significant issues for personal auto insurers. Who pays if the car is involved in an accident while participating in car-sharing? Some car-sharing companies are facing this challenge by offering primary coverage in the event of an accident; some are offering comprehensive and collision coverage; and some are even offering third-party liability coverage.
  4. TRANSITION – Who is going to pay for damages if there is a dispute about when an accident happened? Did it happen when the owner was using it, or when the renter was? To help alleviate the confusion, some P2P companies are developing data recorders and phone apps to track mileage, time and who is driving the vehicle.
  5. DEPRECIATION – Who will cover the cost of depreciation if a car-sharing driver wrecks a vehicle? Will it be the P2P company’s insurance plan or the car owner’s?
  6. EXCLUSIONS – Most insurance policies contain exclusions that will deny coverage if a person has an accident while driving a lent or rented vehicle.

Some of these questions have simple answers, but many will not.

Ron Burns, vice president at Guarantee Company of North America, said this concerning this issue, “Unless we have some changes in the actual policy wordings, there are going to be a lot of insurers who stand up and say we won’t pay for that loss.”

Intact Offers Insurance to Car Sharers

In response to these concerns, Turo has partnered with Intact to offer commercial auto insurance specifically for car owners who are participating in car sharing.

How does it work?

While the vehicle is being delivered to the renter and during the rental period, the vehicle is covered by Turo’s commercial insurance. When the vehicle is not being delivered or rented, the owner is protected as usual under her Intact personal auto insurance policy.

All car owners who are planning to participate in peer-to-peer car rental through a company such as Turo MUST inform their insurance broker to ensure that their coverage is sufficient and accurate.

Does Turo Insurance Replace Personal Auto Insurance?

No. Car owners need to make sure that they have personal auto insurance, as well. In fact, to even list their car on the Turo marketplace, they need to investigate insurance plans with any of the following carriers:

Do Car Sharers Need Separate Insurance Plans?

Yes. The Turo insurance card does not satisfy state or provincial “financial responsibility” requirements and cannot be used to register a personal vehicle.

Do Insurance Providers Need to Change Their Strategy?

Yes. With more car sharing startups entering the marketplace, and the relative ease with which savvy car owners can use their assets to generate income, it is clear that the sharing economy is poised for significant growth.

See also: Sharing Economy: The Concept of Trust  

Insurance carriers need to ask themselves some honest questions as they boldly face this new customer climate:

  • How can we adequately face the new challenges in this sharing economy?
  • Should we create a unique policy just for car sharers?
  • Should we offer them a commercial policy, an excess policy or a base limit?
  • How can we stay innovative and capture the changing marketplace?

At a minimum, insurance carriers have a responsibility to engage with and educate policy-holders on many of the issues associated with car sharing.

Car sharing may not be the biggest concern in the minds of insurance carriers, but it should at least be on their radar.

Moving Closer to the ‘Smart City’

Judging by the reported 11,000 attendees at the Smart City Expo World Congress in Barcelona, representing companies and cities from around the world, there is great interest in governance, mobility, society, sustainability and technology. The trade show was very crowded even with sunny Barcelona beckoning with a perfect 71 degress Fahrenheit. The event gave me the opportunity to see many interesting technologies.

Many innovations focused on smart traffic routing and parking supported by sensors. Solutions in this category address the need to decrease traffic congestion or enable drivers to find available parking spots – problems afflicting many cities. Car-sharing initiatives by city communities were shown and explained. Autonomous vehicles were on display and got a lot of attention while raising questions about financing and insuring some of these new developments.

With the tragic events in Paris fresh in people’s minds, city officials were very interested in any offerings dealing with crisis or incident management. One example was IOmniscient’s 3D high-accuracy cameras that count people present in a specific location in real-time (very handy for crowd management). Other solutions include facial recognition capabilities to locate lost children or people of interest to law enforcement. These, and other applications, can assist local governments and citizens in preventing, managing and mitigating incidents.

“Gamification” got significant interest. Virtual reality environments supporting driving education or enabling urban planning were in high demand. There were also long lines for learning how to drive a real tram in a virtual city (not as easy as it looks). And Microsoft partner Geodan NEXT demonstrated how children were educated in smart-city development and how kids assisted in real-life design of schools and playgrounds by use of a Minecraft-based solution. In a more adult world, this same tool is being used for collaboration between professionals and citizens working together around a big touch table to address urban planning issues.

It is not often that I get to attend conferences outside of the insurance or technology space. It was refreshing to see the enthusiasm of professionals for innovation in a different industry. And many of the technologies that we frequently discuss, such as driverless cars, resource sharing, gamification, drones or Internet of Things, are equally relevant for smart cities.

I was also pleased with the balanced approach the people I spoke with took regarding opportunities for innovation and risk mitigation. Assisted by big data and technical developments, historically more disconnected industries such as technology, insurance, government, health or energy will quickly become more connected to each other, and the people of the world will collaborate in smart communities to capitalize on innovations.

The show in Barcelona was an uplifting experience, even with the sun beckoning.

A New Ride-Sharing Service Raises Even More Questions

The U.S. has seen an explosion in what is often referred to as the emerging “sharing economy” or “collaborative consumption.” In an increasingly connected society where most people have access to mobile communication devices, peer-to-peer services are springing up, based on mobile apps that consumers can use to access transportation services that historically have either not existed or were controlled by often highly regulated business or government entities.

One might argue that this is not a new concept, given that hitchhiking has been around since not long after the wheel was invented and was quite common in the 1950s and 1960s until it fell out of vogue as its inherent dangers gained more attention from the media and increasing numbers of consumers owned or had access to automobiles or mass transit.

But what we’re witnessing today is a relatively new phenomenon. Uber, Zimride, Lyft, ZipCar, Turo, GetAround, TaskRabbit, JollyWheels, RentMyCar, Zilok, CityCarShare, bla, bla, bla, bla, bla….

Which brings us to BlaBlaCar, the latest incarnation of car sharing. Founded in France in 2006, BlaBlaCar now claims to operate in about a dozen European countries and is exploring expanding into other countries, such as India and Brazil. BlaBlaCar bills itself as a “ride sharing” mechanism, as opposed to “car sharing.” That falls somewhere between fee-based hitchhiking and a somewhat irregular share-the-expense car pooling arrangement. Details on how the system operates can be found at the company’s web site.

BlaBlaCar currently does not operate in the U.S. There is some question as to whether it can be as successful in the U.S. as it claims to be in Europe. Owning and operating a vehicle in Europe is far more costly than it is in the U.S. There is also a perception that Europeans may be more trusting of, or accustomed to, riding with strangers than Americans are. In addition, there are social issues to consider in the U.S. For example, a BlaBlaCar driver can refuse to transport particular passengers. If such a driver is white and a declined passenger applicant is black, would there be civil rights issues that could be addressed by claims or suits for discrimination?

The question addressed by this article is, if BlaBlaCar were to begin operations in the U.S., would the personal auto insurance policies of its drivers cover this type of activity? According to the terms and conditions on BlaBlaCar’s web site and media articles about their service, most auto insurance in Europe covers this exposure because there is no “profit” involved. The passenger fee is referred to as a way to share the cost of a trip. The terms and conditions include a stringent hold-harmless provision and a liability cap to protect BlaBlaCar.

However, the company’s position on how personal auto insurance responds in Europe would be immaterial if it were to commence operations in the U.S. Many, if not most, personal auto policies in the U.S. may exclude BlaBlaCar activities regardless of whether a “profit” is sought or made. The decision could depend on the facts of each situation and the exclusion wording in the policy. The first question is whether there can be assurance that a driver is not making a profit. Second, the policy language may not consider profit to be an issue. For example, these are the two most common exclusions found in U.S. personal auto policies:

  • We do not provide liability coverage for any “insured”…for that “insured’s” liability arising out of the ownership or operation of a vehicle while it is being used as a public or livery conveyance. This Exclusion (A.5.) does not apply to a share-the-expense car pool.
  • We do not provide liability coverage for any person…for that person’s liability arising out of the ownership or operation of a vehicle while it is being used to carry persons or property for a fee. This exclusion (A.5.) does not apply to a share-the-expense car pool.

This language is taken from two different edition dates of the “ISO-standard” personal auto policy. In the case of use as a “public or livery conveyance,” ISO’s filing memorandum stated that the intent of this exclusion is to preclude coverage for vehicles available for “hire” to the general public for the transportation of people or cargo (e.g., taxis, sightseeing vans and package delivery services). The exclusion is not contingent on the profitability of the person or enterprise holding their vehicle out to the general public for hire.

In the case of a vehicle used to “carry persons or property for a fee,” there is no mention whatsoever of whether this fee generates a profit for the owner/driver. In one case, this exclusion was held to apply to someone who used his pickup truck to transport a friend’s son’s belongings to college in exchange for gas money.

However, both exclusions admittedly exempt a “share-the-expense car pool.” So what is meant by a “car pool”? One dictionary definition describes it as: “an arrangement between people to make a regular journey in a single vehicle, typically with each person taking turns to drive the others.”

Note the reference to “regular” and alternating as drivers. On the other hand, Wikipedia’s discussion of the term “carpool” implies a potentially broader concept that could include how BlaBlaCar operates. This muddies the water to the point that no blanket statement can be made about how U.S. personal auto policies might respond to claims arising from BlaBlaCar and similar ride-sharing services. If this were to become a significant exposure, one might expect U.S. insurers to define “car pool” in a way that precludes coverage for these services.

In the past year or two, we have seen various forms of “car sharing” exclusionary endorsements introduced by ISO and individual insurers, though many of them still do not fully address the “share-the-expense car pool” situation. The only conclusion we can reach at this point is that how a vehicle is being used and how that use fits with an insurance policy’s insuring agreements and exclusions are becoming much more important and more difficult to determine.

The insurance industry is not known for its innovation nor its ability to respond quickly to emerging social changes. The usual reaction is to exclude an unanticipated exposure until the industry can reasonably measure and predict the risk of loss. The growth of car- and ride-sharing (not to mention home-sharing) is something that will need to be closely monitored by the industry.

Next Steps for Insurance Companies in the 'Sharing Economy' (Part 3 of 3)

As of January 2013, there were 46 active car-sharing programs and over 1 million members in North America alone. Worldwide, car-sharing companies operate in more than 27 countries on five continents with more than 1.7 million members. Given the momentum behind the sharing economy, it may be time for insurers to take a closer look at this emerging market.

Insurers may have an opportunity to lead innovation in the sharing economy, particularly in the car-sharing market. In much the same way as they have provided sound leadership about innovations in the past, the decisions about whether and how to get involved in the sharing economy should start by looking at some basic questions.

What is the market opportunity?

What is the market size now, and what are the projections? The idea of car-sharing is gaining traction, and thus considerable study is being given to its potential. Insurers should ask themselves not only about market growth projections, but also about what portion of those revenues could belong to insurance.

What are the market needs?

Car-sharing companies and renters are reaching out to insurers to provide insight into their unique business models and risk needs. Take advantage of this opportunity to talk in depth with this potential new customer base, and explore different models and products that might meet their needs.

What types of data are needed for accurate risk assessment, and where can that data be obtained?

Car-sharing companies are already capturing information on their owners and drivers. Further, peer reviews are providing additional data not traditionally available to insurance companies. Work with these start-ups to determine what types of data are available, what needs to be captured and how that data can be collected and used.

How can this data be used to assess whether the car-sharing market aligns with your risk appetite?

Most insurance companies have a clearly defined and communicated risk appetite. By its very nature, the car-sharing market will not automatically fit into any pre-established category. By conducting a careful assessment of market potential and available data, insurance companies can determine if they want to explore this opportunity further.

Insurance companies have always been leaders in developing products and services that meet market needs. Today, with more advanced data-capturing mechanisms and predictive analytics, insurers understand each of their customers at a much more granular level. It’s time for insurance companies to apply this same expertise to the sharing economy. It’s time for them to determine if the opportunity is worth the risk.

Is That Opportunity Calling in the 'Sharing Economy'? (Part 2)

Last week, we looked at the potential of the sharing economy and some of its top performers.This week, we’ll explore how insurance fits into that picture.

Start-ups in the car-sharing economy are attracting major investors who believe in their business model. There is, however, one area in which start-ups have not been able to gain traction—insurance. Many tell of cold calling insurance companies; some have reached out to insurance executives via LinkedIn. A few have been successful. For example, Getaround, a car-sharing service, was able to work closely with insurers to secure coverage by delivering a solid risk model. Further, the company is collecting information on its consumers to help start providing the data that insurance companies need to underwrite car-sharing activities. However, success is not the norm.

One major insurer, for example, specifically rewrote its personal auto policies to exclude car-sharing. A company spokesperson for another large insurer stated that, “The owner could put their current coverage for personal use of the vehicle in jeopardy as the act of making the vehicle available for rental purposes could inherently change the risk profile of the vehicle. And, by entering into commercial arrangements with their vehicle, the insured may risk being unable to secure auto coverage from our company in the future.”

Legislators have also gotten into the game. A few states have started to make inroads into the insurance challenge. For example, California and Oregon both state that a personal auto policy cannot be considered commercial, even if the owner participates in car sharing. However, the law also declares that the auto-sharing company, not the owner’s insurer, is responsible for any damage caused during car-sharing activities. In other states, legislation has not been as supportive. For example, New York state issued a cease-and-desist order against RelayRides when its insurance coverage was declared “illegal and inadequate.”

A few innovative companies are experimenting with different insurance models. MetroMile, for example, lets drivers pay for insurance by the mile. Drivers simply plug a device, called the Metranome, into the car’s onboard diagnostic switch to count miles driven. A UK-based company, jFloat, allows consumers to buy into a “collaborative consumption self-insured pool” through the Web. A reinsurer backs the pool when claims reach over the maximum amount. While these particular models do not directly apply to the car-sharing business today, they are heading in the right direction. It’s companies like these that are thinking about how to combine insurance with emerging technologies that may provide a disruptive insurance model for the sharing economy.

In the meantime, car-sharing enthusiasts are not idly sitting by waiting for insurance companies to respond. Instead, they have been reaching out to insurers and legislators to help them better understand the business and risk models. The goal is to provide insight into the needs of the car-sharing market and work with insurers and legislators to develop solutions. While it is to be expected that companies like RelayRides and Getaround would be proactive, a new consumers group has also emerged. Called Peers, it represents the renters’ side of the equation, advocating for their needs and their protection. Even universities are getting into the mix to help create solutions. For example, the University of California at Berkeley’s Transportation Sustainability Research Center regularly publishes a report on the auto-sharing industry. Its conference on the topic will host a session on “Insuring Shared-Use Mobility Services.”

Investors, consumers, governments and legislative bodies are all weighing in on the car-sharing market. The only industry that has remained relatively silent is insurance.

Next week, we’ll look at how insurance companies can evaluate the sharing economy opportunity in light of their individual business models and risk appetites.