Tag Archives: tnc

Insuring a ‘Slice’ of the On-Demand Economy

In our emerging on-demand economy, Blue Ocean strategy will abound for P&C and life and annuity (L&A) In this post, I will focus on the Blue Ocean strategies that are needed in the P&C insurance industry.

The essence of Blue Ocean strategy, as discussed in W. Chan Kim’s and Renee Mauborgne’s 2005 book Blue Ocean Strategy, is “that companies succeed not by battling competitors but rather by creating ‘blue oceans’ of uncontested market space.” Society’s expanding on-demand economy is generating newly uncontested P&C insurance markets.

These new insurance markets are being formed from the blurring of consumer and corporate exposures that have historically been considered separate exposures by insurance companies, intermediaries, regulators and customers.

My objective in this post is to discuss the emergence of a new insurance player, a licensed insurance intermediary, that offers insurance that the Transportation Network Company (TNC) drivers—specifically Uber and Lyft drivers—should purchase to protect themselves, their ride-share vehicles and their passengers.

TNC drivers have insurance requirements for all three time periods

From the moment they “tap the app on” to the moment they “tap the app off,” Uber and Lyft drivers generate a fusion of personal and commercial automobile insurable exposures. The fused automobile insurable exposures are in play throughout three three time periods during which drivers need to protect themselves; their personal vehicles being used as ride-share vehicles to pick up, transport and drop-off their passengers; and, of course, their passengers.

The three time periods are:

  1. Time Period 1: This period begins when an app is turned on or someone logs in to the app but when there is no ride request from a prospective passenger. The driver can be logged into Uber, Lyft or both, but the driver is waiting for a request for a ride.
  2. Time Period 2: This period begins when the driver is online and has accepted a request for a ride but has yet to pick up a passenger.
  3. Time Period 3: This period begins when the driver is online and a passenger is in the car but has yet to be dropped off at the destination.

No, your personal automobile insurer probably does not cover the ride-share

It would be foolhardy (at best) and extremely costly (to the ride-share drivers) to assume the insurance policy that covers the driver’s personal automobile would also cover the exposures the driver generates as a TNC driver throughout the three time periods.

However, there is an expanding list of personal automobile insurers that:

  • cover time period 1 for ride-share drivers—TNC companies do not provide coverage during this period; and
  • will not cancel a driver’s personal automobile insurance policy if the driver tells the insurance company she is using the vehicle as a ride-share vehicle while driving for Uber or Lyft.

But the fact remains that there is a paucity of insurers that cover the personal and commercial automobile risks for people using a vehicle as a ride-share vehicle during all three time periods.

Further, drivers could very well find themselves with insufficient coverage even if the TNC provides coverage during time periods 1 and 2.

The paucity represents Blue Ocean uncontested market opportunities

The opportunities are the drivers’ need for insurance coverage to:

  • the fullest amount possible given the requirements of each state and each driver’s situation (i.e. the cost to repair the vehicle will differ by vehicle and state where the driver operates)
  • fill the insurance gaps between 1) the driver’s personal automobile coverage; 2) what Uber or Lyft provide during time periods 2 and 3; and 3) what each state requires.

Simply put, depending on the type of vehicle the driver is using as the ride-share vehicle and the state where the driver is operating, it is entirely possible that whatever insurance the TNC provides—even if it meets the minimum requirements of the state—is inadequate to financially help the driver (Note: this is not meant to be an exhaustive list of financial requirements):

  • remediate/restore the ride-share vehicle to its pre-damaged condition;
  • pay for physical rehabilitation for the driver, passengers or pedestrians who are injured in an accident caused by a ride-share driver or a third-party;
  • pay for property remediation caused by the ride-share driver
  • pay the lawsuit of ride-share vehicle passengers who claim the driver attacked them;
  • pay for the lawsuit of ride-share drivers who claim a passenger attacked them; and
  • make payments in lawsuits brought by passengers or pedestrians injured or killed, or owners of property destroyed or damaged by the ride-share driver.

Slice emerges to provide hybrid personal and commercial P&C insurance

Slice Labs, a new player in the insurance marketplace based in New York City, is emerging to target this specific uncontested market space by providing Uber and Lyft drivers with access to hybrid personal and commercial automobile insurance for all three time periods. In a March 29, 2016, press release, the company announced it secured $3.9 million in seed funding led by Horizons Ventures and XL Innovate.

I truly appreciate and personally respect Slice for taking the time to enter this Blue Ocean market space in the “right way” by first becoming licensed in the states where the company wants to operate. Currently, Slice is licensed to conduct business for Uber and Lyft drivers in seven states: California, Connecticut, Iowa, Illinois, Pennsylvania, Texas and Washington.

Getting licensed

Moreover, Slice’s business model is to operate as a licensed insurance intermediary with underwriting and binding authority. The intermediary has become licensed as insurance agents for personal and commercial P&C, excess and surplus (E&S), and accident and health (A&H) insurance. Slice also has managing general agency licenses in the states where that license is required to sell the hybrid insurance coverage. Slice is taking this path of licensure because it is using a direct model and doesn’t plan to distribute through agents (intending instead to distribute through the TNC platforms and directly to the drivers).

Further, because this is a hybrid personal and commercial automobile insurance opportunity, Slice is designing and filing the requisite policy forms in each state where it wants to operate.

Slice is underwriting the risk, but it is not financially carrying the risk. For that, Slice will be working with primary insurers and reinsurers. Slice has not yet reached the point where it can identify which (re)insurers are providing the capability. Obviously, without having the insurance financial capacity, Slice can’t operate in the marketplace (unless Slice plans to use its seed financing and future investment rounds for that purpose—assuming that is allowed by each state where Slice wants to operate).

It is also important to know which (re)insurers are providing the capacity. I hope Slice releases that information very soon.

Conducting business with Slice

A driver purchases the hybrid policy by registering on the Slice app (registering is the process of the driver receiving and accepting the offer to apply for insurance), which triggers Slice’s underwriting process. At the completion of the underwriting process, Slice generates and sends the driver a price for the policy that will cover the driver’s fused personal and commercial automobile insurance requirements for each cycle of turning on and off the Uber or Lyft app.

Once the driver purchases the policy, Slice sends the driver the declaration page and policy in a form required by each state. Slice will send the DEC page and policy digitally if that is allowed by the state. Moreover, the Slice app will show the proof of insurance, the time periods the insurance policy is in effect and the amount of premium being charged during the time period from “app on to app off.”

If there is a claim, the driver will file the first notice of loss through the Slice app. Although Slice plans to work with third-party adjusters to manage the claim process, the driver will only interact with Slice until the claim reaches a final resolution.

What do you think?

Will this uncontested market space remain uncontested for very long? I sincerely doubt it. The addressable market is huge: every Uber and Lyft ride-share driver who does not have the requisite insurance or doesn’t have sufficient insurance (the two are not necessarily the same animal).

What do you think of Slice, of this market opportunity and of other on-demand economy opportunities that reflect a fusion of personal and commercial insurance exposures?

New Questions on Uber and Lyft

One of the more interesting and challenging issues to surface is the status of drivers at transportation network companies (TNCs) such as Uber and Lyft. Are some or all of them employees? A federal court in California just ruled that this issue may be resolved in a class action (although this is subject to appeal).

That, alone, is a difficult call. Here are two web sites discussing the issue.



Commentary addressing this issue has focused primarily on the added expense created by employee status. “For an employer, the main difference between contractors and W-2 employees is that employers have to ‘withhold income taxes, withhold and pay Social Security and Medicare taxes and pay unemployment tax on wages paid to an employee,'” according to the Internal Revenue Service.

Apart from these added expenses, status as an employee creates some difficult insurance challenges. Here a few:

–If you write a workers’ compensation policy for the TNC’s employees, how many employees are you insuring? Only those who work in the office, or the hundreds or thousands of drivers on the road?

–Most statutes or regulations covering TNCs such as Uber and Lyft require them to carry insurance on their drivers in various amounts — e.g., $1 million from from the time of agreeing on a ride to after the dropoff. Usually, there is a lower amount required for the time the driver is cruising with the app on looking to connect with a fare ($50,000 primary and $200,000 “excess” in California).

If the driver is an employee, these limits become largely irrelevant because the TNC, as the employer, is liable without limit for any injuries caused by an employee driving within the scope of employment. Put another way, the injuries are backed by all of the TNC’s assets, including any insurance it may carry.

–But the issue is more complex than that. What if the driver has a collision on the way to the city, but before turning on the app? Usually, when one is going to or coming from work, the commute is not considered to be in the scope of employment – i.e., no liability on the part of the employer. This “going and coming” rule changes, however, when the employee must use her car in the work. Obviously, TNC drivers must use their cars.

Take the case of Judy Bamberger. She used her car during work to visit clients and carry out other work-related chores. On her way home, she decided to stop for yoga and yogurt. As she made a left turn, she collided with a motorcyclist. Is the employer responsible? “Yes,” said the California Court of Appeal. In Moradi v. Marsh USA, Inc., 210 Cal. App.4th 886 (2013), the court held that her driving fell within the scope of her employment because, since she used her car in her work, going to and from work conferred an “incidental benefit” on the employer.

Thus, the TNCs’ liability may extend well beyond the “app on-app off” brackets.

–If this is not complex enough, consider this. Many drivers keep several apps on as they cruise. If a driver keeps three apps on and has a collision, is the driver an employee of all three TNCs? Does that change once the driver accepts a fare? What about the going and coming rule? If the app is not yet turned on, is the driver an employee of each company for whom the driver has an arrangement to drive?

One may imagine other “shared economy” scenarios where status as an employee will affect not only expenses line benefits, but also liability and related insurance issues.

California Law on Uber et Al.: Model for All States?

On Sept. 17, California Gov. Jerry Brown signed into law AB 2293 (Bonilla) regulating insurance coverage for  transportation network companies (“TNCs,” such as Uber, Lyft and Sidecar). Two purposes of the bill were: (1) to fill a possible gap in coverage caused by an exclusion in personal automobile policies and (2) to allocate responsibility between TNCs and personal automobile insurers for insurance coverage issues. The statute attempts to achieve its purposes by creating a “firewall.” When a driver is logged on to the TNC network, the insuring responsibility is on the TNC policy.  When a driver is logged off, responsibility is on the personal automobile insurer. Think of “Log On” and “Log Off” as bookends.

One might expect this statute to become a model for other states struggling with similar issues. Unfortunately, some infelicitous language in the statute may undermine the desired clarity. The mischievous phrase is “in connection with.”

Once a driver logs on, but before being matched with a fare (referred to as Period One), the statute requires a TNC policy of 50/100/30 (in other words, $50,000 of coverage for bodily injury per person, $100,000 for bodily injury per accident and $30,000 for property damage). The statute also requires an additional policy of $200,000 to cover any liability arising from a participating driver “using a vehicle in connection with a transportation network company’s online-enabled application or platform within the time periods specified in this subdivision . . . .”  [Emphasis added in all cases].

Assume a driver, while logged on, decides to drive over the river and through the woods to his grandmother’s house. A TNC could legitimately argue that this driving is no longer “in connection with a transportation network company’s online-enabled application or platform.” By taking a detour, the driver has abandoned the TNC work.

If so, does the personal automobile insurance cover an injury caused on the way to grandma’s? Apparently not. Section 5434(b) of the new statute says the TNC policy covers the period from Log On until Log Off, or until the passenger exits the vehicle, whichever is later. For ease, think of this as the bookends again. Subdivision (b)(1) then provides that the personal auto policy “shall not provide any coverage” unless the policy expressly provides for that coverage “during the period of time to which this subdivision is applicable.” So, personal auto cannot provide “any coverage” within the bookends. These provisions may have created a gap within the bookends large enough to drive an SUV through.

What about driving outside the bookends? Is that clearly covered only by the driver’s personal auto policy?

The statute requires the TNC to advise the driver “that the driver’s personal automobile insurance policy will not provide coverage because the driver uses a vehicle in connection with a transportation network company’s online-enabled application or platform.” Thus, the statute permits (and perhaps mandates) personal automobile policies to exclude coverage for driving “in connection with . . . .”

When is driving “in connection with?” The “Case of the Yoga and Yoghurt” provides a good analogy. The basic rule is that collisions that occur while “coming and going” to and from work are not the responsibility of one’s employer. Simple commuting is not within the “scope of employment.” When, however, a person uses her automobile for work purposes, the rule completely changes. Judy Bamberger, an employee of an insurance company, used her car during work to visit clients and carry out other work-related chores. On her way home, she decided to stop for yoga and yoghurt. As she made a left turn, she collided with a motorcyclist. Is the employer responsible? “Yes.”

In Moradi v. Marsh USA, Inc., 210 Cal. App.4th 886 (2013), the court of appeal held that her driving fell within the scope of her employment because, since she used her car in her work, going to and from work conferred an “incidental benefit” on the employer. Put another way (although the court did not use these words), it was in connection with her employment.

It would seem to follow that if one must use a car in an activity (such as TNC driving), then going to or from that activity is “in connection with” the activity. Because Period One (Log On) is part of a TNC’s “online-enabled application or platform,” driving to a surge zone with the intention of logging onto the app upon arrival is driving “in connection with” driving during Period One. If this analysis is correct, it again undermines the clarity of the App On/App Off bookends.

It seems clear what the drafters had in mind, so this ambiguity could be remedied by clearly defining the meaning of “in connection with” – perhaps next legislative session. In the meantime, those considering using California’s law as a model may want to avoid importing this ambiguity.

Insuring Uber et Al.: A Rollercoaster Ride

The Santa Cruz Board Walk includes an old-fashioned rollercoaster ride named the Big Dipper. Establishing appropriate insurance requirements for transportation network companies (TNCs) such as Uber, Lyft, SideCar and Ride Share has been like a ride on the Big Dipper.

The California Public Utilities Commission (CPUC) has jurisdiction over TNCs as “charter party carriers” — carriers for hire that, unlike taxis, must prearrange their rides. The Big Dipper ride began when the Consumer Protection and Safety Division of the CPUC sent cease-and-desist letters to some TNCs in 2010 and again in 2012.

After studying insurance issues related to TNCs, in September 2013 the CPUC required TNCs to carry insurance providing as much as $1 million of coverage per incident while “providing TNC services.” This phrase proved to be troublesome. There are three “periods” for TNC driving. Period One is when the driver turns on the TNC app (“log-on”) but does not yet have a match with a passenger. Period Two is when there is a match. Period Three is when a passenger is in the car. Although there is evidence in the record that the CPUC intended “providing TNC services” to cover all three periods, including Period One, it was not clearly stated in the rule. In addition, TNCs were uncomfortable extending $1 million in coverage to drivers merely because they were driving around while logged on.

Then came New Year’s Eve, 2013. An Uber driver killed a small child and injured the child’s mother and brother while driving during Period One. Because there was neither a passenger nor a match with a fare, it was possible that the driver was not “providing TNC services” and, therefore, was not covered by Uber’s insurance policy. It was likewise possible that the driver’s personal insurance would not apply. Because the driver was logged on, the accident fell within the policy’s exclusion for commercial or livery use (although in this case the personal auto insurer provided coverage up to the policy’s limits). If neither Uber’s policy nor the personal policy covered the accident, the driver would have been uninsured — an unacceptable outcome for the driver, the injured parties and public safety.

At least one TNC carried a “contingent” policy of $50,000 for an individual injury during Period One. The policy was triggered, however, only if the driver’s personal carrier declined coverage. This could lead to some odd results. If the driver had only $15,000 in coverage, and the driver’s carrier accepted responsibility, the injured pedestrian could look only to $15,000 in coverage. If the driver’s insurer declined to cover the accident, the pedestrian could look to the $50,000 coverage of the TNC policy. In any event, there was no legal requirement that the TNC have coverage for Period One, and either $15,000 or $50,000 did not approach the $1 million the CPUC thought it had required.

Following the New Year’s Eve accident, both the CPUC and the California legislature rushed to fill this possible “gap.” The president of the CPUC proposed requiring a minimum of coverage of $100,000 for one injured person, $300,000 for more than one person and $50,000 for property damage (a 100/300/50 policy) of “excess” insurance for Period One, but the legislature arrived first.

Although several bills were introduced, AB 2293 (Bonilla) is the only bill that made it to the finish line. Initially, the bill sought only to build a “firewall” between personal insurance and TNC driving. The bill exempted personal auto insurance from covering driving while a TNC driver was logged on. Personal auto insurers argued that this driving is often more dangerous than ordinary personal driving, so, if personal auto insurers were responsible for the risk during Period One, the additional costs would be passed on to other auto owners. This might raise rates and would be a subsidy to commercial TNC enterprises.

The TNCs asked that their insurance limit during Period One be limited to 50/100/30, perhaps concerned that the CPUC wanted to require more coverage (recall that the CPUC was initially of the opinion that its $1 million requirement extended to Period One), To bolster their argument, the TNCs pointed to the limits adopted in a similar Colorado statute. The bill in California was amended to include the 50/100/30 limit for Period One.

Stakeholders pointed out that these limits were woefully inadequate to cover the injuries from the New Year’s Eve accident. The limits would also be inadequate to cover many other accidents.

The Bill was amended. Now, coverage for Period One would be $750,000 per incident (a 750/750/750 policy). This is the minimum coverage the CPUC has applied to limousines for 20 years or more. In addition, for losses exceeding $750,000 the TNC was to “assume all liability of the participating driver.” Liability, in effect, was limitless.

Now we are at the top of the ride. Hang on.

The TNCs were very unhappy with this turn of events. There was also concern whether such policies were available and, if so, affordable. TNCs are very popular with consumers, and few people wanted to appear to stifle this area of transportation innovation (with the exception, of course, of taxi drivers).

The bill was amended again. Period One coverage would now be 100/300/50, with $1 million of excess coverage. In addition, the drafters deleted the requirement that the TNC assume all of the driver’s liability.

More lobbying, more horse trading and more diplomacy resulted in yet another amendment. The new limits were lowered to 50/100/30 (remember the limits in the Colorado law?), but with an excess policy of $500,000. It was unclear, however, whether the excess policy covered the driver or only the TNC. With these lower limits, drivers might have found that their personal auto insurance would not cover them, yet their TNC coverage would be inadequate. This would put their personal assets at risk.

It occurred to the drafters that there was little point in adopting a bill unless the governor, who had not yet taken a position, would sign it. After consultation with the governor’s office, the bill was amended for the final time. Period One maintained the minimum TNC coverage of 50/100/30, but the additional, excess policy was lowered from $500,000 to $200,000. The amendment also provided that the $200,000 excess policy must specifically cover the driver in addition to the TNC.

The bill carried forward earlier requirements for Periods Two and Three. The bill requires $1 million in liability coverage for Periods Two and Three and requires $1 million in uninsured/underinsured motorist coverage for Period Three. The bill directs the Department of Insurance to collaborate on a data-based study and report back to the legislature. To allow insurers time to create policies or endorsements to cover all of these requirements, the new limits are to take effect on July 1, 2015. If one is to be injured by a TNC driver during Period One, it may be best to consider postponing the injury until then.

The final bill also did something else. During final amendments, two words were added — “at least.” Period One coverage, including the $200,000 excess coverage, must be “at least” those limits set out above. Because AB 2293 specifically permits the CPUC to continue exercising its rulemaking authority “in a manner consistent with” AB 2293, if the CPUC were to adopt higher limits (for instance, the $750,000 limit it applies to limousines), these limits would be “consistent” with limits “at least” those outlined above.

So we complete our first Big Dipper ride where we began — with the CPUC. Two words — “at least” — are the CPUC’s ticket to reboard the Big Dipper. When the time is right, perhaps there will be yet another dizzying ride. Please lower the bar snugly across your lap and keep your hands and feet inside.