Ride-Sharing and Car-Sharing May Not Be Worth the Risk

By Richard A. McGrath, CIC, LIA

Ride-sharing services, such as Uber and Lyft, have become a popular alternative to using taxis or other means of transportation when a personal motor vehicle is unavailable. Already industry leader Uber has become so successful that the company is now valued at more than $40 billion.

The success is not necessarily shared, though, with drivers or those who allow their vehicles to be used. Those who are providing rides or the use of their vehicle as an extra source of income should proceed with caution, as they may not have insurance coverage and the amount they earn may not be worth the potential risk.

According to Uber, its drivers can make a median salary of close to six figures. However:

  • The figures used by Uber are for drivers in New York City, where fares are higher and more fares are available than in other parts of the country.
  • Increasing competition is resulting in lower fares.
  • Vehicle maintenance has to be factored in.
  • The cost of insurance has to be factored in.

In New York City, which is among the world’s busiest metropolitan areas, half of a taxi driver’s time is spent not earning a fare. The percentage may be even higher in smaller cities, where the demand for rides is lower.

A driver interviewed by Slate said he makes about $30 in fares in an hour, but after commissions and sales taxes are paid to Uber, the amount is about $21. The driver’s take home pay is close to $850 a week, but he typically spends more than $350 of that amount on gas, insurance, cleaning his vehicle, repairs, maintenance and parking, leaving him with about $480 before taxes, or about $12 an hour.

Insurance-Related Risk

Reflecting the potential risk of ride-sharing and car-sharing, the Massachusetts Division of Insurance advises that, before signing up to drive or allow your vehicle to be used, “be sure you know the potential risk that you are accepting, and understand whether your existing insurance coverage will protect you in the case of an accident or injury involving your personal vehicle.”

Such language is warranted, as, the Division of Insurance notes, “An insurance policy is a contractual agreement, and all insurers in Massachusetts will deny coverage should an incident occur if you use your vehicle to provide rides to strangers for a fee or other economic inducement. Most insurers in Massachusetts will also exclude coverage when you ‘rent’ your car to another driver through a car-sharing service.”

Even if your insurance policy does not explicitly exclude coverage if you participate in a car-sharing service, your insurance may not be renewed if an accident takes place while your vehicle is used for car-sharing. In addition, coverage may be affected when drivers leave their ride-sharing app on when they are not driving.

Car-sharing companies may offer some insurance coverage, but typically it has significant limitations and exclusions, according to the Division of Insurance. Claims may be capped at a certain limit. If costs associated with an accident exceed the limit, “you could be liable for the remaining cost of the damages or the medical care required by the injured party or parties.”

In addition, the car-sharing company’s insurance may pay a claim only after the owner’s personal insurance declines coverage, which could delay payment.

Uber says it provides drivers up to $1 million in liability coverage per incident; bodily injury coverage of up to $1 million for uninsured/underinsured motorists; $50,000 of contingent comprehensive and collision coverage, no fault coverage and contingent coverage between trips.

Woefully Deficient

Given the newness of the industry, there is also a considerable amount of uncertainty about regulatory requirements. The Massachusetts Department of Transportation has issued regulations for Transportation Network Companies (TNCs) such as Uber, but the Massachusetts Association of Insurance Agents (MAIA) has called the new regulation “woefully deficient,” saying it “fails to protect both TNC drivers and riders.”

The new regulatory language requires TNCs and their drivers to maintain “appropriate liability insurance,” however, there is no clear definition of “appropriate.”

MAIA noted that the Massachusetts Personal Auto Insurance Policy “excludes coverage for anyone injured while occupying your auto while it is being used as a public or livery conveyance.” Policy language specifically excludes damage to another individual’s property, as well as any optional coverages.

According to Donna McKenna, MAIA’s Vice President of Communications, “Requiring TNCs to ‘maintain appropriate liability insurance’ and TNC drivers to ‘possess proof of personal motor vehicle insurance as required under M.G.L. ch. 90 for the Personal Transportation Network Vehicle being used,’ when it is known that there is no coverage available for the TNC exposure under the personal motor vehicle policy is, in our opinion, a breach of a state regulatory agency’s responsibility to protect the public.”

Given the risk involved, if you are considering allowing your vehicle to be used for car-sharing, or if you want to provide ride-sharing services, be sure to get the advice of your insurance agent. Once you have a clear understanding of your insurance needs, you can better determine whether it is worthwhile for you to consider ride-sharing or car-sharing as a source of income.

Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass. He can be reached at rmcgrath@mcgrathinsurance.com.

This article is written for informational purposes only and should not be construed as providing legal advice.