Recent polling by the University of Chicago’s Initiative on Global Markets find that economists overwhelmingly agree that the rise of ride-sharing services like Uber and Lyft is good for consumers.
The initiative’s weighted poll of economics professionals found that 100 percent agreed, and 65 percent strongly agreed with the proposition that “letting car services such as Uber or Lyft compete with taxi firms on equal footing regarding genuine safety and insurance requirements, but without restrictions on prices or routes, raises consumer welfare.”
Alas, determining what those “genuine safety and insurance requirements” ought to be, and creating a path to ensure they are applied equitably, has proven a challenge for state and local lawmakers. In a new paper that examines some of the insurance challenges in the ride-sharing market, I outline five basic recommendations that could serve as a first step:
- Disclosure: As part of their terms of service, transportation network companies should be required to disclose, both to users and to drivers, what insurance coverage exists, what party is responsible for procuring it and any significant exclusions.
- Uniform coverage requirements: The minimum liability limits for bodily injury, physical damage and uninsured/underinsured driver coverages should be uniform across for-hire transportation services, whether they are taxicabs, limousines and livery drivers or ride-sharing services. In some cases, equalizing coverage requirements will require lowering current limits for livery drivers, which frequently are set higher than those for taxicabs.
- Common law standard-of-care: One important question to answer is whether a driver who is logged in to a ride-sharing app, but not currently transporting passengers, should be subject to the same heightened standard-of-care that is applied to common carriers like taxis and limos. Rather than attempting to answer this question with legislation, lawmakers would be well-served to see how courts come down on the issue of whether this behavior is inherently “commercial,” or whether it is more like a motorist’s use of a personal GPS device.
- Underwriting freedom: Insurers who do not judge ride-sharing to be an appropriate or profitable risk to underwrite should be free to exclude coverage for those services, or to deny or cancel coverage to applicants who are ride-sharing drivers. The alternative would be to force carriers to take on risks that are not appropriately priced, thus potentially driving up rates for all auto insurance consumers.
- Product flexibility: State lawmakers and regulators should be open to new insurance products that do not strictly meet the definitions of “personal” or “commercial” coverage. This should include allowing insurers to consider new rating factors for ride-sharing drivers. For instance, insurers may wish to introduce devices that track not only how many miles an insured is driving, but how many of those miles are logged while logged in to one or more ride-sharing services. Alternatively, insurers might look to base rates in part on the average scores ride-sharing drivers receive from customers.
Insurance coverage is just one of a host legal and regulatory issues that must be resolved as ride-sharing grows in popularity. Moreover, while early efforts by lawmakers to address such issues are, by necessity, going to respond to existing ride-sharing apps like Uber and Lyft, they should be prepared for the fact that services may evolve in the future with radically different business models.
An overzealous regulatory response, particularly one motivated by rent-seeking incumbents, can crush a new and innovative industry in its cradle. The answer is not to eschew any and all regulation, but to act modestly and cautiously, imposing new rules only where they genuinely address real consumer harms.
Given a commitment on the part of policymakers to the principles of limited, effective government, we believe ride-sharing and other emerging disruptive technologies should have every opportunity to thrive.
R.J. Lehmann is editor-in-chief and senior fellow with the R Street Institute in Washington, D.C. He is author of the new paper, “Blurred Lines: Insurance challenges in the ride-sharing market.”