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New Laws Push Uber And Lyft To Bump Up Insurance Coverage, But A Collision Gap Remains

This article is more than 8 years old.

You're a driver working for Uber or Lyft. You have the app (or both apps) on, but haven't been matched with a passenger. You're cruising around and you hit another car. Both cars are damaged. Are you covered?

The answer is both yes and no, though many drivers mistakenly think they are fully covered. A driver's liability -- damage to others -- is taken care of, but damage to their own car is not.

In response to new laws going into effect in 19 states Wednesday, Uber and Lyft both recently bumped up their liability insurance coverage to primary -- meaning it steps in first, before other policies -- for that on-duty-but-unmatched period, a no-man's-land they had resisted covering for years.

That's good news, but it still leaves many drivers partially uncovered. That new insurance is only for liability and doesn't cover collision or other damages to the driver's car. (Drivers themselves are also not protected if they are hurt in an accident that is their fault, though the companies' policies cover bodily injury to passengers and others.) And under a new California law, a driver's personal policy is expressly prohibited from paying for any claims that happen when a driver is logged into a ride-hailing app, so their personal policy won't cover collision either.

The only way to have collision coverage during that pre-ride period -- dubbed Period 1 by lawmakers -- is to buy a new, special insurance policy that explicitly allows for work on Uber, Lyft or a similar platform and agrees to cover accidents during personal driving and Period 1.

Insurance companies across the U.S. are starting to offer these policies here and there, but most states only have one or a few options. They claim they aren't much pricier than personal policies, but since every policy is different, some drivers say they've been given expensive quotes and are not buying a policy. And others might not realize they need one in order to get collision coverage and assume they're fully covered by Uber and Lyft now that the companies provide primary Period 1 liability insurance.

"We aren't really seeing widespread adoption (of new insurance products) because most drivers think they are completely covered by Uber during Period 1," said Harry Campbell, a driver who blogs about the industry for FORBES and on his personal site. "But in reality, there is no collision coverage."

The Long Struggle Over Whose Insurance Should Pay

When Uber and Lyft first started, their insurance strategy was to offload as much of the cost of accidents as possible onto drivers' personal insurance providers. They told drivers: if you're in an accident while working, go to your personal provider first. They should pay -- but we'll cover you if (and only if) they don't.

Personal insurers did pay, at first -- mostly because they didn't know what was going on. But eventually they realized they were paying for high-risk commercial activity and they wised up. They started asking drivers who filed claims if they were driving for any company at the time. Drivers who said yes suddenly found their policies cancelled. Other drivers, spooked after hearing others' experiences, sometimes lied on claims, which is insurance fraud. Many others crossed their fingers and just hoped they wouldn't have an accident that might reveal their work to their insurance provider, because commercial policies were prohibitively expensive.

[See also: Rideshare Drivers Still Cornered Into Insurance Secrecy]

That's how it went for several years. Then California bill AB 2293 was drafted to stop personal insurance providers from having to cover any accidents that happen when drivers have their Uber, Lyft or other app on. Last year, Uber and Lyft both started providing primary insurance and contingent collision insurance during Periods 2 and 3 -- when a driver is matched with a passenger or has a passenger in the car.

But Period 1 remained something no one wanted to cover. That's in part because it's a time when drivers are often providing value for two or more companies at once -- waiting for a ride and therefore providing low estimated driver arrival times for customers deciding whether to book a ride.

AB 2293 requires that starting Wednesday, drivers have to be covered for liability during that period -- either by the company's policy, or by a a new kind of personal insurance policy that explicitly allows for ride-hailing work. Because not all drivers have bought (or will ever buy) a new insurance policy, Uber and Lyft started providing primary liability coverage during Period 1 last month. Sidecar was not able to say whether it has primary insurance during that period by publication time.

Even now, it's unclear what will happen if a driver who has several apps on is in an accident during Period 1. Both Uber and Lyft's policies could split the share. (They are actually underwritten by the same insurance company, James River.)

But a collision gap remains. Drivers won't be able to fix their cars if they use Lyft's or Uber's liability policies, since an investigation would likely reveal that a ride-hail policy had already covered part of the claim, and a driver would have the claim denied and could even lose his or her policy. Uber and Lyft provide collision coverage with a $1,000 and $2,500 deductible, respectively, during Periods 2 and 3 if a driver shows they have collision coverage on their personal policy, but they stop short of providing the same for Period 1. Drivers are not required to have collision or comprehensive coverage in any state.

Who's Actually Buying Ride-Hailing Insurance Policies?

The only way for drivers to have collision coverage for Period 1 accidents is to buy one of these new ride-hail insurance policies. But few drivers have made the switch, according to a poll of 254 drivers on Campbell's blog. Many more would like to buy a policy but haven't yet.

It's only a rough sketch, but it shows that the new policies aren't likely to solve everything. Insurance companies say that the policies aren't going to be much more expensive than personal policies -- Farmers estimates an 8% increase for current Farmers drivers to add a ride-hailing policy -- but some drivers said they got quotes far above what they expected.

Drivers might find more appealing options as more policies are introduced. In December, only one policy existed that specifically allowed for ride-hailing work. Now there are closer to a dozen, though the coverage is piecemeal across states.

Some are big providers, like Farmers, which has policies in Colorado, California, Utah and Arkansas. Others are more niche partnerships like Metromile, a pay-per-mile insurance provider in California, Washington and Illinois that only covers Uber drivers. It offers a twist that favors drivers who mostly drive for work: it only makes drivers pay for personal miles and Period 1 miles and uses Uber data to subtract all the miles drivers spend covered by Uber's insurance. Neither Farmers nor Metromile would say how many policies they have sold.

Uber and Lyft would like as many drivers as possible to buy these policies, since they kick in before company policies do during Period 1 accidents and the company wouldn't have to pay. But many, especially part-time or occasional drivers, may find it too much trouble to switch and end up -- knowingly or not -- exposing themselves to a collision coverage risk.

"I'm also seeing that many of the drivers aware of this issue are hesitant to switch because of the hassle associated with getting a new policy, switching over family members, etc.," Campbell said. "Many drivers have auto, home and life insurance policies bundled with the same company, so it's a lot more work than just getting a quote for a standard auto policy. So it's pretty clear that many drivers are still just hoping that their insurance company doesn't find out they're a rideshare driver."

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