Rules of the road: Insurance & the future sharing economy
States are renewing focus on peer-to-peer vehicle rental market insurance regulations as the practice starts to gain steam.
If there’s a mantra for our hyper-connected age, it’s “if you own it, there’s probably an app that will let you rent it to someone.”
For at least a decade now, the so-called peer-to-peer (p2p) or sharing economy has evolved ingenious ways of connecting people who have stuff they want to monetize with people who could use that stuff — from pools and parking spaces to replacement relatives (really) and pets.
While the automotive side of the p2p landscape has been dominated by the transportation network services that have muscled in on established taxi markets, another segment of the vehicular sharing economy appears poised for renewed growth and legislative attention: car rentals.
Rent-your-ride
Peer-to-peer vehicle rental networks function much like those that let individuals rent their homes to travelers and vacationers. Owners list their vehicles on an app to connect with interested renters. Vehicle owners may need to install a hardware device in their cars that enable renters to locate and unlock the car using an app. The hardware may also provide mileage tracking, theft detection and roadside assistance.
The number of vehicles listed on p2p rental platforms is still fairly modest relative to the established rent-a-car fleet, but the numbers are expected to grow. According to one estimate, the number of vehicles listed on these platforms could double by 2025. Usage is already spiking thanks to a rush of pandemic-weary travelers and a shortage of traditional car rentals. As p2p car sharing grows, state legislatures and insurance companies are paying closer attention.
Paving the way for p2p
Like transportation network services, p2p car sharing blurs the lines between commercial and personal auto exposures and presents some thorny challenges for insurers and policyholders alike. Here are a few:
- For personal auto writers, a vehicle placed on a p2p network could have dozens, if not hundreds, of drivers with varying safety records, making underwriting vastly more difficult.
- Personal auto underwriters could also have more difficulty getting an accurate mileage assessment if an auto is placed onto a p2p network.
- A commercial auto policy may be too costly for an individual who just wants to place their vehicle on a p2p network occasionally to earn some extra cash.
- An individual could rent a vehicle without having any personal auto insurance, creating potential gaps between any insurance offered by a p2p platform and the coverage limits the individual may have selected if they were to purchase a personal auto policy.
While each rental platform contains unique terms of service, p2p platforms generally offer liability insurance for drivers as a standard feature of the rental agreement. Renters may also have the ability to purchase collision and comprehensive coverage that’s active for the duration of their rental.
Insurers gained some additional clarity into how p2p rental markets may be regulated in April of this year. That’s when the National Council of Insurance Legislators (NCOIL) amended a model act (initially adopted in December 2019) that addresses p2p networks. In the model act, NCOIL proposed several critical provisions regarding p2p vehicle services and insurance requirements, including:
- When the “car-sharing period” starts, both the vehicle’s owner and the driver must have vehicle liability insurance with limits that aren’t below the state minimum liability coverage limit.
- Per NCOIL, the p2p rental platform has to assume liability for bodily image or property damage and any uninsured/underinsured/personal injury protection losses from the shared vehicle owner during the rental period.
- The p2p platform is required to notify a vehicle owner if their vehicle has a lien against it.
- According to NCOIL, motor vehicle liability insurance policies “may exclude any and all coverage and the duty to defend or indemnify for any claim afforded under a shared vehicle owner’s motor vehicle insurance policy.”
As of this writing, at least 12 states have passed legislation that generally follows the approach outlined in the NCOIL model act, and three additional states have bills awaiting their respective governors’ signatures. A further 14 state legislatures have introduced legislation addressing p2p vehicle rental networks this year alone.
For commercial and personal auto insurers, now may be the ideal time to examine their policies to see how they address p2p rental exposures. Because unlike the market for rental relatives, p2p auto rentals may have just a bit more traction.
Carly Seaman is the manager of ISO personal auto/umbrella product development at Verisk.
Opinions expressed here are the author’s own.
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