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Free Markets. Real Solutions.
www.rstreet.org
Feb. 20, 2015
Honorable Dave Jones
Chairman
Sharing Economy Working Group
National Association of Insurance Commissioners
RE: White Paper on TNC Insurance Principles for Legislators and Regulators
Dear Commissioner Jones:
On behalf of the R Street Institute, I am pleased to offer the following comments for your consideration.
R Street is a free-market think tank that maintains the largest insurance-focused project of any nonindustry think tank. We also engage in rigorous and well-regarded research in the realm of disruptive
technologies, including transportation network companies.
Relevant to the purpose of the working group, our research includes a comparative study of the
regulatory approaches to transportation-for-hire taken by 50 of the nation’s largest metropolitan areas;1
a paper examining the insurance challenges that confront the ride-sharing market;2 and a guide for
legislators and regulators to interacting with novel peer-production services.3 Copies of each of these
papers have been attached to these comments for your review.
R Street values the way the working group’s draft paper embraces the reality that TNCs offer a genuinely
new enterprise worthy of distinct consideration and product innovation. Consumers will be the principal
beneficiaries of this approach because it will enable them to enjoy a new and convenient form of
transportation-for-hire.
1
Andrew Moylan, et al, “RideScore 2014; Hired Driver Rules in U.S. Cities,” R Street Institute, November
2014. http://www.rstreet.org/wp-content/uploads/2014/11/RSTREET29.pdf
2
R.J. Lehmann, “Blurred Lines: Insurance Challenges in the Ride-Sharing Market,” R Street Institute,
October 2014. http://www.rstreet.org/wp-content/uploads/2014/09/RSTREET28.pdf
3
Andrew Moylan and R.J. Lehmann, “Five Principles for Regulating the Peer Production Economy,” R
Street Institute, July 2014. http://www.rstreet.org/wp-content/uploads/2014/07/RSTREET26.pdf
2|NAIC White Paper on TNC Insurance Principles
By and large, the draft paper does a good job of identifying many of the crucial considerations that
currently confront policymakers. I would like to bring to your attention three particular concerns with
the white paper, as it is currently composed:
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Ambiguity regarding the definition and use of the term “coverage gap”
An overemphasis of the perceived benefits of pure commercial insurance
An imprecise distribution of the burden of consumer education.
What are “coverage gaps”?
In its current form, the white paper references “coverage gaps” no less than 15 times. Clearly, “coverage
gaps” are a concern for the working group. With that said, what exactly constitutes a “coverage gap” is
unclear and left for the reader to discern.
On Page 2, the paper contemplates potential asymmetries between commercial coverage obtained by a
TNC and a drivers' personal private passenger auto policies, in the event the personal policy’s livery
exclusion, unknown to the driver, precludes the availability of various personal coverages. Here, both
the absence of certain specific additional coverages and the potential complete absence of in-force
coverage are each referred to with the term "coverage gap."
As a policy matter, these phenomena are distinct. The complete absence of insurance is a problem that
virtually all parties to this process are seeking to avoid. Such absence is a true “coverage gap.” It is less
clear that the absence of any one particular additional coverage, such as comprehensive or collision
coverage, (arising either from a policy’s livery exclusion or from an individual's choice to forgo the
coverage) constitutes a true "gap."
In roughly half of jurisdictions nationwide, drivers are not required to maintain any of the additional
coverages identified by the white paper as needed to avoid a "coverage gap." 4 California is one such
jurisdiction. In California, individuals are only required to carry bodily injury liability and property
damage liability coverages.5 An individual driver’s decision to forego purchasing additional coverages
still fulfills the state’s requirement.
Thus, when on Page 11 the paper asserts that "state legislation and local ordinance must close the
coverage gaps by defining…additional coverages such as medical payment coverage, collision, other than
collision, and UM/UIM coverages," it does not express a statement of fact concerning an actual gap in
coverage, but rather a normative fondness for additional coverages. For this reason, two separate
definitions of “coverage gap” are necessary to avoid inadvertently confusing readers.
4
Insurance Information Institute, “Compulsory Auto/Uninsured Motorists,” February 2015.
http://www.iii.org/issue-update/compulsory-auto-uninsured-motorists
5
California Insurance Code §11580.1b
3|NAIC White Paper on TNC Insurance Principles
Recommendation One:
To ensure clarity of understanding, the paper should exclusively use the term "coverage gap" to refer to
periods in which no insurance is in force. Periods in which insurance coverages are in-force that the
working group deems insufficient should be referred to separately, perhaps as "coverage
insufficiencies."
If normative judgments as to proper coverage are to be made that go beyond bodily injury liability and
property damage liability coverages, the working group should explain its rationale for those choices.
Over-stating the benefits of commercial coverage:
The paper expresses a clear preference for covering TNC activity, Period 1 through Period 3, with full
commercial insurance. Two reasons are articulated for this preference: simplicity (Page 11) and product
effectiveness (Page 16).
The argument that commercial coverage is simpler than new hybrid policies may or may not be correct.
There is greater experience dealing with strictly commercial policies. With that familiarity may come
greater predictability. New hybrid policies, by their very nature, do not enjoy the same predictability. In
the absence of experience with hybrid products, the paper presents the specter of product failure. From
Page 16: “If not clearly defined, shifting coverage between personal auto and commercial coverage could
be costly and inefficient as well as leave gaps in coverage.”
The paper’s concerns are well-taken and may have merit. But other factors should be kept in mind, as
well.
Oversight: Regulators are positioned and empowered to evaluate new policy offerings, be they from
admitted insurers or, if the need arises, from surplus lines insurers.
Costs: The cost of full commercial coverage, purchased by either the driver or the TNC, should not be
understated. This difference is tremendous. A commercial livery driver can expect to pay between
$5,000 and $7,000 annually for their coverage whereas, according to the NAIC, the average annual
personal auto insurance rate in 2011 was $797. While the paper does nod to the sometimes prohibitive
expense of commercial coverages, it does so only in passing.
Fraud: The paper's suggestion that commercial coverage should be extended universally into Period 1
could open new fronts for fraudulent claims. One perverse incentive already recognized in the California
statute is that drivers may log in to their TNC apps without genuine intent to solicit a passenger. The
solution California lawmakers opted for is to define Period 1 as driving "in connection with TNC activity,"
but this is necessarily a murky distinction. It is rendered murkier still by the existence of drivers who
participate in more than one TNC, and could be further complicated by the evolution of new TNC
services that more closely resemble car-pooling.
4|NAIC White Paper on TNC Insurance Principles
Recommendation Two:
Skepticism about the innovative hybrid product offerings that are currently coming to market may be
natural, but should not evoke a conservative preference for the status quo. A preference for commercial
coverage could stymie the growth of the TNC industry. What’s more, it is transparently at odds with the
working group’s existing assumption that TNC activity is quasi-commercial. A demand for more coverage
treads in the direction of transforming TNCs into another form of transportation-for-hire, taxi cabs.
Thus, while a desire to require additional coverages seems to align with an overarching goal of
consumer protection, that desire must be balanced against the potential pecuniary burden associated
with purchasing those additional coverages. The working group should consider the costs, in terms of
premium and opportunity, to privileging a commercial model, as well as being mindful of ways such
preferences could invite fraud.
Further, the working group should consider providing a catalogue of examples of hybrid policies as an
addendum to the white paper, so that readers can gain an understanding of their varied approaches.
How to educate drivers and the public:
Perhaps the most important type of “gap” referenced by the paper is the one concerning understanding
of TNCs and their insurance. The paper rightly notes the need for drivers to be thoughtful and to
appreciate the terms of the relevant insurance policies when they begin driving for TNCs. Avoiding a gap
between expectation and reality is of paramount concern.
The goal of ensuring that drivers and the public are aware of their risks when they operate or use TNCs
is virtually universal. But the working group should bear in mind the significant literature on the dangers
of over-notification. At the moment, the paper proposes an “all of the above” approach to notification.
At various points, it suggests that all parties (regulators, TNCs and insurers) must do more to educate
drivers and the public. Excessive notification requirements can be redundant, both financially and legally
onerous and, most importantly, could have the counter-intuitive effect of leaving consumers more
confused.
On Page 15, the paper details a list of ways that TNCs should be made to communicate insurance
information to various parties. Some of these suggestions are reasonable, like requiring TNCs to notify
users and drivers what insurance coverage exists, what party is responsible for procuring it and any
significant exclusions. Others, like requiring TNCs to electronically notify users whenever a change in
coverage type or amount is made, are overbroad.
Recommendation Three:
5|NAIC White Paper on TNC Insurance Principles
Ultimately, consumer awareness is the province of insurance regulators. Regulators are charged with
protecting consumers and, as a result, they speak with the neutrality and authority that neither TNCs
nor insurers can match.
The working group might consider that their expertise as regulators lies in determining what information
is worthy to share, and not in precisely delineating how/when exactly it should be shared.
Summary:
If the working group sees fit to incorporate the preceding suggestions, it will enhance the clarity of its
paper; remove a barrier to product innovation; and prevent undue regulatory burdens. Each of these
results dovetails nicely with a number of R Street’s standing recommendations to lawmakers and
regulators as they deal with the ride-sharing industry:
1. Uniform coverage requirements: Minimum liability limits should be uniform across
transportation-for-hire services.
2. Product flexibility: Regulatory frameworks should be flexible enough to allow new
hybrid products to be filed.
3. Disclosure: TNCs, as part of their terms of service, should be required to disclose
specifics about their insurance.
Thank you for the opportunity to engage in this process and to contribute our thoughts and research to
the development of the working group’s ultimate product.
Sincerely,
Ian Adams
Senior Fellow & Western Region Director
R Street Institute
CC: Jennifer Gardner, NAIC