Tuesday, September 5, 2017

What you need to know about insurance: Part 1

This post is Part 1 of 3 . It covers insurance obligations and risk from the standpoint of the vehicle owner. In Part 2 we'll cover risk from the standpoint of the renter and in Part 3 we'll discuss commercial insurance and whether it can be a viable option.

"Car sharing service" as used in this post refers to the peer-to-peer car rental service you might be considering signing up with. It might be Turo, Getaround, Outdoorsy or some other company.
There are a few things to point out up front.
  1. Your car is covered by your car sharing service during the time it's rented.
  2. You need a personal insurance policy to cover your car at all other times. 
  3. Even if you purchase a second car specifically for your "Side Hustle," and you don't expect to drive it, you still need personal insurance. Why? Because the car might be stolen, someone might drive into it, or someone might break in and sleep in it for a few days (it happened to me) and so on. Lastly, if you have a loan on the car, it's almost certain that you're required to, at the very least, have a personal policy covering comprehensive.
  4. You should also understand the relationship between your personal insurance policy and your car sharing service's policy. This will mean talking to your insurance agent to make sure your personal coverage is not invalidated by renting your car. Be prepared to hear that will not cover you regardless of the fact that it is the car sharing service's policy that cover's the car when it's rented. 
  5. You may choose to never talk with your insurance company in which case they may never know you're renting your car through a car sharing service. I'm not sure how they would find out but if you do have a personal claim and they do find out,  you could find yourself without coverage.  
  6. If your own insurance company won't extend coverage to you if you choose to rent through a car sharing service, you'll need to find an insurance company that will. My insurance company was a firm, "no." I found at least one insurance provider that would provide a personal insurance policy but I was told that I had to be driving the car at least 50% of the time. Also. I would need to update my expected annual mileage to include the miles driven by the renter even though the personal insurance is not in affect during the time your car is rented.
  7. Your personal car/home umbrella policy which you may have purchased separately will not provide any protection while the car is rented. In fact, it was hinted to me that the umbrella policy may be voided even when the car is not rented simply because the car is being used in a business. In any case, just make sure you understand that the $1M or $2M of extra liability coverage that you is dormant when the car is rented. 
  8. Make sure you read the fine print of your car sharing service's insurance policy. For example, if your tires were not well maintained at the time of an accident, your car sharing service might very well reject your claim. This in itself is not an unreasonable requirement by the car sharing service as you really should maintain a good and safe car, but make sure you understand your policy. 
  9. Since your personal auto insurance will not cover any part of a claim associated with a rental made through your car sharing service, if the claim exceeds the car sharing service's coverage limits, neither your personal auto policy nor your personal "home/auto" umbrella policy will apply.
  10. If you live in California, Assembly Bill 1871 passed in 2010 that states the following, In the event that the owner of the vehicle is named as a
    1.2.g ... In the event that the owner of the vehicle is named as a
    defendant in a civil action, for a loss or injury that occurs during
    any time period when the vehicle is under the operation and control
    of a person, other than the vehicle's owner, pursuant to a personal
    vehicle sharing program, or otherwise under the control of a personal
    vehicle sharing program, the personal vehicle sharing program shall
    have the duty to defend and indemnify the vehicle's owner, subject to
    the provisions of subdivisions (d) and (f).
  11. Oregon House Bill  3149 also states that the program (i.e. the car sharing service) shall have the duty to defend and indemnify the vehicle's registered owner.' in the case of an accident. 
Oregon and in California, legislation was passed that explicitly indemnifies car owners to put their vehicles into a peer to peer car sharing platform like Getaround from all liability, except if they are found to be "grassly negligent” in maintaining their vehicle.

The peer-to-peer car sharing marketplace is still realtively new and the insurance companies simply don't have the data they rely on to make policy and set rates. Insurance companies each have their own boilerplate policies that can't be tweaked for your own individual circumstace. These boilerplate policies have not been updated to address the peer-to-peer car rental marketplace and leave the those same insurance companies somewhat anxious. In fact, I quite sure that most of the insurance agents I've spoken with have been unaware of CA and OR bills that indemnify the owner. This explains why it's difficult to find one that will agree to provide you with personal insurance after you tell them you're planning to rent out your car.

Does Automobile Insurance Follow the Car or the Driver?

Are you confused yet? This subject can be perplexing because it is as dependent on a policies inclusions as well as exclusions. Here's a good article on the subject from a site called Claims Journal and another one from eSurance.

What if a Claim Exceeds Your Car Sharing Service's Policy?

Some insurance providers I've talked with have said that it's rare for a court case to seek damages greater than the maximum amount covered by the policy. That is, personal-injury attorney knows that it will most likely be a waste of time and resources to chase after money that you don't have but if they do, a judgment could be enforced by wage garnishment's against future earnings. This kind of action is the exception to the rule but it is cause for concerned.

I was initially under the impression that someone with limited assets would be less likely to be sued and while that may be the case, I also learned during my research that an individual could also be sued I may You can start by understanding that even when you think you're covered, you may not be. For example, if your tires are not well maintained as required by the fine print in Turo's insurance policy, Turo might very well reject your claim. This in itself is not an unreasonable requirement by Turo (and Liberty, their insurance provider) as you really should maintain a good and safe car, but make sure you understand your Car Share Service's policies.

It is worth having a look at Turo's updated blog on insurance where they make the case that their coverage is better than most people's own personal policy. This is pretty consistent with what I've laid in this post.

What is Diminished Value?

A lesser known option available to an owner is something called "Diminished Value." Your car's resale value can be considerably more if it was never in an accident. Assuming the accident was the other party's fault, a diminished value claim allows the owner of a vehicle to make a claim against the at-fault party's insurance company to recover the loss in value of the car. Car share service policies don't provide this coverage and it's unclear to me how difficult it will to make this claim since you weren't the driver.

What this means is that your car share service's policy will cover repair of your vehicle, replacement cost if necessary and loss of use (for some period of time). If the car is repaired, you may not have a way to collect the diminished value of your car.

Comparison of Insurance

The following table shows a basic comparison between Turo, Getaround and Outdoorsy vs a typical auto policy with umbrella insurance.

It's worth reading the various insurance policies of each of the peer-to-peer car rental providers. Turo's insurance policy here.
Getaround's insurance policy here.
Outdoorsy's insurance policy here.


In all cases, the car sharing service will vet the renter's driving record vis DMV records.
In all cases, the car may only be operated by the registered driver.

The Standard Car Sharing Service Policies appear to be quite good and in fact, better than many typical policies including my own. Obviously, not everyone has a home owner's policy or has opted for an umbrella policy. However, keep in mind that a homeowner's Umbrella policy, if you have one, does not provide any protection to you during the time your car is rented. In the case of the Car Sharing Services, there is no offer for the owner to purchase additional coverage.

And that's the rub for those of that have an Umbrella policy! An umbrella policy provides significant protection for those rare cases were you may actually need it. As of this writing, I can't find a way to get additional coverage through a car sharing service other than getting your own commercial insurance + umbrella. A prospect that is both daunting and costly and doesn't make sense unless you're a fleet owner with, according to one commercial agent I talked with, at least twenty cars.

My guess is that at some point the car sharing services and/or insurance companies will offer a provision for umbrella insurance for the peer-to-peer marketplace but I know not when. I'm surprised that the car sharing services don't offer this yet. If they did, it would go a long way to appease the concerns of people that have existing Umbrella policies.

To sum it all up

As my latest discussion with another insurance agent explained, "there are a lot of moving parts here and the industry hasn't really figured out where peer-to-peer sharing fits in. At least with Uber, we know who the driver is." Therefore this post will be superseded in the future when the industry figures out what it can do. Certainly, there's room for a more streamlined and cost effective insurance product that provides better personal protection than currently available.

Here are some options,

Option 1Just the basics and you don't own a home with a combined auto policy that includes an umbrella policy

You are happy with Turo's coverage (perhaps it's even better than your personal car policy). There's nothing you need to do except talk with your insurance agent to make sure you're still covered. From my experience, there's a high likelihood you won't be covered or you're policy will need to be amended.

You should ask them before you begin renting your car to avoid having your policy canceled. If they won't cover you, find an insurance provider that will. If you decide to chance it and not talk, that's your call.

Risk - Just keep in mind your personal auto insurance is not in effect while your car is rented and will not provide any secondary protection.

Option 2Just the basics and you do own a home with a combined auto policy that includes an umbrella policy

You are happy with Turo's coverage (perhaps it's even better than your personal car policy). There's nothing you need to do except talk with your insurance agent to make sure you're still covered. From my experience, there's a high likelihood you won't be covered or you're policy will need to be amended.

You should ask them before you begin renting your car to avoid having your policy canceled. If they won't cover you, find an insurance provider that will. If you decide to chance it and not talk, that's your call.

If they won't cover your car, that might be a big problem if you have an umbrella policy because your insurance company generally requires that you have both your car and homeowners policy with them. In that case, you'll need to get a secondary car and find another insurance provider that will cover that car. Again, keep in mind that your umbrella policy won't provide any protection to this secondary car.

Risk - For any claim made while the car is rented, your personal auto insurance will not provide any secondary protection and if you thought your existing umbrella policy would provide additional protection, you better rethink that.

Option 3Commercial auto policy

This can be difficult to get and overly expensive if you're not a "fleet" operator. I was told by one commercial agent that a fleet is generally considered to be 20 or more cars. However, he seemed to suggest that you could still get covered even for a single car. I've yet to hear back from any commercial insurer with an actual offer.

The problem with this approach is that,
  1. You need a business entity and the cost associated with that ups your overhead.
  2. Many of the commercial insurers I talked with said you needed to show a history of renting cars and familiarity with the business.
  3. You probably will need to get the renter to sign any rental agreement as required by your commercial provider. 
  4. You lose the convenience of Turo's renter insurance and Turo shielding you from any claim against a renter. That is, Turo will make their payment to cover your loss while they independently try to recoop money from the renter. 
One benefit to commercial is that by waiving Turo's coverage you get a bigger cut of the rental fee.

If they don't cover you, that might be a big problem since your umbrella policy, if you have one, requires that you have both your car and homeowners policy with your provider.

In this scenario, you won't have nor do you need personal car insurance since your car would be covered when you drive it according to your commercial policy. Also, you can add additional coverage commensurate with you're comfort level.

Economies of scale play in heavily here and I'll say it again, commercial coverage of a single car is probably too costly.

Risk - Nothing extraordinary. The risk is simply based on the coverage and the policy you get.

Since I can't find anyone willing to provide commercial insurance at this scale, I can only guess that the coverage would be at least two times that of traditional personal coverage. Add to that a legal business entity and you're really starting to talk a big up front cost.

In closing, deciding whether the risks and rewards are a very personal decision. There are a lot of moving parts with insurance that hopefully this post has shed some light on. I'll continue to update this post as I learn more so make to sign up for update alerts.

Related posts:
What you need to know... Part 1 (as Owner)

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