How Does Auto Insurance Work for Personal Car-Sharing Programs?

Nothing new comes easy. That’s the lesson to take away from the state of peer-to-peer (P2P) car-sharing programs, one of the more innovative approaches to come to the commute in recent years.

In P2P car-sharing programs — also known as personal-vehicle sharing programs — car owners use a third-party service to rent out their vehicles to other drivers when they aren't using them. The user gets quick access to a vehicle, and the owner gets paid by the company running the program for renting out their vehicle.

But the growing business model has hit a snag with insurers and regulators who question its approach to auto insurance coverage. As a result, some experts are saying car owners should stay away from the programs entirely if they don't live in one of the three states — California, Washington, and Oregon — that have laws governing how insurance works for personal car-sharing programs.

And even with laws existing in California, there's a long road ahead for car-sharers as regulators in the Golden State smooth over kinks of the burgeoning P2P industry.

This FAQ will outline the auto insurance-related wrinkles that car-sharers encounter when using their vehicles in P2P programs and the latest news on the developing issue.

(Note: This FAQ only applies to personal car-sharing programs, not commercial car-sharing programs like those run by Enterprise or Hertz. In those programs, the company running the program owns the car.)

The Main Insurance Issue: Personal vs. Commercial Use

For personal car sharing, insurance issues stem from defining whether the car is being used for business purposes.

The typical personal liability policy that most car owners have might not provide coverage for incidents that happen when a renter is using the vehicle. That's because renting out your car could be considered a commercial use, since you're making money off of it. Commercial use generally isn't covered under a personal auto insurance policy.

It's the same principle that applies to pizza drivers and other driving-related professions: If you're using your car to make money, that might go beyond the limitations of your personal policy.

Esurance says on its website that “you may need commercial car insurance” if “any of your vehicles [are] leased or rented to others.” That's a pretty common stance for insurers to take.

So if you're thinking about renting out your car through a personal car-sharing program, you should sit down and go over the details with your insurer to find out how coverage will play out.

Many of the larger car-sharing programs have attempted to fix the problem by providing generous liability coverage that takes over only when the car's being driven by a renter. When the car isn't being rented, the owner's coverage kicks back in. 

For example, RelayRides covers a rented car during its rental period with a $1 million liability policy “from an A-rated national carrier.”

“During those times when your car is not being rented through the service, your car will be covered by your own policy, as usual,” according to the car-sharing service. “Then, whenever a reservation takes place, RelayRides protects you against damage to your vehicle and against liability claims from injured third parties.”

Getaround also provides a $1 million “primary insurance” policy with liability, collision, property damage, and uninsured motorist protection.

However, some serious snags still remain.

So What’s the Problem?

The remaining problems for personal car-sharing companies like RelayRides and the car owners who participate has been whether state regulators accept their approach to coverage and whether there's enough of it.

“Insurers' main concern about these programs is and has always been who's liable in the event of an accident,” Pete Moraga, spokesman for the Insurance Information Network of California (IINC), told Online Auto Insurance (OAI).

In New York, RelayRides hit snags when state regulators said in May that a car owner’s personal policy overrides any additional policy provided by the company, since “an owner’s personal liability insurance policy provides coverage to any person who drives the vehicle with the owner’s permission.”

“New York law does not permit an insurer to exclude coverage for a renter,” regulators said in a cease-and-desist order issued to RelayRides. “As a result, an owner may be personally liable for any accident that occurs while the vehicle is being rented.”

RelayRides, even though it stopped its New York operations, still offers its services in states spanning the nation from Pennsylvania to California, with the service offered in hundreds of cities.

But even in situations where a car-sharing company’s $1-million-per-crash policy is used, it may be insufficient.

The New York Times published an article about a RelayRides-related crash in 2008 that involved severe injuries and the death of the person who was driving a vehicle he got access to through RelayRides. What followed were huge liability complications between the car owner, her insurer, RelayRides, and lawyers seeking compensation for the crash victims. The victims in the crash had damages that are expected to exceed the $1 million limit on the coverage provided by RelayRides.

“Who pays, and how much?” the article asks. The incident is still legally unresolved, but the answer to that question may determine the attractiveness of personal car-sharing programs in the future.

But even those complications didn’t turn off the renter to future RelayRides endeavors; she put another vehicle back in the car-sharing pool.

“The original reason I signed up is still very much true,” she told NY Times. “I don’t drive the car very often and am environmentally minded and want other people to use the car rather than buying cars of their own.”

Some States Dealing with Liability Issue through Legislation

Some states have taken steps to protect car owners from serious car-sharing-related complications, with three crafting legislation to govern the industry.

Currently, CaliforniaWashington, and Oregon have car-sharing laws on the books, all of which set down rules about what kind of coverage protects a renter during a rental period and the minimum amount of coverage that is required.

Washington’s law requires companies coordinating the rentals to provide at least $180,000 in liability coverage that will be used in lieu of an owner’s personal policy for crashes during the rental period.

California’s law also specifies that a car-sharing service’s policy will be used when it is rented out instead of the car owner’s, which “keeps it from being a commercial enterprise for which most personal auto insurance policies have exclusions,” according to Moraga.

Crafting California’s legislation, however, was not simple, requiring a major “partnership between insurers, car-sharing companies, and legislators to come up with the plan to make it work,” Moraga said.

But even with just three states officially sanctioning the sharing services with laws, there is much room for growth, according to Susan Shaheen, director for Innovative Mobility Research at the University of California Berkeley. Issues over insurance and liability have merely “presented an obstacle,” she told OAI.

“I am confident these issues will be resolved,” she said. “We are at a transitional point. Mobility is changing, and regulators are confronted with new services that do not clearly fit into to the existing regulatory framework. There will likely be insurance reform which will help to address these concerns.”

Advice from Experts

If you plan to rent out your car through a personal car-sharing program, you should speak with your insurer about the possible complications of doing so. The insurance implications of renting your car will be determined by your state's laws and your insurer's policy on car-sharing. In some cases, insurers will actually stop providing you coverage if you enroll in a such a program.

Moraga’s advice to consumers in states without car-sharing laws is short and sweet: “Don't do it.”

“Most states have personal auto insurance policies that do not allow a commercial use of the vehicle,” he said. “If they have any doubts they should first check with their insurance company or agent to see how participation in the program would impact their insurance policy.”

Nancy Kincaid, spokeswoman for the California Department of Insurance, said that the fact that an existing state law allows such services means the issue is beyond regulators — it’s now up to insurers.

“It’s really a question for insurers: If they write it, and how they’ll write it,” she told OAI.

Consumers should also know that renting out your car through a personal car-sharing service, even without incident, may still put you in the doghouse with your insurer. In the NY Times piece, USAA and Allstate issued warnings to customers against such ventures by threatening nonrenewal if they discover a car covered by their liability policy is also rented out through a P2P service. Though other insurers could allow P2P services on a policy, it could come with a premium surcharge “that would scare off most people.”

The Latest News: Ground Zero in California

California’s P2P industry likely attracts attention from regulators, insurers and car-sharers nationwide as a pioneering business; and all interested parties have eyes on news related to the industry there that could be a prototype for similar businesses elsewhere in the U.S.

Major P2P-related developments in the Golden State have unfolded right up through 2014.

Months ago, the exploding popularity of P2P businesses that use mobile technology to connect car-sharers with riders hit a tipping point.

P2P car-sharing within transportation network companies (TNCs), which include companies like Uber and Lyft that allow riders to find TNC drivers through smartphone apps, faced new rules from regulators in September 2013. That month, the California Public Utilities Commission (CPUC) began requiring that TNC vehicles have $1 million worth of liability coverage from a commercial policy, in addition to the personal liability policy to cover the vehicle when it’s not used in a TNC.

But the new rules haven’t been able to smooth out all kinks. TNCs are facing resistance from the taxi industry in San Francisco, and the battle is getting personal. Online Auto Insurance News (OAIN) reported that cab drivers are monitoring TNC vehicles and relaying that information to insurance providers.

Other reports say that TNC drivers feel harassed by the attention they’re attracting from taxi drivers, who feel rankled themselves by a budding industry they say is ducking regulations. With the two sides butting heads, much of the future of California’s growing industry of TNCs—and the P2P car-sharing service they provide—will undoubtedly be shaped by a third party: the public.

To that end, even public opinion hasn’t yet made a final ruling on TNCs: the industry is both sketch material for late-night comedy and news fodder for public relations nightmares. But that’s not to say that such hurdles weren’t expected—or are insurmountable.

Responding to the cease-and-desist order issued in New York, RelayRides executive Andre Haddad said that negotiations are underway with officials to build a more supportive regulatory environment.

“Innovation, by its nature, does not always fit within existing structures,” he said in a statement. “Innovation” was the key word for California regulators, who used it when they issued new rules for the new industry:

“The Commission is aware that TNCs are a nascent industry. Innovation does not, however, alter the Commission’s obligation to protect public safety.”