Why Rideshare Insurers Need Telematics


It’s unlikely that ridesharing services will disappear any time soon. In fact, most experts in the transportation field are bracing for a sharing revolution, as city dwellers around the world perform a mass exodus from private vehicle ownership and engage instead in more economical and convenient car- and ridesharing.

Yet, for this upheaval to take place, existing systems need to accommodate the shift to the sharing economy — most notably, insurance. Already, many states require both rideshare companies and drivers to acquire a special form of insurance that protects vehicles and passengers on-the-clock, but because insurers lack clear understanding of how vehicles are being used, many policies are not effective at keeping rideshares — from the businesses to the drivers’ property to the users of the service — appropriately covered.

That’s where telematics comes in.

The Basics of Rideshare Insurance Today

In the past, auto insurance providers tried to classify vehicles used for ridesharing as “commercial” because they are used to generate income. Unfortunately, commercial insurance tends to be more expensive than basic car coverage, which compels many rideshare drivers to misidentify the use of their vehicles for the sake of lower expenses. As a result, drivers aren’t properly covered in the event of an accident on the job, and plenty of auto insurers will refuse to pay in these circumstances, forcing drivers to pay out of pocket for all parties’ medical and vehicle expenses.

More recently, auto insurers have developed rideshare-specific insurance plans to address the swelling numbers of rideshare drivers — but there tend to be gaps in these policies, as well. Some insurance plans simply don’t cover drivers while they are using their vehicles for ridesharing, forcing drivers to rely wholly on insurance provided by their ridesharing company (also called transportation network companies, or TNCs). Yet, Uber, Lyft and similar companies will only cover expenses incurred when drivers are on the way to pick up passengers or have users in the vehicle, meaning drivers have absolutely no coverage for a potentially significant portion of their working hours — during the time called “Period 1,” when the app is on but they are waiting for passenger requests.

Specialized rideshare insurance is intended to bridge this coverage gap, but many insurance providers simply aren’t tech-savvy enough to determine for certain when drivers are in Period 1 and when they are driving as usual. That’s because they lack the advanced telematics of rideshare software — until now.

How Telematics Works With Ridesharing Insurance

Because telematics allows parties to monitor vehicle use, integrating telematics into ridesharing insurance seems like a natural next step. By leveraging the telematics already present in rideshare apps, insurance providers can gain an accurate picture of how drivers are using their vehicles: when and how long they are participating in ridesharing, how far they drive, how safely, etc. This means insurers can better understand the risk involved in ridesharing, which in turn allows them to price their ridesharing plans appropriately, reducing expenses for drivers while extending the coverage they desperately need.

Because telematics allows parties to monitor vehicle use, integrating telematics into ridesharing insurance seems like a natural next step. By leveraging the telematics already present in rideshare apps, insurance providers can gain an accurate picture of how drivers are using their vehicles: when and how long they are participating in ridesharing, how far they drive, how safely, etc. This means insurers can better understand the risk involved in ridesharing, which in turn allows them to price their ridesharing plans appropriately, reducing expenses for drivers while extending the coverage they desperately need.

The question is whether TNCs will allow insurers access to this information. As yet, the answer seems to be a resounding “no.” TNCs have a history of avoiding taking action that benefits their drivers and passengers until they are compelled to by widespread legislation — take the case of requiring drivers to complete background checks before they are allowed to accept passengers. Existing rideshare companies are successful enough at present to avoid taking steps to enhance experiences and earnings for their drivers, so it seems unlikely that they will grant insurers access to their apps in the near future.

Another solution sees insurance providers developing their own telematics apps. These would allow drivers to log in when a ridesharing session begins, so insurers know basic information about their ridesharing behavior. Though this wouldn’t provide specifics, such as when and where passengers are picked up and dropped off, it could provide insurance companies with a better picture of individual driver activity.

Though ridesharing has been widely popular for the better part of the last decade, it remains a relatively new transportation option, and thus, the wrinkles in the service have not yet been fully ironed out. Insurance providers should be taking steps to address the growing demand for specialized rideshare insurance, and telematics is a critical element of an advanced insurance strategy.

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