Should insurance companies just cover everyone for car-sharing?

By Richard Nieva , written on May 6, 2013

From The News Desk

The car-sharing industry has an insurance problem: Insurance companies, which predicate their entire business on measuring risk, don't like the risk inherent in covering some schmoe who's borrowed your car and then proceeds to plow into a tollbooth.  Car-sharing companies usually cover accidents up to $1 million, but for more major accidents, who pays the excess is still a big question. California, Washington, and Oregon have laws in place to protect people who rent out their cars, but some big insurers, like Geico specifically, have taken a stance against it.

If Geico's position holds sway it threatens the entire viability of car-sharing – the practice of  renting out your car on a marketplace such as RelayRides and Getaround and letting a stranger use it instead of letting it just sit idle.

Still, there are benefits to car sharing and it's an industry worth protecting. The more car-sharing thrives, the more potential it has to lessen traffic, which for anyone who has been stuck in the bumper-to-bumper mosh pit that characterizes the 405 at rush hour would be a welcome relief. RelayRides claims that each shared car results in 14 fewer cars on the road, and that those who don't own cars tend to drive 40 percent less than those who do. Sure, RelayRides has a vested interest in saying that, but those figures come from  Susan Shaheen, codirector of the University of California at Berkeley Transportation Sustainability Research Center. Fewer drivers, less smog, what's not to like?

You'd think states like California, New York and others with acute traffic problems might consider requiring insurers to cover the excess of car-sharing accidents. At least in California, though, it's not likely. "We don’t dictate who or what the exclusions would be on a policy," Patrick Storm, deputy press secretary of the California Department of Insurance, says. "It's outside the scope of our jurisdiction."

So, left to their own devices, most big insurers have been taking a wait-and-see approach: wait until more of the population is car-sharing, then see whether or not to insure them.

But one self-professed "car-sharing advocate" suggests that insurance companies should be more proactive: just offer everyone the ability to share their cars, and cover the excess should an accident result in damages over $1 million.

That may sound reckless, but Guy Fraker, founder of Get2Kno, a platform that seeks to be an aggregator for the sharing economy, insists it's not as crazy as it may sound. The big knock against that solution is that everyone's rates would go up, regardless of whether or not they partake in car-sharing. But Fraker, who was  previously director of strategic resources and enterprise innovation for State Farm -- essentially the company's futurist -- claims the risk would be spread out over so many people that the average insuree's policy would only go up $.50 every six months.

I told him a buck a year sounded suspiciously low, but he claims he can't go into how he got that figure, citing non-disclosure agreements. "I've sat down and done the math," he insists.

For some, even a buck would be too much, citing fundamental fairness. Basil Enan, CEO of the insurance policy comparison platform CoverHound, thinks blanket coverage would hurt consumers. "I don't rent my car out," he says. Insurers, he believes, should continue to operate on a case by case basis, and let the market dictate coverage. “If they all start to exclude this type of behavior, someone will come along and say, ‘I will allow this,’” he says. “It will be a big differentiator.”

Still, Fraker knows blanket coverage is unlikely without government involvement, but he still has hope he can solve the industry's insurance predicament. He's gathering data for a study to try and come up with new insurance products to aid car-sharing companies, hoping that the social and environmental benefits of car-sharing will be a selling point.

"I would hate for us to lose this opportunity because we can't sort out these regulatory issues," he says.