What are the effects of RelayRides' New York cease and desist?

By Richard Nieva , written on May 21, 2013

From The News Desk

Last week, the car-sharing marketplace RelayRides got hit with a cease and desist letter from the New York State Department of Financial Services for allegedly violating insurance law and false advertising. RelayRides, which lets car owners rent out their vehicles to strangers instead of letting their cars go unused, has suspended its service in the state indefinitely. The company says its customers will not be financially responsible if a renter gets in an accident, but the DFS says customers can still be held accountable.

It’s a blow for an industry still trying to gain credence with an insurance industry that’s largely still baffled of its very existence. So then what is the immediate effect of that outcome?

Susan Shaheen, codirector of the University of California at Berkeley’s Transportation Sustainability Research Center – who also conducted much of the research that RelayRides cites when parsing out the benefits of car sharing – does not think New York’s cease and desist will serve as a chill for the industry. “It will not necessarily stifle interest and support in peer-to-peer car sharing there or throughout the US. It will suspend its growth and use in New York State,” she says.

She cites other times the sharing economy has been regulated by government, like bans against ride-sharing companies like Sidecar in Austin. Instances like that have only raised awareness for the new approaches needed in transportation innovation. Elsewhere in the sharing economy, officials in New York City yesterday said that Airbnb is still illegal in the city. And hits like that haven’t exactly hurt the short-term vacation rental service’s cache with the general public.

But for car-sharing in particular, coverage has always been a trickier proposition because of the complexities of auto insurance. Paul Mang, a partner at Illinois-based Avarie Capital and former partner at the consulting giant McKinsey and Company covering property and casualty, says New York State’s cease and desist could possibly make discussing car-sharing less of a priority for insurers.

He’s had talks with executives at the “top 10 to 15 or so” large insurance companies, who have told him that the discussion of car-sharing is on those companies’ agendas. Now is the time of year, he says, when companies usually do offsite meetings to focus on what they will be doing in the next year. Recently C-suite executives are at least engaging the topic. “It’s hard to get anything on the agenda, whether it’s formal or informal," Mang says. "That’s an important step. If it’s not being discussed at all, it’s hard to get resources.”

But he recognizes the trouble of regulators clamping down, at least on the insurance side of things. “I can see it being the reason someone delays a discussion or pushes it off,” he says. The Insurance Information Institute did not respond to an interview request by press time.

The reason for entertaining the question of car-sharing, Mang adds, is insurers trying to identify with the behavioral trends of the next generation of drivers – millenials and beyond. In that case, it looks like the most effective thing the car-sharing companies can do is to shore up customers. That's certainly one way to move the discussions.

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