Using mobile apps to connect passengers with drivers, ridesharing services like UberX and Lyft say they are bringing new zip to transportation. But a number of cities say they don't want to share the road until they get something utilitarian: better insurance.
If the cities insist, they could slow or halt the services' expansion. The conflict poses the latest challenge to the nascent "sharing economy," which allows people to rent out personal property and services, often on an ad hoc basis.
On one side stand the ridesharing companies, which believe their business plans are undermined by forcing drivers to add higher-cost commercial insurance to services intended to attract casual drivers for an hour here and there.
On the other stand many city officials, who worry that ridesharing lacks adequate coverage.
"Insurance is way complicated, and it's far more complicated than a company telling you, ‘Don't worry, you're insured,'" said Sally Clark, a city commissioner in Seattle. The city council is currently weighing insurance requirements and other rules for ridesharing, which operates in a legal limbo in Seattle. Insurance, Clark said, is "our number one concern."
Austin, Texas, began threatening to impound ridesharing cars last year, prompting one service, Sidecar, to leave town. "We need to see commercial insurance," among other concerns, said Gordon Derr, assistant director at Austin's transportation department.
Insurance is also an issue in Colorado, where the legislature is weighing ridesharing laws. Chicago, Illinois, is considering ridesharing legislation with stronger commercial-insurance requirements.
Ridesharing is different from app-based car services that use professional drivers. Uber, for instance, relies on limousines for its main black-car service, while ridesharing unit UberX could rope in any driver with time to spare. Paid ridesharing companies operate in various big cities around the United States, where they typically come under heavy opposition from the taxi industry.
Cities have greeted sharing-for-profit with skepticism before, questioning whether to tax a couch offered for a night online like a hotel room, for instance, but insurers have not raised fundamental objections to many such services.
For ridesharing, UberX and the other major services carry their own commercial insurance policies, with $1 million of liability coverage per incident. The policies apply if the personal policies carried by drivers don't cover an incident. But they kick in only if drivers are en route to collect a ridesharing client, or have one in the car.
Insurance has become a touchstone, in part because of a series of high-profile crashes, including a New Year's Eve accident by an UberX driver that resulted in the death of a young girl in San Francisco.
The driver was between rides for UberX. The family of the young girl, Sofia Liu, has sued Uber for liability, regardless. Uber declined to comment on the situation.
Insurance companies say using a personal car for paid rides voids a driver's personal insurance policy. The policy would not cover drivers between fares, either.
"It is a commercial venture," said Loretta Worters, a spokeswoman for the Insurance Information Institute, an industry trade group, and drivers need commercial insurance.
But commercial insurance could add hundreds of dollars each month to a driver's costs.
In California, a commercial policy costs around $10,000 a year, says insurance broker Rick Monetta, compared to around $1,200 for a basic personal policy. That's enough to give pause to casual drivers seen as the heart of ridesharing.
"The driver is getting caught in the middle," said Colorado Public Utilities Commission Director Doug Dean, who has called for all ridesharing drivers to carry commercial insurance or add additional coverage to their personal policies.
In practice, Lyft and Sidecar say, insurance companies have paid claims for some accidents based on a driver's personal policy, but they declined to provide details, citing the privacy of the people involved.
That wasn't the case for Bassim Elbatniji, a San Francisco UberX driver whose Prius was slammed by another driver in September.
"I thought that they were going to cover me," said Elbatniji about his personal insurance company. But the company denied coverage, citing lack of a commercial policy, according to court documents. Now his passengers are suing him and Uber to cover medical bills, lost wages and other liabilities.
Uber declined to comment on the details of the case.
Ridesharing companies could beef up their own commercial coverage so it becomes primary insurance for any incident, rather than secondary to a driver's personal insurance. But that would drive up rates. One ridesharing company said it has negotiated special rates on the liability part of its commercial insurance policy; paying rates on par with livery companies would cost 35 cents per driver per mile, above its current costs for liability insurance.
Colorado's Dean hopes the insurance industry comes up with specialized riders that provide additional insurance for drivers, with premiums varying on how much they drive for hire, and Sidecar said it was trying to develop a specialized plan.
Earlier this month, ridesharing companies formed an insurance coalition to study the issue, including members from the insurance industry and the California Public Utilities Commission. Its first meeting is Wednesday.
They need to move quickly.
"The liability questions are an issue and are slowing down growth," said Jeremiah Owyang, founder of consultancy Crowd Companies. Resolving them could attract more drivers and riders, he said.