At the spring 2015 meeting of the National Association of Insurance Commissioners (“NAIC”), the Sharing Economy Working Group adopted a white paper  on insurance principles for TNCs. This coincided with the release of a compromise model bill (“model bill”) drafted by the largest TNC, Uber, and several major insurance companies which addresses insurance requirements for TNC vehicles. The NAIC white paper and compromise model bill highlight the evolving regulatory framework of TNCs as they continue to expand and gain mainstream acceptance from regulators, legislators, consumers, and insurers.
From the driver’s perspective, driving for a TNC involves three distinct periods. Period One is when the driver is logged onto the TNC app but is not yet matched with a passenger. Period Two is when the driver has matched with the passenger, but the passenger is not yet in the vehicle, and Period Three is when the passenger is occupying the TNC driver’s vehicle.
The two largest TNCs are Uber (valued at $41B)  and Lyft (valued at $2.5B) . TNCs are noted for their emerging popularity , as well as the legal and regulatory challenges they have faced . TNCs have historically advocated that they are only technology companies, not traditional transportation providers, and consequently, that insurance, especially during Period One, should be borne by the driver, not the TNC. Conversely, the taxi and limousine lobby and some consumer advocates believe that TNCs should be regulated like traditional for-hire transportation services with the same commercial insurance requirements.
Coverage gaps arise because TNC drivers use their personal cars for a commercial activity but do not maintain commercial auto insurance. Traditionally, personal auto insurance policies exclude commercial activity through livery exclusions. Insurers use livery exclusions because transporting passengers for a fee creates more risk and exposure than is contemplated by personal auto rates . For example, TNC driving can amplify risk because of:
- additional miles driven;
- increased geographic hazard as drivers typically find customers in high-traffic, urban environments;
- driver distraction caused by the TNC app;
- more people in the car; and
- drivers rushing to accept matches and transport passengers as quickly as possible .
As a result many personal auto insurers are cancelling or non-renewing policies if they learn that a policyholder drives for a TNC . Coverage gaps will continue to exist unless the TNC provides coverage for drivers during all periods, drivers maintain appropriate coverage, or the insurance burden is shared between drivers and TNCs.
Aside from coverage gaps, it is also critical that insurers providing TNC coverage have an appropriate claims structure in place. The NAIC white paper particularly highlights this concern with regard to surplus lines insurers due to the fact that the largest TNCs have obtained coverage from the surplus lines market. Regulators have expressed concern that surplus lines insurers may not be equipped to handle the high volume of claims associated with auto coverage and the fact that claims handling will involve dealing directly with TNC customers. As the NAIC notes, “Because the insurer is writing coverage for the TNC but covering losses from the TNC drivers using their personal cars, it is important that the insurer’s claims process be clearly described to those drivers and passengers, including the process to submit claims” . There is likely to be heightened regulatory scrutiny applied to the consumer complaint and claims handling processes for this type of coverage.
Legal and Regulatory Developments
Prior to the release of the NAIC white paper and compromise model bill, a handful of states including California , Colorado , Illinois , and Virginia  had enacted laws concerning the insurance requirements for TNCs. Generally, these laws mandate coverage during Period One in amounts of $50,000 for death and personal injury per person, $100,000 for death and personal injury per incident, and $25,000 to $30,000 for property damage. During Periods Two and Three, the laws require primary insurance in the amount of $1 million for death, personal injury, and property damage. Typically these laws allow the insurance requirements to be satisfied by either the driver or the TNC. However, the laws vary as to required uninsured/underinsured coverage ("UM/UIM"), whether TNCs may maintain contingent insurance during Period One, and implementation mechanics.
To help alleviate this uncertainty, Uber and several insurers put forth a model bill for the regulation of TNCs . Lyft, the American Insurance Association, the National Association of Mutual Insurance Companies, the Property Casualty Insurers Association, Farmers Insurance, State Farm, and USAA have all voiced support for the model bill . The bill establishes the following two tiers of coverage and outlines what amount of coverage should be provided at each level:
- When the driver is logged on to the network but not engaged in a prearranged ride (Period One) – Primary auto liability insurance in the amount of $50,000 for death and bodily injury per person, $100,000 for death and bodily injury per incident, and $25,000 for property damage.
- When the driver is engaged in a prearranged ride (Periods Two and Three) – Primary auto liability insurance in the amount of $1m for death, bodily injury, and property damage .
The model bill specifies that these coverage requirements may be satisfied by auto insurance maintained by the TNC driver, the TNC, or any combination of the two. The bill also clarifies that all other state mandated coverages, such as UM/UIM, should be provided.
Additionally, the model bill specifies that if insurance maintained by the driver does not provide the required coverage, then insurance maintained by the TNC shall provide coverage beginning with the first dollar of a claim and the TNC’s insurer shall have the duty to defend such claim. Furthermore, the model bill states that insurance maintained by the TNC is not dependent on a personal auto insurer first denying a claim, and personal auto policies are expressly allowed to exclude coverage for TNC drivers. Insurance may be placed with either a licensed insurer or an eligible surplus lines insurer .
While the compromise model bill is not law in any state, it represents a significant achievement between TNCs and insurers, and it is expected that these entities will lobby on behalf of the compromise model bill in states that are considering TNC legislation. TNC bills are currently pending in several states, and it will soon be rare for a state not to have enacted a law on the insurance requirements of TNCs.
Insurance Industry Responses
A number of insurers have begun offering products targeted at individuals or companies involved in the TNC industry. For instance, some insurers now offer products that recognise the dual personal and commercial nature of TNC vehicles. Such policies are designed to cover personal use and use during Period One . Alternatively, coverage for TNC drivers can take the form of a hybrid policy that covers all periods of personal and commercial use and applies regardless of the TNC Period . State insurance commissioners have spoken favourably of these inventive policies.
 Available at http://www.naic.org/documents/committees_c_sharing_econ_wg_exposure_adopted_tnc_white_paper_150331.pdf
 See http://www.thestreet.com/story/12975065/1/uber-continues-to-explode-in-popularity-as-its-now-worth-40-billion.html (discussing how Uber raised over $1.2B and grew by a factor of six in 2014).
 Uber is currently the subject of lawsuits in several jurisdictions alleging labour and regulatory violations. See e.g., http://www.insurancejournal.com/news/east/2015/04/01/363073.htm; see also http://www.cnbc.com/id/102503520
 NAIC White Paper, p. 3.
 Id. at 8.
 Id. at 9.
 NAIC White Paper, p. 18-19.
 Model Bill § B(2) – (3).
 Model Bill § B(4) – (6).