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Enthusiastic About Car Sharing? Your Insurer Isn’t

 People with idle cars (and most cars are idle most of the time) can make some money by renting them out to others who need a car sometimes but not often enough to own one. At some point, the world would ultimately need fewer cars and places to park them. It feels greener, and sharing is polite and all that.

 But then the grown-ups show up, in the form of insurance companies. I called them this week in the wake of an announcement by RelayRides, a company with venture capital backing from both Google Ventures and General Motors, that it was taking its car-sharing service national.

And the grown-ups are not pleased. They want you to know that RelayRides insurance won’t be adequate in the event of a catastrophic accident and that your own insurance company may take away your insurance if it even hears that you are lending your car to someone in exchange for a few dollars an hour.

So anyone considering this sort of thing has to ask: Is the insurance industry overstating the risk of playing along with this cutting-edge idea, is RelayRides underestimating your exposure, or both?

RelayRides is one of several car-sharing services to arrive on the scene in recent years. Getaround is another start-up, as are JustShareIt and Wheelz, a company that the car-sharing giant Zipcar invested in last month.

They’re all part of a larger “collaborative consumption” movement that has captured the imagination of a growing number of civic-minded, Web-addicted people who want to both save some money and use a bit less of the world’s resources. This includes home-sharing services like Airbnb, office-sharing services like Loosecubes and general sharing sites like NeighborGoods and Rentabilities.

The car-sharing services allow you, in effect, to turn your personal car into a Zipcar and rent it out by the hour or the day. You set the price, and the intermediary service lists your car online, connects you with people who want to rent it and takes a cut of the fee. Renters use a smart card to open your locks and get to the key, or you can exchange the key in person. G.M.’s investment in RelayRides holds out the promise of G.M.’s OnStar service opening the car for you, too.

For all of this to work, there are a few mental hurdles that car owners need to clear besides generalized fear of strangers and whatever cooties they leave on the steering wheel. Are they safe drivers? (Car-sharing services generally check driving records.) Will someone try to steal my car? (Yes, they will, if it’s expensive enough and the car-sharing company lacks proper controls; this problem has already put one company out of business.)

But the biggest challenge is insurance. Here’s the basic problem: Car insurance companies generally will not cover a claim that results from you putting your personal vehicle into commercial use, say by running a taxi service on the side — or making yourself into a one-person Hertz. RelayRides is well aware of this and provides $1 million of liability coverage in the event that a driver kills or maims somebody else while using your car. This is intended to fill the gap in coverage created by the fact that your own insurance company would refuse to pay this claim if the victim came after you.

This raises questions about three potential situations.

First, if some sort of catastrophic accident results in a claim of more than $1 million, what happens then? The answer is that you could be responsible for paying it. The odds of an injury this horrid and a legal judgment that blames you for renting your car to someone who crashes it are extremely low. I laid out the long odds in a column last year about Zipcar’s insurance coverage for renters (I link to it in the online version of this column.)

Only you can be the judge of how uncomfortable this makes you.

Second, do the rules change if you haven’t been taking good care of your car and that contributes to an accident? RelayRides’s terms of service seem to protect the company here, since it “disclaims” any “warranty” for “fitness for a particular purpose.” Meanwhile, a law in Oregon that relates to insurance coverage for car sharing quite specifically gives car-sharing companies the right to go after vehicle owners who engage in “material misrepresentation in the maintenance of the vehicle.”  

RelayRides and its general counsel counter with two points. First, they say that language elsewhere in the company’s terms supersedes the fitness disclaimer. Second, the Oregon statute and its presumably high bar for “material misrepresentation” aside, RelayRides’ insurance broker,  Bill Curtis, makes the following pledge: “I’m willing to raise my hand and say, ‘Yes,’ to the question of whether the owner will have protection in the event that they are sued and the allegation is that the car wasn’t maintained,” he said.

Third, there’s the question of what your insurance company thinks about all of this. I had a hard time finding out, frankly. Geico wouldn’t respond to any of my requests for comment.

An industry group, the Insurance Information Institute, meanwhile, is not pleased. “If the ‘renter’ were involved in an accident, most likely the insurer would non-renew or maybe even rescind the auto policy,” Loretta Worters, its spokeswoman, said in an e-mailed statement. Translation: If someone wrecks your car and injures someone and a lawyer tries to reel in your insurer as well as the car-sharing company’s insurer, your insurer may take away your coverage.

RelayRides takes exception with this, given that the word “rescind” could make people think that insurance companies would take away coverage retroactively. “It’s ridiculous,” Mr. Curtis said.

USAA, which has always gotten high marks for customer service, takes an even sterner approach than the institute. I’m a USAA customer myself, and I asked the company what would happen if I or others called and confessed that we’d signed up for RelayRides.

“We would inform them that participating in such a program will generally result in non-renewal,” Roger Wildermuth, a USAA spokesman, said in an e-mail message.

Allstate took a similar tack. “The owner could put their current coverage for personal use of the vehicle in jeopardy as the act of making the vehicle available for rental purposes could inherently change the risk profile of the vehicle,” said Kevin Smith, a company spokesman.  “And by entering into commercial arrangements with their vehicle, the insured may risk being unable to secure auto coverage from our company in the future.” 

Ann Carrns contributed reporting.

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