Insurance presents challenge to regulate new car-sharing industry

Boston Statehouse
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(SHNS) – The Financial Services Committee has plenty of recent experience learning about the ways technology is changing the economy and putting laws in place to regulate new services, like ride-for-hire companies and short-term rentals. On Tuesday, the committee heard about another industry they’re being asked to set rules for: person-to-person car-sharing.

Car sharing works by allowing a vehicle owner to list their car for use by others at times when they won’t be needing it. The sharing service installs a device so the car can be unlocked remotely and then service users log onto an app to reserve a set of wheels near them. The app will unlock the car and the user is responsible for returning the car at the end of the rental period.

Nicholas Green, a lawyer for car-sharing service Getaround, said car sharing helps to offset the cost of car ownership while also providing another affordable transportation option for people who do not own a car.

“We also reduce car ownership. When people have access to a car-sharing platform, they own fewer cars. When you don’t own a car, you drive a car less,” Green said. “When you drive a car less, there is less congestion, less greenhouse gas emission and you’re more likely to use mass transit or biking or walking or whatever best fits your needs instead of instinctively going to the car in your driveway or parked outside your house.”

Car sharing services already exist in Massachusetts, but lawmakers are seeking to impose a framework of regulation (H 1061) and clarify how the services can obtain insurance coverage (H 944).

Frank O’Brien of the American Property Casualty Insurance Association said the bills offer “a good foundation for the committee to continue the discussion,” and said his organization, which helped shape the recent laws around ride-for-hire companies and short-term rentals, would like to work with the committee on the insurance challenges of car sharing.

“Insurance is a key component of the car-sharing issue, as it was a key component of the [transportation network companies] and the Airbnb issue,” he said. “Working with the Legislature, we put together a framework for both of those issues … we have to do that now with the peer-to-peer car sharing issue.”

One bill (H 1061), filed by House Ways and Means Committee Chairman Aaron Michlewitz, would provide a regulatory framework for car-sharing and set out insurance requirements for the industry.

“We believe the bill strikes an appropriate balance between protecting consumers, which is incredibly important to us, while still supporting this emerging market,” Green said. “There are just a couple of minor points that we would look forward to working with the sponsor and the committee to adjust in that bill but I think they can all be pretty easily resolved.”

O’Brien said the Michlewitz bill is a good start, but it does not “handle all of the insurance-related issues and it does not address many of the other public policy-related issues that this committee is going to face as it considers that issue.”

John Murphy, executive director of the Massachusetts Insurance Federation, said car sharing can be “a very difficult thing for carriers to underwrite when they don’t know how the drivers are going to be.”

He said he’d like to see the Financial Services Committee approach car sharing in a manner similar to how it dealt with TNCs or short-term rentals and put in place “a framework that is respectful of allowing the marketplace to kind of figure out these products.”

“You have to kind of create a framework that allows that technology to be embraced by those companies that can write the business and not be forced to write it if that’s not up in their bailiwick,” Murphy said.

The second bill (H 944), filed by Rep. Mark Cusack, would make clear that car-sharing services can obtain insurance through non-admitted carriers.

“We take safety and insurance very seriously. We maintain $1 million to cover the liability of the owner and between $100,000 and $300,000 to cover the liability of the driver, and that’s far in excess of any state minimum, including in Massachusetts. But to do that, we go on the non-admitted carrier market to obtain those policies,” Green said. “This is an innovative business and it is difficult to find insurers who will either write the risk or write the risk at a price level that is compatible with the business.”

Rep. Jay Barrows, who owns and runs an insurance agency, questioned Green on the particulars of insurance coverage for both the owner of the shared car and the driver using it.

“The owner, of course, has their compulsory auto insurance procured on their own through an admitted carrier. What we do is assume that there will be a gap in coverage during the car-sharing period because many personal lines policies exclude commercial uses from coverage and so working on the assumption that this is a commercial use, then we assume that that owner’s policy would exclude coverage and so we pick that up at the minute the car-sharing starts with the coverage that we maintain,” Green said. “That is not optional on our platform, we build that into the cost so it is always present.”

O’Brien said Cusack’s bill is “something that the committee actually needs to do,” to clear up an ambiguity in state insurance law.

“There is a quirk in Massachusetts insurance law which prevents surplus lines insurers from providing private passenger type insurance coverage in the commonwealth. Insurance coverage for peer to peer car sharing, as I mentioned, is a critical issue,” he said. “That particular piece of legislation would fix this particular quirk as we had to fix this quirk when we dealt with the TNC-related insurance issues.”

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