Due to rapid growth among transportation network companies, or TNCs, new insurance coverage issues are quickly emerging.

Most everyone knows the story. Popular ride-sharing companies, including Uber and Lyft, created applications for use on mobile phones that connect drivers in their personal vehicles with passengers who pay a fee through the application for transportation services. The application provider and the driver split the fee.

These enterprises are called transportation network companies (TNCs) and their fast-paced growth into new industries is difficult to keep up with for everyone including insurers. For instance, TNCs purposefully disrupted the livery industry, but they also unsettled the auto insurance markets for personal and commercial policies by blurring the lines between the two separate types of policies. The initial problem, which still exists in some cases, is that almost every driver’s personal auto policy excludes coverage for livery services. This left drivers without coverage from their personal policies while using the car for a TNC, and the TNCs did not insure drivers for the whole time that the drivers were working. To elaborate, the ride-sharing business model has three periods. 1 Period 1 occurs when the driver has the application turned “on,” but is waiting for a passenger to request a ride. Period 2 occurs when the driver accepts a ride request or is “matched”, but the passenger is not yet in the vehicle. Period 3 is when the passenger is in the vehicle and lasts until the ride ends. TNCs initially took the controversial position that only the driver’s personal insurance applied to Period 1, and the TNC-provided insurance did not apply. This forced insurers and courts to determine when the vehicle was considered “for hire.” The predicament exposed insurers for the drivers and the TNCs to unanticipated risks because the insureds looked to fill the insurance gap under the language of existing policies.

Insurers adapted to these new challenges by working with TNCs and legislatures to pass minimum insurance requirements that are now in place in most states. Two main solutions developed from the legislation or the absence of it in a particular area: 1) TNCs purchased commercial policies covering drivers as soon as they turned on the application to find passengers; and/or 2) Insurers began offering personal auto policies with ride-sharing endorsements for drivers that cover the entire time that the drivers are working for the TNCs. These resolutions took six years or more to evolve and they are still not in place everywhere that TNCs operate.

Due to rapid growth in the TNC industry, new insurance coverage issues continue to quickly emerge. For example, early this year, a company that transports medical patients to non-emergency appointments for state-run Medicaid agencies and managed-care agencies announced that it partnered with a large TNC to expand these services into 276 cities.2 According to the announcement, drivers will now be providing rides for medical patients to physicals, counseling, dialysis, adult care, and for on-demand service such as when someone with an illness needs to see a physician with an immediate, but non-emergency, medical need.

By making this deal, the TNC agreed that its drivers will transport a large number of potential “egg-shell plaintiffs.” This term refers to plaintiffs who may suffer severe injuries from minor to moderate accidents due to their pre-existing medical conditions. The potential problem is if the new, and heightened, risk exposure was not properly allocated among the contracting parties and the risk is instead transferred to the existing insurance policies for drivers and the TNCs that were written for normal livery coverage. This is exactly the type of risk-shifting “disruptive” action that TNCs are well-known for taking.

While the details of the aforementioned partnership deal are unknown, it illustrates how the continuing expansion of TNC services will challenge insurers to adapt and keep pace with the changing industry as TNCs expand beyond their original purpose of providing livery services. TNC companies are currently in the process of developing application technology for use in the logistics and transportation industry to hire all types of vehicles including tractor trailers, cargo ships and even airplanes. The same developments are occurring with construction and farm equipment. The advancement of automated vehicles with artificial intelligence will soon revolutionize the industry yet again. Insurers have no choice but to stay abreast of the emerging trends and adjust policy language to address them by developing new underwriting forms. This is not an easy task for an industry built on a measure of predictability and legal precedent. However, the consequence of not rapidly adapting will be that insurers have antiquated policies potentially covering risk that they did not foresee, which will lead to frustrated insurers asking their coverage counsel: “We insured what!?”