Ridesharing services, which have created a new business category referred to as Transportation Network Companies (TNCs), have been with us for about 10 years now—and have created a new form of hybrid insurance risk that represents a mix of personal auto and commercial exposures that simply did not exist before.
This revolutionary service, enabled by smartphones, has become so popular that many TNCs are now household names in their respective countries or regions: Uber, Lyft, Cabify, Grab, DiDi, 99, Easy Taxi to name a few. While the share of Americans using ridesharing services doubled between 2015 and 2018 to 36%1, growth has been just as rapid in Latin America, with more than 25 million monthly active riders across 200 metropolitan areas and 15 countries. The combination of inadequate public transportation, concerns for personal security, the prevalence of “non-circulation” days in major metropolitan areas, and the rapid expansion of smartphones in Latin America laid the fertile groundwork for the explosive growth of TNCs in Latin America.2
The earliest headlines heralding the entrance of TNCs into a new market tended to focus on the lack of suitable regulations and conflicts with the traditional taxi industry, but another important subject quickly followed—the important role of insurance in protecting both drivers and passengers involved in ridesharing accidents.
As in the United States, personal auto insurance policies throughout Latin America exclude coverage for providing taxi-type services. The need for this exclusion is obvious: most insurers do not want to inadvertently assume this difficult risk at inadequate pricing. As a result, companies can deny coverage for claims made by customers who have not explicitly declared to their insurer that they use the vehicle to provide remunerated transportation services.
Ridesharing has created a new challenge for insurers around the world. Any person driving for a TNC is a kind of hybrid risk that combines personal auto and commercial exposure. However, with so many customers becoming drivers in the 21st century ‘gig economy’, many insurers are conflicted: they have seen underwriting losses mount from this class of business, but they also want to find ways to serve this segment as it continues to grow and touch the lives of so many of their customers, either as drivers or passengers.
In a 2015 white paper3, the National Association of Insurance Commissioners (NAIC) articulated the concerns of U.S. insurers, highlighting that those driving for TNCs face heightened risk due to:
Insurers in Latin America could add a 7th factor to the NAIC list: increased auto insurance fraud. One insurer in Mexico experienced a theft frequency three times the national average with TNC vehicles. Common schemes include ‘owner give-up’ fraud, when an insured having difficulty making their car payments arranges to have the car stolen and then files a claim with the insurance company; and ‘premium-leakage fraud’, in which an insured does not report that they drive for a TNC in order to avoid paying higher premiums.
Denying claims is not something a reputable insurance company wants to do—it isn’t great for their reputation. But good insurance companies do take seriously their financial responsibility to protect honest customers and their shareholders. As insurers in the U.S. and then Latin America began to deny claims related to uncovered TNC exposure, pressure increased on both lawmakers and insurance companies to find regulatory and insurance product solutions to this new kind of hybrid exposure.
In 2015, the Mexican Association of Insurance Companies (AMIS) reported that the loss ratio on TNC exposures had climbed to 200% (a normal Auto loss ratio in the Mexican market is 65% – 70%), and that prices for TNC exposures specifically had climbed by 300% – 400%. Insurance companies started telling their claims adjusters to look for tell-tale signs of ridesharing exposures at the scene of the accident, such as a ridesharing company’s corporate logo on the windshield, two mobile phones in the front of the car, and small water bottles or candies in the back. If the driver had not declared the use of their vehicle for providing TNC services, their claim should be denied
Product solutions quickly emerged in Latin America similar to those initially developed in the U.S., facilitated by the multinational presence of both TNCs and international insurance companies. While products diverge somewhat because of differences in local laws, local market forces and insurance company risk appetite, most TNC products in Mexico, Brazil, Colombia and Chile fall into two categories, TNC products and Individual Auto hybrid products, and have similar characteristics.
As the TNC market segment evolves and insurance companies partnering with ridesharing companies gain more experience with this class of business and collect more data, it is likely that the current first generation products will evolve to include additional segmentation and pricing variables. While rideshare drivers will always have more exposure than pure personal auto drivers and consequently pay higher premiums, clearly not all TNC drivers are the same. As users of TNCs, many of us have chatted with our drivers and are familiar with the wide variety of drivers that are out there. Some drive more hours per week than others; some drive during rush hour while others drive the graveyard shift; some are up to their necks in debt while others are doing OK; some are more courteous and conscientious about the passenger experience than others; and some are more subject to distracted driving. All of these factors are predictive of the future number of accidents each of these drivers may have.
TNCs have a vested interest in providing their customers with safe, stress-free rides, as well as making sure that the inevitable accidents do not detract from their reputation due to a poor insurance claim experience. Insurance companies have a similar interest in growing their business while aligning premiums to expected exposure so they can continue to provide an excellent claims experience to their rideshare customers into the future. This alignment of interests, together with the vast amount of data collected by both TNCs and sophisticated insurance companies, will continue to drive the development of segmented pricing that incentivizes safe driving, which is in the interest not only of TNCs, rideshare drivers, passengers and insurance companies, but of society as a whole.
1Pew Research Center, Survey conducted Sept 24 – Oct 7, 2018
2Latin America and the Caribbean are surfing the ride-hailing wave, by Guillermo Mulville, Juan Gabriel Flores, Feb 8, 2019 IDB | Invest
3Transportation Network Company Insurance Principles for Legislators and Regulators, NAIC, 2015
David Heard is Senior Vice President, Personal Lines & Agency, Chubb Latin America; follow him on LinkedIn.