Insurance Issues With New Car Sharing Companies

Car rental companies have been around about as long as cars have. The model is very simple: the rental company owns a fleet of cars and drivers rent them from the company. When you rent a car, a combination of your own insurance and the insurance carried by the rental company covers you for any accidents that may happen. Incidentally, many experts recommend against buying the supplemental insurance that rental car companies peddle at the counter. (Check out our prior post: Renatl car insurance – do you need it?)
However, while they’re still no big threat to traditional car rental companies, there’s a whole new car borrowing game in town. The first major player in the new car sharing world was Zipcar, which is now available in most urban US and European centers. Zipcar, like a traditional rental company, owns its own vehicles. The difference between Zipcar and Avis or Hertz is primarily in technology and convenience. With Zipcar, you sign up for the service online and then can pick up a car in your neighborhood more or less whenever you want. Zipcar is convenient but now there’s a new paradigm out there that promises to be even more groundbreaking.
Companies like RelayRides, Getaround, JustShareIt and Wheelz don’t own their own fleets of cars. Instead, they use yours. In a business model that’s like couch surfing for autos, a car owner can opt to rent out their car to previously vetted drivers. At first glance, it seems like genius. Owners are delighted by the idea that instead of their cars sitting idle all day, they’re out there working and making money. The renters get all the convenience of owning a car without the hassles and daily costs. And the environment heaves a sigh of relief.
Unfortunately, not all the kinks have been worked out yet – you might risk your auto insurance, or more. There are also many unanswered issues which the article raises, such as: What if a catastrophic accident results in a claim of more than $1 million, are you liable? What if you haven’t been taking good care of your car and that contributes to an accident?
Traditional car insurance is not set up for this kind of car sharing and major insurance companies are strongly recommending against participation. Most insurance agencies feel that renting out your car is a violation of the terms of your car insurance policy. The New York Times reports that the Insurance Institute of America, in an emailed statement, said “If the ‘renter’ were involved in an accident, most likely the insurer would non-renew or maybe even rescind the auto policy,” USAA, quoted in the same NYT article, says that “We would inform them (the car owners) that participating in such a program will generally result in non-renewal.”
Still, it may be too soon to write off these companies completely. Given the convenience and undeniable appeal of these nontraditional car sharing programs, insurance companies may figure out some way to keep everyone happy.