Rideshare services such as Uber and Lyft are recruitingamateurs and college students to be drivers. Considered to be the “perfectpart-time solution” for students and part-timers according to arecent post on an Uber newsroom blog.

And some drivers are using their personal auto policiesto falsely insure commercial activities. This is the new risk:drivers who are insuring their vehicles with personal auto policiesand not advising their carriers of their rideshare activities.

And they're openly sharing advice on how to get away with itwith fellow drivers.

How it started

The ridesharing concept has skyrocketed since its inception in2009. They offer lower rates than licensed taxis through the use ofthe drivers' personal vehicles, escaping most commercialregulation.

Uber is the largest network. According to Fortune, as of October 2016, it had over 40 millionriders and 160,000 drivers. They operate in 528 cities and 60nations worldwide.

However, with most personal auto policies, ridesharing cantrigger a livery exclusion. Driving for profit creates greaterrisks. The cars drive higher miles. More unfamiliar areas aretraveled. Increased exposure to multiple, unknown passengers.

With this new risk, carriers are paying costly injury andproperty claims because some drivers aren't revealing theirrideshare employment. And the drivers are warning their peersthrough chat rooms and social media.

According to a November 2016 Reddit blog, a contributor advised:

“Don't let your insurance company know that you're drivingfor Uber. They did not underwrite the policy for that, and they'llwant you to pay for extra coverage…”

Potential for insurance and application fraud

According to a Forbes article, 95 percent to 98 percent of thedrivers may be hiding the fact they're driving for a rideshareservice. A driver said, “It's a whistling-past-the-graveyardattitude.”

A Business Insider article posted results fromrideshare drivers:

• 92 percent of the drivers hadn't told their personal carriersabout their jobs.

• 72 percent of the drivers were not familiar with the details ofthe rideshare's coverage.

Carriers, agents and underwriters need to recognize thismindset, since it creates new potential for insurance andapplication fraud.

Drivers even share advice on how to get claims paid after anaccident has occurred. According to a post on UberPeople.net:

“Next time, if you are empty and have an accident, removeall your Lyft/Uber signs, and don't tell your insurance you weredoing this if you don't have full coverage…”

The drivers fear they will be cancelled by their own insurancecarrier as a result of their misrepresentation. A contributor onthe same site warned:

“If you never mentioned you were doing rideshare in thepolice report, you may want to go with your personal insurancebecause Lyft won't touch it without that deductible. Whatever youdo, don't tell your insurance you were doing rideshare. They willdrop you and your insurance will go up.”

Rideshares' policies come with strict guidelines

Ironically, rideshare companies offer generous liabilityinsurance coverage, up to $1 million for injuries. Collision andcomprehensive coverage is available under certain conditions. Thecoverage is offered based on what “period” the driver was in whenthe accident occurred. Periods are verified based on thepick-up/drop-off times on the rideshare app.

However, the rideshares' policies come with strict guidelines.Just the slightest circumstance can jeopardize coverage. This couldtempt drivers to misrepresent the facts to their own carriers toobtain benefits under false pretenses.

(Photo: Shutterstock)

Examples of the “periods”

Here are descriptions of the various “periods” for a ridesharecompany driver.

• Offline – When the driver's app is turned off.The personal auto policy would insure the driver. Fraudulentexposures could occur when drivers work “off the books,” takingrides for cash, or if they believe their personal insurance ispreferable (e.g., lower deductible.)

• Period 1 – The driver is online and availablefor hire. They're awaiting and seeking ride requests, but haven'treceived any yet. This could involve heavy driving (circlingaround) in high-traffic/high-exposure areas that most insureds donot expose themselves to.

• Periods 2 and 3 – The driver has received arequest “en route” or transporting riders “on trip.” The ridesharecarrier provides liability and limited first-party coverage duringthese periods. Exposures for fraud arise if the driver believesthere's an advantage to going through his own carrier (e.g., lowerdeductible or losing his ability to work.)

Drivers might submit claims to their personal insurance for fearof losing their permit to drive for the rideshare (“deactivation”)or due to higher deductibles. Uber reportedly has a $1,000deductible; Lyft's is $2,500.

In addition, the driver may not report the accident to therideshare company for fear of losing their livelihood. Some driversbelieve they don't have a choice. According to one chat room driver:

“I don't recommend calling Lyft in case of an accident…Ihave a police report stating it was the other driver's fault. ButLyft doesn't care, deactivated my account…They will deactivate youand you can't drive for Lyft anymore. Beware!”

Risk of staged accidents

If any unscrupulous party wished to stage an accident to obtainbenefits, what better target than a vehicle with a million-dollarpolicy? Better yet, with the rideshare app, the origin anddestination are known in advance. The perpetrators could plan thepick-up and drop-off points, and the route in between, perhaps in adesolate area.

Inexperienced drivers could be vulnerable to skilledconspirators.

Related: Protecting clients who participate in the sharingeconomy

(Photo: Shutterstock)

Phantom accidents

Another type of staged loss could occur if the driver reports aloss from a fictitious hit-and-run accident. Again, this exposesthe carriers to the rideshare's high limits for the passengers, whomight participate as false witnesses.

Questionable app status

Drivers might pursue fares with their app in the “off” position.Imagine an airport or large city where passengers hail cabs. Somedrivers have accepted jobs for cash. In an offline status, theirpersonal insurance would come into play, creating a major exposureto any third-party passengers.

Education & recommendations

Carriers are already revising and interpreting their ownpolicies since rideshare businesses are only growing. Educatingagents, employees and customers on the differences in ridesharecoverage versus personal policies is essential.

To adjust to the new world and minimize any fraud exposure,carriers might elect to insure rideshare drivers — if theydisclose the activity during the application or renewal process.The product can then be properly rated.

Many of today's applications do not ask specific questions toreveal the exposure. Perhaps add key questions such as:

• Do you drive for any rideshare service? If so, which one(s)?

• How long have you worked for a rideshare service?

• What vehicle(s) do you use for rideshare fares?

• Do you consider your rideshare service your primary job?

The rideshare industry is not a fleeting concept. The companiesare actively recruiting new drivers daily. The drivers themselveshave methods to communicate insurance advice online. As anindustry, we need to similarly keep up and adjust our processes toremain savvy against any potentially-adverse exposures.

Richard Wickliffe, CPCU, ARM, CLU, ([email protected]), is in leadership in theinsurance industry. He enjoys writing and speaking about uniqueinsurance and fraud trends. His articles have appeared in Claimsand National Underwriter. In addition, he has published severalnovels and was just awarded Best Popular Fiction by the FloridaBook Awards.

Related: Personal auto policies: 5 questions agents shouldask buyers