One UBER Hurdle For Crowd-Sourcing

The “sharing economy” has taken the world of business by storm, making entrepreneurs out of everyday people and re-defining what business really means.

The idea is simple. People turn their automobiles and extra rooms into crowdsourced taxis and hotels, and customers come rolling in using their smartphones to locate nearby services.

It’s an excitingly fascinating idea on paper and is turning the economic world on its ear, but it’s also an idea that has the potential for increased liability, service abuse, and costly litigation. If all this sounds familiar, it’s similar to what traditional businesses must consider insurance-wise, but crowdsourced businesses are a new frontier, the Wild West of commercial liability, if you will.

One of the big question on everyone’s mind is if these services are being crowd-sourced, how can companies like Uber and Airbnb ensure quality service?

Amazon and eBay actually had this one figured out years ago.

Using a well implemented review system, users can rate the contractors’ performance and service. those with higher scores are put higher up on the calculated list and thus are more highly recommended than those who perform poorly and offer mediocre service. Barring a handful of isolated incidents, the system has paid off and customer satisfaction has soared to the point of these services disrupting the entire taxi, hotel and service industries.

Insurance companies, however, are not convinced.

They have been I asking another question. “Who foots the bill?” In the case of Uber and TaskRabbit, profits are made because its users are considered contractors, not employees. However, a bill passed in California states that Uber drivers are, indeed, Uber’s employees. TaskRabbit has already begun to grant some of its contractors part-time status on its own accord with little repercussion.

It sounds like a small distinction, but it could mean a great deal in deciding who is liable for insurance coverage: the company or the contractors.

The distinction could also mean the difference between being covered by an auto policy or not, or whether that policy should stand or be upgraded to a pricier commercial liability policy. Some ride-share drivers have gotten around this issue and obtained coverage, but this is NOT recommended. In the event of a loss, the insurance company retains the right to refuse coverage. In some cases, this even constitutes insurance fraud.

Some companies like Lyft have implemented basic insurance coverage and background checks for their drivers, but because of the ambiguous nature of the ride-share driver and his/her commercial status, even that may not be enough.

Of course, reliability and liability aren’t the only opponents to the “sharing economy”. The establishment, who is their direct competition, have rallied against the startups, threatening legal action against, boycotting, and even outright attacking their drivers.

Crowd-sourced economy is still in its infancy. There are still things that need to be ironed out and the economy still has some growing up to do, but the service industry is changing. And with it, commercial insurance will change, too.

Sources:
insurancejournal.com
sfgate.com
npr.org
wikipedia.org