The car insurance implications of car-sharing

Susan Johnston

Amid concerns about the environment and the economy, “peer to peer” car-sharing services like RelayRides, WhipCar, Spride Share and Getaround are gaining ground.

Environmentalists love these car-sharing services because they help cut down on traffic congestion and pollution. Car owners love them because they can earn money by renting out their wheels. Consumers without cars love them because they’re an alternative to traditional car rental companies or traditional car-sharing programs, both of which have fleets of vehicles on hand.

Not surprisingly, car insurance companies aren’t so keen on the concept.

California and Oregon have passed laws making it easier for car owners to participate in car-sharing programs.

In fact, some insurers say car-sharing services blur the line between personal and commercial vehicles, so they may cancel or not renew a driver’s car insurance policy or increase premiums if a policyholder’s vehicle is involved in an accident while it’s being rented. A vehicle that transports people or goods as a part of a commercial venture means greater liability than a vehicle used just for personal trips, so insurers don’t want vehicles insured under a personal auto policy to be driven for business.

Most state laws are vague on the subject of car-sharing. That has created a “patchwork” of some companies canceling car insurance for people who rent out their vehicles through car-sharing programs and other companies maintaining coverage, according to Pete Moraga, a spokesman for the Insurance Information Network of California.

That’s why it’s so important to understand the car insurance laws in your state.

California, Oregon pass car-sharing laws

California passed a law making it illegal for insurance companies to cancel the policies of car owners who rent out their vehicles.

The California law, which took effect Jan. 1, says that while a vehicle is shared, it must be covered under an insurance policy provided by the car-sharing company. Also, to make the distinction between personal and commercial vehicles, the car owner “can’t make more money than the operating costs of the vehicle,” Moraga says.

Oregon has followed California’s lead. In June, Oregon Gov. John Kitzhaber signed a bill into law that will shield car owners from insurance liability if they rent out their vehicles. The Oregon law, which takes effect in 2012, “reduces the uncertainty” for car owners who want to add their private vehicles to “peer to peer” programs, says Dave Brook, founder of Carsharing Portland and a car-sharing consultant.

Car-sharing questions remain

As Moraga and Brook point out, however, these car-sharing laws leave a few questions unanswered:

• If you’re insured under a pay-as-you-drive insurance policy, how does your odometer differentiate miles you drive versus those driven by a car-sharing member?

• If your car is involved in an accident while it’s shared, who assumes financial responsibility if the vehicle’s value declines even after it’s been repaired?

• How do you report car-sharing income for tax purposes? What if your car-sharing income exceeds the vehicle’s operating expenses?

“It’s a matter of seeing how this plays out in actual experience,” Moraga says. “Even with our law in California, there are still some liability issues and operational issues that come to mind. No law can answer all of the problems that can be confronted with a new service.”

Car-sharing movement still young

Although the United States’ first commercial car-sharing company launched in 1998, the movement remains relatively small. As of January 2011, just 27 car-sharing programs in the United States claimed a little more than 500,000 members, according to Innovative Mobility Research. Brook says the concept is most viable in densely populated urban areas, but that could change as it becomes more mainstream and state legislation clears up concerns about insuring car-sharing vehicles.

Meanwhile, experts recommend that if you want to get involved in car-sharing, you should talk with your car insurance agent, especially if you live outside California or Oregon.

“Generally speaking, there may well be rate increases if you are in a car-sharing program in other states,” says Loretta Worters, a spokeswoman for the Insurance Information Institute. “It would depend on the insurer.”

Even in California, Moraga says, “communicating with your insurance company can help you avoid some of the unforeseen problems.”

Despite the insurance gray areas, experts say car-sharing is likely to catch on in other parts of the country.

“Anything that makes the cost of owning and operating a car more real to people is gonna be a good thing,” Brook says. “When you pay by the hour or by the mile, you make different choices about how you’re using a car. For the car owner, you’re doing good for your neighbor and you’re doing good for the environment.”