The car insurance concerns over car sharing

Allie Johnson

Owning a car can cost you – almost $9,000 a year on average, according to AAA. That’s why some drivers are eager to sign up with companies that let them rent out their own cars for cash. But experts say owners should understand the car insurance consequences before handing over their keys.

“We strongly encourage those who plan to participate in car sharing to speak with their insurance agent so they understand the scope of their individual coverage,” says Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute.

Car sharing, she says, can bring risks ranging from liability in a crash to a renter roughing up your car.

If you want to take your chances, though, personal car sharing – also known as peer-to-peer car sharing – can make owning a car more affordable. The average vehicle owner who signs up with RelayRides, a car-sharing company that rolled out nationwide in March 2012, makes $250 a month, founder Shelby Clark says.

“It can practically pay for the whole car – all the expenses,” he says.

How does it work?

Personal car sharing seems like a pretty simple concept: Owners list their cars online through a company such as RelayRides or GetAround, which offers car sharing in several cities, including San Francisco; Portland, Ore.; and Austin, Texas. Renters go online, find a nearby car that fits their needs, request the car at a certain day and time, get approved by the owner and pay online.

Ideally, according to car-sharing proponents, both sides benefit. The owner collects some money to help cover the costs of having a car – car payment, car insurance, repairs, new tires, tags – while the renter gets to borrow some wheels at an hourly rate. Examples include a black Nissan Sentra in Chicago for $6 an hour and a bright orange electric Tesla Roadster convertible in Sunnyvale, Calif., for $75 an hour.

“The owners feel like they’re helping the renters,” Clark says, “and the renters feel like they’re helping the owners.”

LeeAnn Webster of Chicago says she rented a basic sedan through RelayRides to get to a meeting. Even though it initially felt weird to have a stranger hand over the keys to such a big asset, Webster says she liked the convenience and low cost. “I love it – I’ve recommended it to a ton of people,” she says.

Insurance issues with car sharing

When car personal sharing companies explain how the insurance works, it sounds pretty straightforward. The personal car-sharing company provides insurance. RelayRides, for example, provides $1 million in liability coverage for the car owner and $300,000 for the renter, as well as collision and comprehensive coverage to fix any damage to the car.

“As most personal automobile insurance policies exclude coverage when you rent out your car, we expect that the car owner’s policy would not provide protection during a rental,” Clark says.

If a renter has a crash, he says, the owner files a claim with RelayRides and the company then collects a $500 deductible from the renter, processes the claim and provides alternative transportation while the car is being fixed or replaced.

But insurance industry experts say it’s not that simple. Peer-to-peer car sharing is relatively new – RelayRides launched in 2009 – and car insurers have issues with the concept.

“There are a number of reasons why insurance companies are nervous about personal car sharing,” Worters says.

In fact, insurance experts say, anyone considering a car-sharing arrangement should consider these four possibilities.

1. Your auto insurer might drop you.

If you share your car and it’s involved in an accident, your own car insurance company might decide to cancel your policy, decline to renew it or charge higher premiums, Worters says.

“Premiums for individual coverage are based on personal, not commercial, use of your vehicle,” she says. “Submitting your car to ride sharing exposes your auto to greater risk from weather, traffic and drivers unfamiliar with the vehicle.”

New laws in California, Oregon and Washington, though, protect owners there from having their insurance canceled or their premiums raised in connection with car sharing.

2. You could argue over the facts.

“What if there’s a dispute about exactly when a fender-bender occurred — was it while the rental company’s insurance covered the car or when your own policy did?” Worters says. “Some peer-to-peer car sharing companies are experimenting with data recorders and phone apps to track time, mileage and who’s behind the wheel, so that could help.”

It’s crucial to track exactly when the car is being driven by the owner and the renter, says Pete Moraga, spokesman for the nonprofit Insurance Information Network of California.

3. Your car could lose value.

“What if a person gets into an accident while sharing a car?” Moraga says. “The car gets fixed, but what if the car is worth less now because it has been in a crash?”

4. You could be exposed to liability.

For example, if an accident were caused by poor vehicle maintenance, it could raise questions about who’s responsible, Worters says. “Does that other person’s policy then cover it? Do you have any culpability?” she says.

Also, a serious accident — especially one where claims exceed the coverage limits of the car-sharing company’s insurance — could put an owner at risk, experts say. A February 2012 crash in Boston killed a RelayRides renter and seriously injured four people, raising questions about whether the owner of the car could be sued.

“If you have an accident like that, even though there may be deep pockets, there might be interest on the part of attorneys to try to expose the owner (to liability) as well,” Moraga says.

Clark says that the investigation of the fatal accident continues, but that “we don’t believe an owner should be liable for incidents that happen with their car when they’re not around.”

The bottom line

Consumers who do take participate in peer-to-peer car sharing should raise the uninsured/underinsured motorist limits on their own car insurance policies and also take out $1 million in excess liability “umbrella” policy to cover a worst-case scenario, the Insurance Information Institute recommends.

Worters warns: “People think that they are saving money, and maybe in the short term they are, but they should be aware that they are taking a risk that could prove to be very costly to them down the road.”