The risks of peer-to-peer car sharing

Chris Kissell

Does your car spend much of the week parked in a garage or out on the street? If so, peer-to-per car sharing promises to put a little extra money in your pocket.

Penny-pinchers, unemployed workers and anyone else trying to save a buck can now rent out their cars to others for short periods of time. Typically, a separate company – such as RelayRides or Getaround – matches car renters with car owners. 

The term “peer-to-peer” is used to distinguish this type of car sharing from similar commercial services run by companies like Zipcar. 

Renting out your car may come at a high price, says Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute.

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

Putting yourself at risk

Whenever someone else drives your car, you’re assuming additional risk, says Carole Walker, executive director of the nonprofit Rocky Mountain Insurance Information Association.

“Anytime you allow someone who is not on your policy to driver your car, you take the chance that there will be an accident and your insurance and personal assets are on the line,” she says.

For that reason, you shouldn’t rent out your vehicle unless you carry insurance that will protect you if the renter gets into an accident. Personal car insurance policies do not provide coverage for situations when a vehicle is being used as a rental car, Worters says.

Worters recommends that drivers in most states insure their cars with a commercial policy if they join a peer-to-peer car-sharing service.

Car-sharing services contend that insurance issues should not be a concern for owners who rent out their cars. For example, RelayRides and Getaround offer owners free full comprehensive and collision coverage up to the actual cash value of the car, with no deductible.

In addition, RelayRides offers $1 million in liability insurance that protects owners against claims for third-party injuries and property damage. Getaround offers liability limits equal to those maintained by the car owner in his personal car insurance policy up to $1 million.

Insurance vulnerabilities

However, such insurance does not necessarily mean owners who participate in car-sharing programs have nothing to worry about, Worters says.

“Any peer-to-peer car-sharing service is doing a disservice to its customers by not disclosing to them that they are putting their personal insurance – and perhaps their own assets – at risk,” she says.

When you buy a personal car insurance policy, you disclose several facts to the insurer, including:

• How the car will be used.
• How many miles it will be driven.
• Who will be driving it.

Joining a car-sharing service changes some or all of these details.

“Submitting your car to ride sharing exposes your auto to greater risk from weather, traffic and drivers unfamiliar with the vehicle,” Worters says.

In addition, the car is likely to be driven more miles than previously estimated, raising the odds of an accident. For this reason, some insurers view car-sharing services as a higher risk, Worters says.

“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,” she says.

In fact, the New York Times has reported that insurers such as USAA and Allstate are so concerned about car sharing that they might decline to renew policies for car owners who participate in these services.

Protections in some states

In some states, you have some legal protection that keeps insurers from penalizing you for joining a peer-to-peer car-sharing network. For example, California passed a law in 2010 prohibiting insurance companies from canceling policies of drivers who participate in car-sharing programs.

However, the law lets insurers place other limits on cars used in car-sharing programs, says Pete Moraga, a spokesman for the nonprofit Insurance Information Network of California.

“It does allow insurers to exclude any damage or claim while the car is being driven by a car sharer,” he says.

Another part of the law addresses that coverage gap by mandating that car-sharing programs provide full car insurance coverage for times when a vehicle is being shared. The coverage must be independent of the car owner’s coverage, according to the law.

Oregon and Washington have passed laws similar to California’s, but Worters says such laws cannot be all-inclusive.

As an example, she cites a recent case in Massachusetts where a RelayRides renter was killed in an accident, and four others in a second car were badly injured. Damages could reach $1.5 million, and questions remain about who will be on the hook for the bills.

“No matter how well the legislature tries to anticipate these issues, there may be some issue that the law doesn’t address,” she says.

As a result, Worters urges caution before jumping into car sharing.

“We advise consumers who participate in peer-to-peer ride sharing to read their insurance policies carefully and talk to their insurance agent to make sure they know exactly what is covered,” she says.