Digital Jitneys

Growing Pains for Rideshare Services

Regulators in several states are moving to define liability for taxi alternatives.
By: | April 7, 2014 • 6 min read

In the long run, ridesharing software services will be part of city transport systems around the country, and the new business they foster will grow markets for commercial lines of insurance. But those eventualities are far down the road.

Right now, ridesharing businesses are stuck in a jam of pending legislation and even, litigation.

When services like Uber and Lyft made their debuts, it seemed like such as simple premise: a virtual clearinghouse of drivers with an empty seat in the car matched with potential passengers willing to toss them a few bucks towards gas.

From the start, the services were adamant that they were software companies, not taxi operators, and that drivers were not even independent contractors, but private citizens willing to give a stranger a lift.


Regulators are starting to see things differently, and the courts will soon weigh in as well. Bills specifying obligatory insurance types and amounts, as well as assigning liability in case of loss, are now pending in at least five states — Arizona, Colorado, Georgia, Maryland and Oklahoma — as well as in municipalities such as Chicago, Seattle, Minneapolis, Milwaukee, Pittsburgh and Dallas.

California was the first state to enact rules governing ridesharing operations, and in a tragic irony, San Francisco is the venue for one of the first lawsuits involving a fatality. On New Year’s Eve, a driver who was registered with Uber, but was not working a call at the time, accidentally killed a young pedestrian at a notorious intersection in downtown San Francisco. The driver was arrested and his case is pending, but the stricken family is also suing Uber.

The first complication, said property and casualty underwriters and brokers, is that private automobile insurance specifically excludes use of the vehicle for hire.

Covering the Gap

In response to the tragic accident, Uber recently announced that it would expand its insurance coverage.

Previously, it required drivers to have $1 million of commercial insurance to cover driver liability from the time they accept a trip request through their app until completion of the ride. Uber also included $1 million coverage for uninsured/underinsured motorists, and contingent comprehensive and collision insurance, up to $50,000 per incident.

Although the company noted that “the vast majority of personal insurance policies” would cover the driver when they have the app open and are available, but have not yet received a transportation request, Uber decided to “cover any potential ‘insurance gap’ by providing contingent coverage of $50,000 for bodily injury for an individual; a total of $100,000 for bodily injury for an incident; and $25,000 for property damage for an incident.

“Uber is taking this step to eliminate any ambiguity while the insurance industry and state governments update policies and regulations for the new world of ridesharing transportation,” the company announced.

R4-14p54-56_07_TransRR.inddLyft also followed suit, announcing it would provide “backstop coverage” to drivers when their app is open but the drivers are not yet providing rides. That protection is to be rolled out over time, state by state, according to reports.

Neither company responded to requests for comment.

“Ridesharing is going on all over the country,” said Robert Passmore, senior director of personal lines policy at the Property Casualty Insurers Association of America. “The California Public Utilities Commission [CPUC] was the first, and so far the only state, to attempt to regulate the business.

“Uber and Lyft and the other rideshare services have always stressed that they are not transportation companies,” he said, “but so far that argument has not convinced anyone.”

Last autumn, the CPUC ruled that rideshare services were indeed transportation companies, but the companies are appealing that decision.

“In our industry, when someone hears words like ‘excess’ and ‘contingent’ coverage, we know that there has to be primary coverage that specifically addresses the activity,” said Passmore.

In the case of automobile coverage just the opposite is true, with personal policies specifically excluding rides for hire.

Passmore said his association and P&C underwriters in general do not oppose rideshare services.

“The reason we are getting involved in this issue is that it does present opportunities for carriers. There needs to be coverage intended specifically to address the risk in question.”

He also noted that many smaller cities are underserved by taxi and radio-car services, so that once the insurance and liability questions are resolved, rideshare services will be a boon for those local economies.

Indeed, he believes that the software firms and underwriters can make it a common cause. “The software companies have a great deal of data about how and where and why people drive and ride. That data is of great interest to the underwriting community,” Passmore said.

Expanding Exclusions

Broadening the focus, Stephen Hackenburg, chief broking officer for national casualty at Aon, said: “We are all working on contingent exposures. The industry is getting smarter, expanding exclusions of negligent supervision, situations where there can be failure of oversight or failure of due diligence. The ISO 2013 general liability policies had expanded exclusions of negligent supervision.”

As an example, Hackenburg offered a scenario: A vacationing family wants to take an off-road tour, and the hotel or cruise ship concierge books them or refers them to one. If something goes wrong, the hotel or cruise line can try to claim that the tour operator is a separate operation.

“But,” he said, “any enterprising lawyer could make a case out of what did the hotel or cruise line do to verify the safety of the tour operator.”


One possible partial solution, Hackenburg said, is the kind of blanket liability policy that some importers are starting to buy to cover their international suppliers.

“If you are a toy company, and something you imported from China is found to have lead in it, it will be very difficult to try to go after some nebulous manufacturer in China. Instead you get a foreign-supplier liability policy and schedule all your sources. You can either just eat the cost, or try to get them to pay for some or all of it.”

He said the same would apply to a large company doing business with small firms that are often undercapitalized. Cruise lines make significant profits from booking land-side tours, but if there is a problem, the vacationers are going to sue the cruise line, not the guy with the jeep.

Hackenburg also noted that there are other options, including creating an affinity program within a captive that small vendors and suppliers can buy into. “We work closely with our clients on contingent exposures,” he said. “There are actually lots of tools available. You just have to have those discussions.”

He said that online businesses from ridesharing to tour booking to international supply chains are bringing more disparate interests together. That creates many new business opportunities, but also a whole new web of liabilities. Far better to make some decisions in advance than when the car is in the ditch.

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]