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There's a growing market for a smart insurance policy that would fill the gaps we're seeing in the sharing economy.

Drivers for app-based ride services increasingly commit insurance fraud, a San Francisco assistant district attorney told state regulators on Friday.

Some drivers for services such as Lyft, UberX and Sidecar lie if they get into an accident and claim they were driving for personal reasons, Conrad Del Rosario told a state Department of Insurance hearing.

That type of fraud has increased in recent months, he said, as drivers seek someone to pay for repairs when their cars are damaged. The reason: Personal auto insurance doesn’t cover commercial activities, while the ride companies’ $1 million liability policies cover passengers and third parties, but do not cover the drivers and their cars.

“Personal carriers have absolutely no way to detect this fraud,” Del Rosario said. “They’re completely powerless to know when a person is doing (transportation network company) activity … or conspires with a passenger to say that’s his friend he picked up at a bar.”

Another type of fraud, which Del Rosario said is extensive, is rate evasion — drivers who buy personal policies, while intending to use their vehicles full time to carry paying passengers.

To nip that in the bud, he recommended that drivers be required to show Lyft, UberX, Sidecar and similar companies proof that they had informed their personal carrier of their for-pay driving.

The Sacramento hearing delved into who pays when drivers for one of the new generation of companies, dubbed TNCs by California regulators, get into an accident. While the companies all have $1 million liability policies, they only take effect once drivers have accepted ride requests, and they are designed to supplement drivers’ personal policies.

Insurance industry representatives repeated their mantra that personal insurance should not help subsidize commercial activities.

One contentious area is how to handle the period when drivers have logged on to the app to indicate they’re ready for work, but are awaiting requests. Uber has added insurance for this period, which tops out at $100,000. Lyft has said it will also add this insurance.

“The solution is to draw a bright light at app-on, app-off,” said Kara Cross, general council for the Personal Auto Federation of California. “Much like a taxi turning on and off its ‘for-hire’ light; they are clearly open for business.”

But the ride companies said that approach would open the door to fraud.

“The potential … concerns me; you get in an accident and just flip on the app to get our million-dollar liability coverage,” said Beth Stevens, general counsel for Sidecar. “All the drivers are smart; they could quickly game the system.”

Insurance experts also said it’s possible their industry will create new types of products to address the burgeoning market, such as policy additions called riders, or a hybrid of commercial-personal policies.

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Tags: lyft, politics, sharing, sidecar, uber

Photo Credit: Phillip Zakhour picks up passenger Rickey Choi, left, while working for SideCar in San Francisco, California. John Green / Contra Costa Times/MCT

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