Madison Officials Recommend Misguided Rideshare Regulations

Earlier this week, members of a Madison, Wisconsin city subcommittee recommended misguided rideshare regulations relating to insurance, surge pricing, and hours of service that reveal a confused understanding of how ridesharing works.

If the subcommittee’s recommended regulations are implemented, companies such as Uber and Lyft, both of which provide ridesharing services, will have to provide at least $1 million worth of insurance coverage once a rideshare driver is logged into their app, regardless of whether there is a passenger in the car. In Madison, taxis are required to be covered by auto liability policies worth at least $1 million per accident. 

The $1 million insurance requirement in place for Madison taxis is higher than the insurance requirements in many other cities. In New York and Los Angeles, regulations require taxis to have at least $300,000 of coverage per incident. In Washington, D.C., taxis must have at least $50,000 per incident in coverage. Chicago requires taxis to be covered up to a combined single limit of $350,000 per incident.

It should be noted that both Uber and Lyft already have a $1 million policy in place from when a driver accepts a ride request to when a passenger is dropped off. What ridesharing companies will almost certainly object to is the recommended $1 million of coverage for the time when a rideshare driver has a rideshare app open but has not accepted a ride request. As it stands, both Uber and Lyft offer coverage for this time period worth up to $50,000 per individual per incident, $100,000 per incident, and $25,000 per incident for property damage. This coverage is designed to kick in if a driver’s personal auto insurance declines a claim.

California and Colorado, which have both passed legislation related to ridesharing insurance, mandate coverage very similar to the coverage already offered by Uber and Lyft for the period when a driver is logged into a ridesharing app but has not accepted a ride request. The differences between Uber’s and Lyft’s policies and the California and Colorado legislation are that the laws in Colorado and California require that the coverage be primary and that the property coverage be $30,000 rather than $25,000. The laws’ requirements go into effect on January 15, 2015 in the case of Colorado and on July 1, 2015 for California. 

In addition to insurance requirements subcommittee officials have also recommended a ban on “surge pricing” at times of peak demand. Both Uber and Lyft change the price of rides at busy times such as holidays when demand is high. Uber’s surge pricing policy was in the news shortly after Halloween this year when it emerged that a few individuals had paid enormous fares after they took an Uber ride during a time of increased demand. While some might think that Uber fares during “peak demand” are excessive, it is worth keeping in mind that before an Uber passenger can request a ride while surge pricing is in effect she must input the amount of the surge in the Uber app. In addition, the Uber app allows for users to estimate their fare. Likewise, Lyft informs users “prime time” fares are in effect before they request a ride.

What the surge price ban proposal reveals is a misunderstanding of how ridesharing works. Ridesharing drivers are not professional drivers and drive whenever they want. During popular times of partying or celebration (such as New Year’s or Halloween), rideshare drivers may have to decide between partaking in the festivities and driving. Surge pricing helps incentivize rideshare drivers to meet demand during busy times by allowing for increased profit. If passengers do not like surge pricing, the market will reflect that very quickly, so there is no need for Madison officials to interfere with the surge pricing systems in place.

Another set of recommendations made by the Madison subcommittee relates to hours of service. According to the recommended regulations, ridesharing companies will have to ensure that drivers are available 24/7 after one year of licensed service in Madison. This requirement, like the surge pricing ban, reveals a misunderstanding of ridesharing. Uber and Lyft do not control when drivers turn on ridesharing apps, rideshare drivers drive when they want. Regulators ought to leave the issue of driver availability to market forces rather than concern themselves with when private car owners use an app.

The regulations proposed by the Madison subcommittee betray a misunderstanding of an industry officials ought to welcome rather than burden with unnecessary regulations. Let’s hope that when the recommendations are put before the Madison Transit and Parking Commission next month, its members will realize how misguided these recommendations are.