Regulatory Reform

Balancing Ride-on-Demand Innovations with Common Sense Consumer Protections

We all can agree that overregulation of an industry tends to chill innovative business strategies and ultimately harm the consumers the regulations were intended to protect. However, in pursuit of free market solutions, policymakers must craft public policy approaches that not only allow free markets to flourish but also protect consumers.

State and local governments across the country are trying to find that balance as they explore regulations involving commercial ridesharing and ride-on-demand services, offered by transportation network companies (TNC) such as UberX, Lyft, and Sidecar.

As previously noted here, these new services have put a new “hi-tech spin” on getting people around town. The introduction of innovative services such as GPS tracking and wallet-less payments into the market has caused these companies to clash directly with the existing taxi cab industry in a debate over how these new services should be regulated.

The debate on the application of a broad range of regulatory issues associated with ride-sharing has emerged in state legislatures in Arizona, Colorado, Georgia, Florida, Maryland, Oklahoma, Virginia and Washington. Additionally several cities, such as Chicago, Dallas, Milwaukee, Nashville, Pittsburgh and Seattle, have examined these regulatory issues at the local level.

While there is a need to examine how traditional state and local livery regulations could hamper competition in the marketplace, it is important to not get fixated solely on the debate over what is and is not considered a taxi. An important nuance often overlooked in the debate is the potential gaps and cost shifting in insurance coverage that affect the public.

Standard personal automobile insurance policies do not cover any damages or losses while a car is being used for commercial ride-sharing. Without the proper insurance coverage, drivers, passengers and the public may not be covered if an accident were to occur. It remains unclear if the commercial policies of the ridesharing firms will fill the gap or leave the public at risk. This lack of clarity is and should be a core concern for policymakers across the country.

While it is essential for business to have the freedom to innovate and bring new competition into the marketplace, it should not be at the expense of protecting the public and  the insurance of a new business model should not be subsidized by shifting insurance costs to the general public.  States and municipalities can allow these companies to provide new, innovative services while still protecting consumers by ensuring that insurance requirements and products are appropriate for the covered activity. Requiring ride-sharing firms to properly insure their drivers and passengers is appropriate and consistent with a public policy approach that does not advantage one business model over another.

Consumers and policymakers alike should welcome the products and services brought by innovation. Similarly, policymakers should not allow members of an established industry to regulate innovation solely as a means to protecting their market share. The free market approach of fostering innovation is not mutually exclusive with ensuring the correct insurance products are required to protect new businesses, consumers and the public.


In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth