When a major ride-hailing service recorded its billionth ride last December, it became increasinglyclear that this phenomenon is more than just a passing trend.What's a bit less clear is how extensive the effects will be on theauto insurance industry — and specifically on telematics and usage-based insurance(UBI).

It's not only ride-hailing service providers that are riding thewave. Peer-to-peer providers offering what are commonly known ascar-sharing services andmembership-based car rental services — neither to be confused withride-hailing platforms thatallow members to carry persons for hire — are growing in popularityas well.

One peer-to-peer player based in San Francisco reportedlyprovides a platform that enables car-owner members to earn money byrenting their vehicles for the short term to fellow members who maynot want the commitment of owning a car. According to its website,this provider now serves 2,500 cities and 300 airports. A variationon this model is on-demand, membership-based rental services, whichenable members to lease cars from their fleets for a few hours or afew days.

Another new player to enter the car-sharing market is a majorautomobile manufacturer that recently launched a pilot car-leasingprogram at three Austin, Texas, dealerships, according to reports.The program appears to fall somewhere between a traditional leaseprogram and a car-sharing model.

According to Ford's website, the automaker is offering 24-month leases to"self-organized groups" of three to six people who share the leaseon a vehicle. In conjunction with this program, the company hasalso developed a special app and plug-in device that group memberscan use to reserve drive time (in 15-minute increments), coordinatelease and insurance payments, and handle other car-ownershipresponsibilities.

According to the program website, the group approaches thedealership together, but each member completes a credit applicationindividually. The group members are "jointly and severallyresponsible" for the lease payments, regardless of how they decideamong themselves to share payments; typically, that means if onemember misses a payment, every member is held accountable.

Quickly growing phenomenon

Such car-sharing and ride-hailing programs reflect a quicklygrowing phenomenon. A September 2015 study by McKinsey & Co., a New YorkCity-based management consulting firm, found ride-hailing andcar-sharing services increasing at a rate of 35% each year in theUnited States and, in 2014, reaching 1.6 million members. InGermany, where McKinsey conducted a comparative study, the numberswere even higher, with membership growing 50% a year since2010.

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While the effect of car-sharing on annual vehicle mileage isstill being studied, preliminary findings indicate that a sharedvehicle is used more frequently and its annual mileage couldincrease from 11,700 to 20,400 on average. (Photo:iStock)

We can probably expect the trend to continue its upwardtrajectory. Car-sharing is clearly a transportation mode alignedwith millennials — those of the generation born between 1982 and 2000, thelargest segment of the U.S. population. This cohort seems to haveembraced a sharing economy in general. 

From a car owner's or lessee's perspective, there's a certainlogic behind the growing popularity of ride-hailing. Most cars sitparked and unused 90% of the time or more, according to theMcKinsey study. Again, from a car owner's orlessee's vantage point, there could be an appeal to sharing thecosts (including lease or purchase financing, insurance premiums,and maintenance costs) and maximizing the vehicle's usage.

What are the implications for auto insurers? There are likely tobe risk exposure issues to consider. For example, the McKinseyanalysis reports that while the effect of car-sharing on annualvehicle mileage is still being studied, preliminary findingsindicate that a shared vehicle is used more frequently and itsannual mileage could increase from 11,700 to 20,400 onaverage. 

Insuring shared risks

Current car-sharing models provide insight into how someinsurers have responded to, or are grappling with, a new concept inauto underwriting. The automaker's car-leasing pilot programdescribed previously notesthat group members have the option of obtaining insurance from anyprovider they choose. Meanwhile, the peer-to-peer car-sharingservice based in San Francisco claims on its websiteto provide special short-term insurance through athird-party provider to car owners and renters, following ascreening process. The company also notes on its website, in part,that the special coverage may or may not supplement theindividual's own personal auto policy and advises its members toconsult their "insurance professional" for guidance.

There are also challenges to consider for such UBI programs aspay-how-you-drive and manage-how-you-drive models. One questionmight be:

• How can we best track the driving history of each owner/driverwho participates in car-sharing or ride-hailing services?

From an insurance and underwriting perspective, someconsiderations may include:

• Typically, will insurers issue a single policy that hasmultiple named insureds, or will they issue multiple policies, onefor each named insured?
• How does an insurer accommodate disparities in risk amongdrivers when underwriting a policy?
• How do individual driving patterns affect the overall premiumin a shared model?
• In a scenario where there is one "good" driver and one "poor"driver, will the "good" driver be assessed at a higher rate becausethe other driver represents a higher risk?
• Is it possible to assess risk based on the amount of time ortime of day or week that each person drives and is thereforepotentially exposed to different risks?
• For example, if one person drives the vehicle during theweekday rush hour while the other uses the vehicle only on weekendsor nights, the risks may be different for each driver.

Those are some of the questions and challenges the insuranceindustry will have to navigate as it finds ways to respond to thecar-sharing and ride-hailing phenomenon.

It's always important to remember that with challenge comesopportunity. It will be fascinating to watch for innovativesolutions to emerge — especially within the field of telematics —that address the needs of the car-sharing consumer.

James Levendusky is vice president of telematicsfor Verisk Insurance Solutions at JerseyCity, N.J.-based Verisk Analytics. Opinionsexpressed in this article are his own.