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Planning on Renting Your Vehicles on a P2P Platform for Gig Drivers? Be Aware of the Risks – Legal & Legislative

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For gig platforms that self-insure for collision and liability, whatever is paid out in an accident beyond whatever deductible is stated is coming out of the platform owner’s pocket, not an insurance provider. - Photo via Pixabay/cdz.

For gig platforms that self-insure for collision and liability, whatever is paid out in an accident beyond whatever deductible is stated is coming out of the platform owner’s pocket, not an insurance provider.

Photo via Pixabay/cdz.

A lawsuit recently made headlines that, for anyone that knows the peer-to-peer (P2P) rental industry, is regrettable but inevitable given insurance industry developments and this new market.  The lawsuit basically alleges that the third-party platform is denying legitimate accident damage claims that, according to their own policy, should have been covered.

On these P2P platforms, vehicle owners — from enterprising individuals to fleet owners such as car rental companies — list vehicles for rent on a third-party app, as a daily rental or use by gig economy drivers.

The merits of either side of this particular legal tangle notwithstanding, the accident claims issue is the result, in my experience, of the unfortunate vast rate insurance fluctuation in the new mobility area of the industry in a very short time period.  The result — the interests of most third-party platforms often diverge in key areas from those of the owners listing vehicles. Regarding accident collision and comp reimbursement the party with less bargaining power —usually the car owner — is losing.

To fully understand the problem, let’s go back to the beginning, when insurance companies first started covering this new area of mobility in 2018 and 2019. Insurance rates for these platforms, particularly for gig renters such as Uber, Lyft, and delivery, were too low. In retrospect, those rates were clearly below market for the risk engendered.

Insurance Rates Skyrocketed

The risk part has not changed. It’s no secret that in renting to gig drivers in particular you can’t repeal the law of physics, and adverse selection takes hold. First, these gig drivers are incentivized to drive a lot, and it is a fact that the more one drives, the more accidents happen.

Second, many of the folks who rent cars to drive gig are doing so because they don’t have and can’t immediately afford to own a vehicle. This is usually the result of credit or down-payment challenges. This means that for the most part, a high insurance deductible for damage is much less a deterrent than with a mainstream renter — the subprime/deep subprime driver is simply going to walk away from the deductible should there be an accident. 

Finally, you have the “rental car effect” in general as to the quality of care. Most folks do not treat a rental car like they do a car they own. When you add an incentive to overdrive and alleviate down payment responsibility, you are essentially renting your car as a “taxi” with a driver that has no substantive financial responsibility.

Initially, for whatever reason, the insurance folks in 2018 or 2019 didn’t see it that way, and assumed their risk was less. That’s partially because when the driver was on the Uber, Lyft or gig platform the risk was technically covered by the ride-share entity, so the insurance fees were low.

What did Uber eXchange Leasing, Fair.com, and Maven all have in common? They thought they could make money renting to “gig” rideshare or delivery drivers, and they are all out of business.

Towards the end of 2019 the entire new mobility vehicle insurance industry looked at the massive losses they were experiencing in insuring gig rental vehicles. The market went from easy to hard almost overnight. Insurance rates per vehicle went up two, three, even four times in a heartbeat. And, as expected, this caused some major platform/rental vehicle changes just as quickly.

For example: Fair.com quickly got out of the gig rental business, publicly calling out the new insurance rates as the cause. Carsharing platform Maven went out of business altogether, as did many smaller subscription-type programs focused on gig drivers.

Owner Eats the Risk

A lot of the remaining gig platforms, almost by necessity and just to keep end-user consumer costs within reason, went to full self-insurance for collision and liability, and some are even on the hook for a big piece of the first dollars paid out for the liability side of accident claims. So whatever is paid out in an accident, beyond whatever deductible is stated, is coming out of the platform owner’s pocket, not an insurance provider.

Self-insurance isn’t unusual in the car rental industry, particular for the larger operators, but remember, in these cases the owner is the rental company — there are no third-party platforms involved, so there are no inherent expense conflicts.

In the case of the third-party P2P platforms, the owner eats the risk if the claim is denied, not the third-party platform. And unlike insurance companies that are held to regulatory sanctions for denying legitimate claims, non-insurance companies are not held to the same strict criteria.

And unlike most traditional car rental companies, these P2P platforms that rent to gig drivers are still losing large amounts of money per month, funded by private or public investors. They’re now focused on making that bottom line profitable. See the conflicts inevitably increasing? Every dollar paid out to a vehicle owner for an accident claim comes out of their pocket, so how quickly do you think any will be paying or even acknowledging claims?

Our company approached the problem a different way: Rather than shift the burden of risk and expense onto the owner in one form or another, we changed the paradigm of the renter by renting to only those who plan to buy the vehicle they are renting. This promotes an extra level of care and financial responsibility in higher security deposits, and it’s reinforced with enhanced telematics.

Reality of the Risks

My goal here is not to take sides, but to add visibility to the reality of the risks of renting cars to gig drivers in general and on these third-party platforms in particular, given the financial pressures and the inherent conflict of interest between the platform and the vehicle owner in respect to accident pay outs. 

Without proper knowledge and bringing this market evolution into the light, potential vehicle owners are not fully informed of the risks and potential true costs of operations in this area.

Then, with the smaller vehicle owners and organizations, the party that can least afford it (and is not supported by free-flowing investor funds), bears the full brunt of the risk and the expense, which seems unfair. Once this happens the only way to try to right the situation is with legal action, which itself is expensive — but might be a trend in the months to come. 

John F. Possumato is an attorney and founder and CEO of DriveItAway, a technology platform enabling automotive retailers to offer new app-enabled mobility options, focused on innovative rent-to-purchase/drive-to-own programs.



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Menulog to trial employment model for gig workers

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The company, which claims to be second to UberEats, will also examine how it can “bridge the gap” between contracting and employment for its tens of thousands of active riders, such as by portable leave entitlements or superannuation.

It will then use its lessons from the Sydney trial to investigate establishing a new award with the Fair Work Commission and work with the Transport Workers Union to develop a more flexible model for the industry.

“We hope that in a few years time all the workers that are working on the Menulog platform will be employed,” Mr Belling said.

“The big caveat in our plan is we do believe the current modern awards that are out there are not suitable for the industry we’re working in.”

The move contrasts with Uber and Deliveroo which have both rejected an  employment model, with Uber saying 80 per cent of its drivers would quit if they had to work shifts.

However, Mr Belling told the inquiry he “did not see a reason” why his competitors could not move to employment given they had similar business models.

He praised employment as “the highest moral standard” as it gave fair pay and conditions and allowed the company to have greater control over safety, naming recent rider deaths in the sector as a key concern behind its decision.

Menulog currently engages its riders in Europe as employees but has not adopted the same practice in Australia since it started doing gig work in 2018.

If the company moves to the employment model Mr Belling said it would require riders to work exclusively for Menulog and would likely involve minimum shift lengths of two to four hours as per awards.

“Some workers don’t want to do that, some may be willing to do it,” he said. “Knowing what I know today I would say we need to work to have more flexibility than we currently have.”

TWU national secretary Michael Kaine said the announcement was “a watershed moment for the gig economy in Australia”.

He urged the government to regulate the industry so as to “level the playing field” and “protect companies moving to provide essential rights and protections for workers”.

Australian Council of Trade Unions secretary Sally McManus said if Menulog made this more than a trial “we will be calling on all Australians to ditch other delivery apps and only use Menulog”.

Uber and Deliveroo favour a third-way between contractor and employee that would allow them to give riders more benefits, like paid sick leave, without having to reclassify them as employees.

However, Uber has recently been forced to bring in minimum hourly rates for its 70,000 drivers in the United Kingdom after the Supreme Court held they were “workers” – a status between employee and independent contractor – entitled to protections.

Asked about minimum rates of pay, UberEats general manager Matthew Denman told the inquiry that “as long as we’re looking to the period of when they accept and when they complete a trip – ie the engagement time – then certainly we’re keen to engage on any consultation or discussion on that topic”.

“If you look to create minimum rates including wait time that will work against the interests of drivers because it will mean they lose flexibility,” he said.

The company said analysis from Accenture showed that almost all its drivers were earning about $21 an hour and at peak periods were averaging $45 an hour, “so much so that there’s a discussion around creating minimum standards around earnings”.

Labor Senator Tony Sheldon, who chairs the committee, said “granting minimum rates is just the bare bones regulation”.

“The flesh on the bones will be workers compensation, leave entitlements and independent oversight of pay and conditions,” he said.

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The fake innovation of gig companies

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Over the last several months, Americans have heard hundreds of stories about the horrible working conditions of jobs in the so-called “gig economy.” Amazon contract drivers have such brutal delivery schedules that they are sometimes forced to pee in bottles or defecate in bags. Uber drivers are often forced to work ludicrous overtime to make ends meet, much of it waiting for the algorithm to deliver a fare. Doordash paid $2.5 million to settle a lawsuit over allegedly stealing its drivers’ tips (though it denied doing so).

These stories illustrate an important truth about these gig companies: They are not actually innovative, in the traditional economic meaning of the word. Instead they rely on the most ancient employer technique of all: plain old labor exploitation.

Innovation is of course a vague concept, but in economic history the idea typically refers to technology that allows for more production with less labor. The spinning mule and the power loom, for instance, allow the production of huge amounts of cloth with only a few workers, as compared to hand spinners and looms that require a worker for each one. The Bessemer process greatly increased steel production because it required many fewer workers. Manufacturing has become vastly more labor-efficient through the use of techniques like interchangeable parts and the assembly line. Every major industry has a history of this kind of thing.

With that in mind, let’s consider Amazon warehouses. Jobs there are notorious for how management mercilessly regulates the work process with panopticon surveillance. Workers’ every movement is tracked, bathroom breaks are strictly limited, and they are required to maintain a frenzied rate of packing and shipping. Dip below the demanded production metrics, and you will be automatically fired. Documents obtained by The Verge in 2019 found that Amazon was firing about 10 percent of its entire workforce every year at one Baltimore facility.

Now, a lot of technology goes into this system. But it is not using labor efficiently, it is efficiently exploiting labor — more production with more work. Indeed, these warehouse jobs are so brutal that many people end up disabled as a result, with chronic knee, back, or foot problems. That’s whole future lifetimes of potential work burned up because Amazon wants to wring as many possible shipments out of their workers in the short term.

The story is the same with Amazon’s delivery drivers. These work basically just like UPS — a bunch of people driving around dropping off packages. Amazon’s logistics are world-class, but their signature strategy in terms of delivery is profligate use of labor. Whereas UPS is unionized, and so drivers generally get good pay, benefits, and decent hours, Amazon uses (heavily surveilled) disposable contract labor that can be forced to work as hard and as long as possible.

The story with taxi companies like Uber is even more wasteful. The entire value proposition of Uber is based on exploitation — paying drivers as little as possible, especially by shifting the costs of car ownership and maintenance to them. Worse, as Hubert Horan writes for American Affairs, Uber’s ride system is far less efficient than traditional taxi companies. A normal taxi company will own a fleet of cars that are all the same (or just a few models), thus creating efficiencies of scale in terms of purchasing and maintenance. They also must carefully analyze their city to avoid trips that won’t be able to return with another fare, thus keeping rides per miles driven high. But Uber has no such efficiencies of scale, and allows rides to almost anywhere because it subsidizes its fares far below the cost of production, thanks to deep-pocketed investors who are hoping for monopoly profits. (Though these are likely a mirage, as Uber has lost something like $29 billion over its existence, and any attempt to reach profitability will immediately put it at a disadvantage relative to normal taxis.)

Food delivery companies like Grubhub or Doordash are perhaps worst of all. These basically get in between a restaurant and its customers with an app that is convenient for the customer (sometimes putting restaurants on the service without even asking first), and then squeeze the restaurant with high commissions, all while paying their delivery workers as little as possible. One study found San Francisco food deliverers made just $26,000 per year, and that was before expenses. Many app orders for restaurants are straight-up unprofitable — New York City is considering new regulations to limit delivery app commissions for this reason.

Moreover, food delivery is a difficult business — Domino’s, for instance, has its own delivery service, which requires elaborate systems to maximize deliveries per trip and make sure the pizza arrives hot. With gig companies, by contrast, delivery workers can service dozens of different restaurants, leaving little room for coordination or for workers to learn efficient routes for a particular store. That means haphazard delivery paths where food often arrives cold, and workers regularly competing with each other to get their deliveries first, creating big pile-ups and confusion at the restaurant. That’s probably a big reason why even despite all the predatory business practices, not a single one of these companies has ever turned a consistent profit, not even during the pandemic as online food orders soared.

All this demonstrates an important side function of pro-worker policies like the PRO Act to make union organizing easier (which is before the Senate right now), a high minimum wage, and running the economy hot so that unemployment is low. Those of course benefit workers directly by increasing pay and helping labor organizing. But they also change the balance of power between workers and bosses.

All these horrible gig companies rely on a large population of people desperate for work. But if jobs are plentiful and labor scarce, then suddenly they will find it a lot harder to fill ruthlessly exploitative positions. They will have to start offering better pay and conditions, forcing them to economize on labor with real innovation or go out of business. Amazon could probably handle it, but many of these other gig companies likely can’t. And if so, that is all to the good. As Saoirse Gowan and Mio Tastas Viktorsson write about Sweden’s postwar economic model, one prime objective was to ensure that “unproductive firms would not be able to stay afloat by underpaying their workers.” If a company can’t survive without paying its workers decently under good conditions, it doesn’t deserve to exist.



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Taxation in the gig economy – New Straits Times

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