Kazumi Naito: Expectations and Challenges for the Japanese Version of Ridesharing from an Insurance Perspective

2024/06/17

In April 2024, the "Japanese version of ridesharing," which allows general drivers to provide paid transportation services to users, was partially legalized in Japan. This Japanese version is characterized by services provided under the operational management of taxi companies, limited to specific regions, seasons, and time slots. While it is strongly intended to supplement the shortage of taxi drivers, the benefits of ridesharing are not limited to solving driver shortages. For example, it is expected to contribute to securing means of transportation in so-called "transportation-poor areas," improving convenience by matching drivers with users via smartphone apps, reducing environmental impact, expanding income opportunities for general drivers, and improving people's health and well-being by ensuring mobility.

On the other hand, to ensure the healthy spread and development of ridesharing, it is necessary to build a system where users can use the service safely and securely. Within such a framework, the provision of insurance tailored to ridesharing is essential.

There are three key characteristics of ridesharing insurance compared to traditional automobile insurance. First, while the policyholder in traditional insurance is primarily an individual such as a car owner, in ridesharing insurance, it is the business operator managing the operations. Second, ridesharing insurance takes the form of on-demand insurance (coverage only for the necessary period) or usage-based insurance (premiums paid according to risk based on data such as usage status). However, even in traditional automobile insurance, on-demand types like daily car insurance and usage-based types like telematics insurance are already becoming popular. Third, as ridesharing is integrated into mobility services like MaaS (Mobility as a Service) in the future, ridesharing insurance may evolve into something like MaaS insurance, which comprehensively covers a wide variety of risks associated with using various means of transportation.

Following the partial legalization of ridesharing, major Japanese non-life insurance companies have begun developing and selling dedicated ridesharing insurance. For example, Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance are selling automobile insurance for taxi operators that meets the licensing criteria for rideshare operators (requiring voluntary insurance or mutual aid coverage of at least 80 million yen for bodily injury and 2 million yen for property damage to guarantee compensation capacity). The characteristics of this insurance include providing coverage limited to the duration of ridesharing operations (on-demand type) and reasonable premium payments based on the number of days the rideshare is active (usage-based type).

Furthermore, the government has begun considering whether to allow operators other than taxi companies to enter the ridesharing business, and discussions are underway regarding the legal systems necessary for non-taxi entities to conduct ridesharing operations.

According to the "Interim Report on Regulatory Reform Promotion" by the Regulatory Reform Promotion Council on December 26, 2023, the "introduction of regulations for thorough safety measures for rideshare operators" is a point of discussion. Specifically, safety measures mentioned include direct legal liability of rideshare operators toward users, verification of drivers' compulsory and voluntary automobile insurance, and the obligation of operators to manage driver operations and insurance enrollment.

In the future, it is anticipated that platform operators like Uber in the United States will enter the ridesharing business in Japan. In that case, it will likely be necessary to develop dedicated ridesharing insurance for operators, using the insurance currently held by Uber as a reference.

According to Uber's website, the applicable insurance changes chronologically depending on the driver's status: the driver's personal auto insurance applies while offline, and Uber's auto insurance applies while waiting for a ride request, en route to pick up a passenger, or during a trip. Additionally, Uber's insurance includes bodily injury and property damage liability coverage (up to $1 million per accident during pickup and trips), as well as uninsured/underinsured motorist coverage and coverage for vehicle damage such as collisions up to the actual cash value of the vehicle.

In this way, dedicated insurance for rideshare operators is required to comprehensively cover bodily injury and property damage liability risks, personal injury risks for drivers and others, and vehicle damage risks, providing coverage that may be lacking in the driver's own auto insurance. Furthermore, since ridesharing involves potential cyber risks such as malfunctions in dispatch apps or cashless payments, as well as risks of trouble between passengers and drivers during transit, the development of dedicated insurance that can address these risks unique to ridesharing is expected.