MADISON, Wis.—When a credit union makes an auto loan should it also now be asking whether the member intends to drive the car for a ride share service?
Not yet, but it is a question that credit unions should consider today, said Al Olson, staff underwriting specialist with CUNA Mutual Group. During CUNA Mutual Group’s Discovery Conference he pointed out that the number of drivers for ride share services such as Uber and Lyft is skyrocketing, and with that comes additional risk for the auto loan portfolio.
“Earlier this year Uber announced it had more than 160,000 active drivers within the U.S. giving over one-million rides a day,” said Olson. “In 2012 Lyft had 400 drivers giving 40,000 rides a month. Two years later Lyft has 51,000 drivers issuing over 2.2 million rides a month. So as these transportation network companies (TNC) grow, more and more of your borrowers will become TNC drivers, adding another risk element within your portfolio.”
As CUToday.info previously reported, Olson said the risk comes from personal auto policies excluding coverage for losses sustained while vehicles are being used as a “livery” or “conveyance,” essentially a commercial vehicle. TNCs, as well, are not required by many states to provide comprehensive/collision coverage.
Olson said that many TNC drivers may be unaware their personal policies don’t cover them, and will be surprised and unprepared when they have to pay out of their pocket for car repairs due to an accident. He predicts that situation will lead to more defaults.
Olson said that TNCs do provide some insurance coverage that varies based on whether the driver is looking for a passenger, is heading to pick up a rider, or has a passenger in the car. He said if coverage is provided, however, it is generally only liability.
Olson also warned credit unions not to rely on their collateral protection programs to shield them from this liability.
“If you have collateral protection insuring your auto loan portfolio, there is the same exclusion for livery conveyance in the standard collateral protection policy. So with the livery conveyance exclusion within personal auto policies, as well as the livery conveyance exclusion within collateral protection policies, combined with the lack of collision protection from TNCs, we have this emerging risk for credit union loan portfolios.”
Olson said CUNA Mutual offers a new no-cost TNC endorsement to CUNA Mutual Group’s Collateral Protection Blanket Auto policy that protects credit unions from potential loan losses due to damage caused while a borrower is operating as a TNC driver. The new coverage became effective Oct. 1, in most states.
State National Companies, CUNA Mutual Group’s alliance partner for Tracked Collateral Protection Insurance, will also be adding a similar, no-cost endorsement for Tracked CPI customers, Olson said.
In Olson’s chat session, participants asked if a member applies for an auto loan to drive their car for Uber, does this make it a business loan. Olson, and one attendee who weighed in, assumed it would not, as it would be difficult to track usage of the car for personal and business purposes.