CA legislators threaten Uber, Lyft

A new bill will determine whether California remains the world leader in innovative technology — or starts to block progress.

Assembly Bill 2293, by Assemblywoman Susan Bonilla, D-Concord, would severely limit the ability of startup companies to use social networking technology to link passengers with independent, licensed drivers. The startups, such as Uber, Lyft and Sidecar, don’t actually own the cars, only the linking technology.

Though their approaches vary, the services amount to a high-tech version of ride-sharing, as when a college student puts up a sign on a bulletin board, “Driving from S.F. to L.A., need passenger to share gas costs.”

In these new services, a passenger uses an application — or “app” — on his smart phone or computer to set up a ride with the independent car and driver. The tech company charges a fee.

But the new services directly compete with taxis, who are seeking legislative protectionism. AB2293’s weapon is insurance law.

Currently, so-called “transportation network companies” like Uber insure drivers during the times passengers are inside their vehicles. Drivers rely on their personal auto insurance when they’re not carrying passengers. But AB2293 would require the companies to insure the drivers from the moment they turn on their services’ apps in their cars — regardless of whether there’s anyone else in the car. Theoretically, this would cut down on distracted driving and defray costs.

In practice, the politics and economics surrounding the bill are more complicated. California has joined the growing list of states, currently 11 strong, where Uber’s insurance practices have received unwanted attention.

Tilting the scales

Alone, AB2293 isn’t enough to force the new transportation companies out of business. Its insurance requirements, however, are substantial enough to raise questions about whether Assemblywoman Bonilla is using the power of government to try tipping the scales of the market.

Taxis are required to provide primary, full-time insurance coverage. Transportation network companies aren’t. They, like cab companies, provide over $1 million in commercial liability insurance to their drivers. Unlike cab drivers, however, drivers for Uber and similar companies only get to access that insurance as excess coverage, meant to pick up where drivers’ personal insurance policies leave off.

That’s a problem for the business and government entities that craft California’s insurance law. Insurers and the Department of Insurance agree, as KQED reports, that drivers’ personal insurers won’t actually pay up when liabilities are incurred in the course of drivers’ work with Uber, Lyft or Sidecar. That, in turn, makes those services seem cheaper than they are. They can lower their prices to a point that makes them competitive against cabs, while, the argument goes, hiding the cost and the risk run by hoping drivers’ personal insurance will do most of the work in an accident.

But in many areas and cities, that’s not the main challenge facing the transportation network companies. More important, their business activities as a whole are illegal or exist in a legal gray area. That’s why, ironically, some cab drivers oppose AB2293, which could help legitimize their competition and give some legislators an incentive not to regulate them any further. Owners of taxi and limousine fleets, by contrast, have pushed hard to discredit Uber, Lyft and others.

Parity

Bonilla’s bill is intended to bring some parity to the insurance requirements facing taxis and transportation network companies. But according to the companies, it goes so far that it locks an inequity into the system. A Sidecar spokesperson warned that Bonilla’s requirement of $750,000 worth of coverage when an app is “on,” but a driver lacks a passenger, amounts to “more than 20 times higher than what is required of taxi and livery services.” Since Sidecar’s drivers drive their own personal vehicles, the spokesperson continued, “It’s clear there is less risk when there is not yet a passenger in the car.”

Despite the opposition of some cab drivers, AB2293 reinforces the notion that government reflexively protects the established taxi industry from new, outside competition. Since the rise of Uber, the taxi-hailing public has become increasingly aware of how cabs rely on preferential regulation for their dominance.

In some cities, regulatory benefits have given way to outright corruption. On the heels of a scorching expose in the Boston Globe, columnist Edward Glaeser summed up the problem:

“The purpose of taxi regulation is simply to protect passengers against being fleeced by unscrupulous cabbies, and to keep passengers, bystanders, and the environment safe. Yet the system instead has evolved mainly to enrich the holders of government-issued taxi medallions, even as taxi drivers struggle to earn a living and passengers pay some of the highest rates in the country.”

A complicated equation

AB2293 follows on the heels of another piece of legislation, AB612, which would impose a raft of new requirements on Uber and its competitors. Under AB612, drivers would be forced to accept permitting, fingerprinting, drug tests and background checks. Taxi drivers already often must endure extensive licensing requirements and processing.

At the same time as Uber confronts legislative challenges to its business model, the service has encountered new resistance from some of its own drivers. Last month, a sizable protest gathered drivers outside the company’s Santa Monica offices.

Pushing for greater communication and corporate accountability, the drivers have also struck up a relationship with Teamsters Local 986. According to a union press release, Local 986 will offer “guidance and support in forming an association for app-based commercial drivers, including all drivers who utilize the Uber, Lyft and Sidecar technology platforms.”

The shifting balance of support and opposition to those platforms has created a complicated political and economic equation. The University of California, for instance, touched off a related scandal when its head of travel, Belinda Borden, mistakenly fired off an email announcing that all “peer-to-peer” services, from Uber to Airbnb, were now banned from UC employee use.

In fact, the decision is only under consideration. The cost increases it would trigger, however, were enough to draw fire from ex-officio UC Regent and Lt. Gov. Gavin Newsom, who told UC chief Janet Napolitano in a sharply worded letter that hurting the bottom line and stifling innovation made for a bad combination.

With insurance companies and trial lawyers backing Bonilla’s bill, however, Sacramento will have to stand up to several traditionally powerful special interests in order to keep California’s transportation market free and open.