Zipcar defends ‘threadbare’ ($300K) coverage

Confusing article in Saturday’s New York Times about insurance offered by Zipcar’s car-sharing service.

(Zipcar is a car rental firm that targets the urban customer who rarely needs a car. Think of someone who lives in Manhattan, Center City Philly or near Chicago’s Loop. A customer pays an annual fee to buy the right to rent a car from one of Zipcar’s lots, located near the customer’s residence. Instead of renting by the day or week, Zipcar rentals usually run just a couple of hours – perfect for a shopping trip or a jaunt to the ‘burbs for a friends’ barbecue.)

The NYT complaint: Zipcar’s liability coverage has a limit of ‘only’ $300,000 per accident, “no matter how many people they may hurt.”

If you spend any time in the personal auto space, you see the issue immediately: Few auto owners buy more than $300K coverage. Most states require $50K to $60K limit.

More to the point:

  • Zipcar offers $300K liability coverage automatically.
  • All competitors that I’m aware of offer less.

Shouldn’t Zipcar be praised, not scolded?

Not to the Times’ Ron Lieber, whose column in addition takes on another car-rental leader:

Zipcar and Hertz car-sharing drivers, however, ought to consider the worst case. That’s what insurance is supposed to be for, after all, and neither company’s coverage protects people from it. Would it be so hard to give customers the option to buy a lot more coverage for a bit more money?

Zipcar has known about this issue for many years. I first wrote about it in a Wall Street Journal column in 2005, when the liability coverage was identical to Hertz’s current offering. Felix Salmon, a blogger for Reuters, has periodically hammered away at Zipcar since that time, too.

The Times states, correctly, that a person worth $1M+ won’t be shielded by a mere $300K limit and finds attorneys who agree that, yes, they would sue an at-fault rich guy for more than $300K. And it notes that people with that kind of money ought to have a personal umbrella policy, anyhow.

And it points out the data are on Zipcar’s side:

According to a Zipcar spokeswoman, Colleen McCormick, the $300,000 in coverage has been adequate for every accident since it began operations. She added that more than half of accidents involve only the Zipcar vehicle itself. When another car is involved, 93 percent of the accidents have resulted in claims of less than $10,000, and 99.3 percent result in claims of less than $50,000.

That makes the company pretty lucky. Sure, accidents with injuries are rare, but what happens when they do occur? According to ISO, a data provider to insurance companies, about 2 percent of bodily injury liability insurance claims in the United States are for more than $300,000; in the State of New York, it’s 3 percent.

Lucky? Don’t have the data to really analyze this, but I’d guess that a decade-old company with enough short-trip customers to float a well-received IPO probably has more credible experience regarding its customer base than ISO. And I’d be surprised if ISO disagreed.

For an interesting discussion of this subject, check the comments to the Times’ Bucks blog. Comment 13 (Bimmer) nails it:

This is really making an issue out of not much. There are many people driving around their own cars with far less than $300K in liability coverage. So Zipcar offering $300K is actually more than I would have expected.

The fact that they’ve never had an accident that’s exceeded $300K is actually pretty meaningful, despite your dismissing it as nothing.

If you have moderately significant assets, then you should have some sort of insurance like homeowners or auto or something that you can easily add an umbrella policy to. That’s the answer – not Zipcar redoing what’s working just fine for its members now.

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