Last August, I sent an email asking Zipcar to clarify their insurance situation,
and received no reply. In September, I blogged
the issue, and still got no response. Then, yesterday, I got a comment
on that blog which seemed to confirm all my suspicions. I decided to try Zipcar
one last time: this time, I sent an email to their PR agency.
And this time, they responded.
Not just with their own comment, mind you, but with a fully-fledged conference
call between me and three Zipcar employees, all of whom wanted to explain their
insurance setup to me.
Zipcar has now confirmed that they do not provide any liability insurance
beyond the minimum levels they’re mandated to provide by the states in which
they operate. In the case of my commenter Martin, that minimum was $5,000 –
which meant that after he caused $19,255 of damage while driving a Zipcar, he
was responsible for paying $14,255. If he’d been responsible for any kind of
personal damage requiring hospitalization, then his liability could have been
orders of magnitude greater.
Zipcar told me that they’re going to make it much clearer on their website
that their liability coverage is pretty weak; this fact has been very, very
buried up until now. They also told me two other things I should pass on: firstly,
that only a tiny proportion of Zipcar drivers who get into accidents end up
with damage over the state minimum – they say it’s much less than 1%.
And secondly, no one is ever liable for anything unless they’re found to be
negligent or at fault in the accident.
Nevertheless, I have a number of issues with the way that Zipcar handles this
issue, and not only with the way in which they have buried it on their website.
Firstly, they tend to take a very legalistic view of their responsibilities
to their members. Martin complained, in his comment, that he might well have
been able to file a claim with his credit card – but that he didn’t find
out until six months after the event that he owed this money, and that at that
point the 30-day time limit for filing a credit-card claim had long expired.
I asked if at any point in his dealings with Zipcar – and there must
have been quite a few, since he got into a serious accident in their car –
they explained to him that he might be liable for excess damages over
$5,000. Oh no, they said, it wasn’t their job to do that, since they wouldn’t
be making the claim: rather, it was entirely up to the other car driver’s insurance
company whether they made a claim on Martin. The actual Zipcar quote? "It’s
irresponsible to tell someone that they will have a huge financial obligation".
Well yes, it’s irresponsible to tell someone that they will have a
huge financial obligation. But it’s not irresponsible to tell them that they
might have such an obligation, if damages turn out to be more than
$5,000. In fact, it’s the least that Zipcar could have done.
Secondly, if anybody works out that renting a Zipcar gives them huge potential
liabilities if they get into an accident, they’re told, to quote the comment
on my blog:
If our policy does not meet the needs of members/potential members, we encourage
members to contact insurance brokers in their state to learn about additional
options that are available.
Again, this is not helpful. What’s more, buying liability insurance costs some
$300 per year – four times the cost of Zipcar membership. I don’t know
how many times the average Zipcar member uses the service, but in my case it’s
maybe once every two months – which would mean that I was paying $50 per
trip for that insurance.
I was also told, on the phone, that Zipcar was hesitant to provide more insurance
coverage because that might be very expensive: "Our main goal is to keep
prices affordable," said Zipcar’s Kristina.
Now this is where I start getting confused. If much less than 1% of accidents
cause damage which goes over the state minimum, then the total cost of all that
extra liability simply can’t be all that great. It can’t be big enough
to justify a $300 annual premium – that’s a premium suitable for people
who drive every day, which takes into account all the adverse selection problems
associated with the type of people who are likely to buy liability insurance.
If I were Zipcar, I’d look at the numbers for the past few years, and work out
how much it would cost to insure or even to self-insure the liability, at least
up to the kind of limits that rental car companies and insurance agencies offer.
If most drivers don’t get into accidents, and over 99% of drivers who do get
into accidents don’t cause damage over the state minimum, then, really, how
much money are we talking about here, divided between 80,000 members?
But let’s say that if that extra cost was incorporated into the Zipcar rental
fee, then rentals would become too expensive. What should Zipcar do then? The
answer’s obvious: Do what the rental companies do. They don’t force you to take
liability insurance, but if you want it, you can check a box, and – presto
– you have it. Zipcar could do the same thing: When you reserve your car,
simply check a box, and you’ll pay an extra 25 cents per hour or whatever it
would be, thereby getting liability coverage and safety of mind.
Zipcar is apparently looking into this issue, and I hope they implement either
much stronger liability coverage across the board, or at least some kind of
If I were being cynical, I’d say this: Zipcar has known full well about this
issue from day one. But their sales pitch is simple: one fee, and we’ll take
care of everything, including gas and insurance. Check out the page entitled
to Car Rental":
Everything is included
Gas, reserved parking and insurance are included in all of our rates
and there’s no crazy paperwork and waivers to fill out.
It’s hard to tell prospective members that insurance is included, and then
to ask them to pay for insurance. Better to fudge the issue, as they have done
up until now: say that insurance is included, and never really mention that
"insurance" doesn’t include liability insurance beyond the state-mandated
minimum (which you also get from any car rental agency).
I find it fascinating that Zipcar and car rental agencies take completely opposite
tacks on this issue: they both provide exactly the same minimal level of liability
insurance, and they’ve both tried to hide that fact: the car rental companies
because they want to upsell more insurance at a profit, and Zipcar because they
want to seem different to the car rental companies.
On the other hand, maybe I shouldn’t be cynical about this at all, and Zipcar
just made an honest mistake, and they’re doing their best to correct it. I look
forward to seeing what they do, if and when they do it.
UPDATE: I’ve now determined that Zipcar is acting in bad faith. See part 3 for all the details.