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Why ‘trust and safety’ are no longer free on UberX and Lyft

(Flickr user <a href="">Alfredo Mendez</a> )

Uber is rolling out a $1 surcharge today on all rides offered through its less expensive car-for-hire service UberX. This isn't the company's black town car operation, but the down-market version that enables anyone with a spare back seat to give rides to strangers (with smart phones) for money.

The surcharge has an explicit label: It's a "safe rides fee." And it mimics a similar $1 line item that competitor Lyft calls a "trust & safety fee."

So why are your e-hailing receipts growing more complicated? The economics of peer-to-peer transportation services are, too, as companies like Uber and Lyft increasingly fall under the same expectations that govern the heavily regulated taxi industry.

A large part of what's going on here is that most personal auto insurance policies don't cover commercial uses of a car (whether you're using your car to deliver pizzas or people). That means that if you get in a crash while giving someone a ride in your Camry for pay, your regular insurance company probably won't cover it. So, then, who will?

Last year, the state of California became the first to set new regulations for what it calls "transportation network companies" ("ridesharing," the term many of these companies use themselves, is fuzzy and heavily loaded). The California Public Utilities Commission now requires these peer-to-peer companies to carry commercial liability insurance policies worth at least $1 million, while also conducting criminal background checks on drivers and vehicle inspections.

This is the kind of stuff that costs money. And it's precisely the kind of back-end cost that's already baked into your taxi fare. Now, as more cities and states look to regulate peer-to-peer transportation providers, these companies will inevitably need to close the liability and safety gaps created when non-professional drivers use their personal cars to make money. They will need to clarify, as Uber has, that commercial insurance covers drivers even in between trips, on the way from one fare to another and when there's no passenger in the back seat.

Peer-to-peer services of all kinds are predicated on the idea that online markets can create their own trust and safety. When Airbnb guests rate their hosts, in theory, the bad hosts who might fib about their "luxury" condos get weeded out. When Lyft drivers and passengers rate each other, the driver who pulls up in a clunker (or the drunk passenger who gets sick in the back seat) in theory get booted from the community. But at the end of the day, those self-regulating systems don't solve the insurance question. And they're not enough to satisfy regulators who want actual inspections of cars and drivers.

That kind of trust and safety costs actual money. And of course you'll be expected to pay for it, too.