Teenage Drivers: Risks Are Larger Than They Appear

It’s a rite of passage and one of life’s first fabulous freedoms—driving a car as a teenager, the entire country within our grasp. Everyone remembers his or her first time at the wheel without a parent or driving instructor barking “Slow down!” Now we are these parents and we fret.

The statistics on teen driving accidents are sobering, a consequence in many cases of the inexperience and immaturity of young people. Thankfully, most accidents involve crashing at low speed into stationery objects like a parking meter, street sign or a parked car. But teens being teens, they sometimes engage in aggressive driving behaviors and take unnecessary risks, thinking nothing bad could possibly happen to them.

These traditional hazards are compounded by the many new threats that have been created by advances in technology. Social media and texting immediately come to mind, but there is another largely unknown financial risk caused by teenage drivers, one of particular import to high-net-worth families. This risk emanates from the car-sharing/ride-sharing phenomenon that appears to have captured the zeitgeist, certainly in the case of the Millennial generation, those born between 1980 and 2000, many of whom are still teenagers.

Car-sharing is renting out a personal vehicle to others, and ride-sharing is using a personal vehicle as a taxi. Both activities can potentially expose the car owners and, if they’re young, their parents to liability. Using a smartphone populated with a mobile car-sharing app, a teenager (let’s call her “Tracy”) links to one of the apps and posts the availability of her car for someone to rent over a specific period of time at a particular price. Young people today who routinely ride bicycles to work, take public transit regularly or simply walk to where they need to go don’t see the need for owning a car; it’s just simpler and cheaper to rent one on the fly using a car-sharing platform.

While perfectly legal—at least for the time being (some states are looking to ban the practice)—car-sharing creates the potential of a unique financial loss. Tim Devin, senior VP of personal risk management at DeWitt Stern, a New York-based insurance brokerage serving a high-net-worth clientele, explains.

“Many people erroneously think the family’s automobile insurance policy will cover a loss caused by a non-family member driving the car,” Tim said. “This is true, unless the other driver leasing the family’s car is engaged in a commercial transaction involving that automobile, which is indeed the case with car-sharing.”

Since “Tracy” would be collecting money from the driver to whom she is leasing her car, she would need to acquire a commercial transit insurance policy, a highly specialized type of insurance that taxi companies buy, to absorb property and first-party/third-party liability losses. As Tim noted, “Chances are her family is unaware of what she is doing, and therefore does not have this policy in place.”

Without the proper insurance, the family would be liable for any financial losses involving the car rented by Tracy’s customer. If this person gets into a devastating head-on collision in which he or she is injured and the driver of the other vehicle is killed, Tracy’s automobile insurance would not respond.

There is more to consider here, as the participants in car-sharing tend to be younger. This makes sense, as older people typically own their own cars and would be reluctant to rent someone else’s car. With younger drivers sharing a car, the possibility of a fatal accident increases markedly. Statistics show that automobile fatality rates are much higher for teen drivers and those with less than six years of driving experience than for adults.

In any car accident, the attorneys representing the plaintiffs will seek financial redress from all parties involved. But as Tim pointed out, the party with the deepest pockets is the most vulnerable. “If the person driving the family’s car has no assets and the owner of that car is a high-net-wealth individual, that’s where the lawsuit will be aimed,” he explained. “If there is no insurance protecting against this lawsuit, the individual’s personal financial assets are at risk.”