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.”
My Kid Would Never Do That
Many parents probably think the above scenario is too farfetched to ever happen to them. But a study by the Transportation Sustainability Center at the University of California at Berkley estimated that there were 800,000 members of car-sharing sites at year-end 2012—nearly two years ago. Another study by Navigant Consulting indicates that the revenue from global car-sharing will increase from $2 billion this year to $6.2 billion by 2020.
While it may seem implausible that the teenaged children of wealthy parents would not need the cash that would be derived by leasing their cars, not all children of high-net-worth parents are provided substantial allowances. In fact, the opposite is often the case, as successful parents seek to teach their children the value of working for an income.
What should a family do? Have a frank discussion with your children before handing over the keys. This conversation should run the gamut of all the risks they confront specifically because they are teenagers. There’s a great online video we recommend to all parents—Young Drivers: The High Risk Years. Watch it with your teens and then engage them in conversation.
We have found that it makes tremendous sense to bring in the family’s insurance agent to lead these discussions. “You know teens,” said Tim. “Parents talk to them, and it goes in one ear and out the other. But when there is an attorney or agent there who regularly handles lawsuits and claims involving teens telling them the truth, they tend to listen.”
What should the kids know? For one thing, they should be required to successfully complete driver-training courses—not just because this allows for a premium discount but because it makes good sense. They should also understand that some insurers offer a discount to college students away at school.
In this regard, parents need to know where the car is used to determine the relevant rate, i.e., the rates may go up or down depending on the school’s location.
Finally, fill them in on what to expect in the event of an accident. Make sure the police are always called to have an accident report written at the scene. The second phone call should be to you, followed by a call to the agent.
Teenagers are remarkable people, their unflagging optimism and open minds are changing our culture in dramatic ways. Let’s do everything we can to keep them around, safe and healthy; then when they have teenagers themselves, breathe a well-earned sign of relief that those days are over.