Insurance Business is investigating taxi and rideshare clubs in Victoria allegedly selling substandard motor covers to 100s of drivers. These incorporated associations sell coverages without the Australian Financial Services Licence (AFSL) legally required by insurance firms. Some sources say this costs consumers and insurers millions of dollars each year and likely contributes to steeply rising motor premiums.
According to stakeholders, increasing numbers of rideshare drivers with these allegedly substandard covers are being left in debt following car accidents. However, regulators, including the Australian Securities and Investments Commission (ASIC) and Consumer Affairs Victoria (CAV) have repeatedly said they can do nothing about it.
Ross Mutton is managing director of P2P Cover, a discretionary mutual fund that sells taxi and rideshare drivers licensed insurance covers for their vehicles. He compared the rideshare clubs to Ponzi schemes and alleged they collect premiums, refuse to pay claims and invest the proceeds in personal assets.
Many drivers in the rideshare and taxi industries are recent immigrants and not yet Australian citizens. Often economically and socially underprivileged, they can be easy targets for unscrupulous firms.
“Unfortunately, we need an 18- or a 19-year-old white Australian who doesn't have insurance to get hit by one of these clubs and they don't pay - then it's in the headlights [of the regulators and media],” said Mutton.
Mutton is a former taxi driver who started his mutual in 2008 and now insures, he said, about 25,000 taxi and rideshare drivers around the country. He said he has approached regulators about this issue multiple times. He also sometimes helps drivers left in the lurch by rideshare clubs.
“They’re [the regulators] still doing nothing,” he said. “These taxi clubs are trading to a point where they could open up on a street corner and say, ‘Cheap insurance!’ and put out a big sign.”
Mutton said these associations are now also selling covers to private vehicle owners for about half the price of licensed insurance.
“I said to ASIC, ‘What’s next? Are they going to start doing houses?’” he said.
IB asked Mutton what happens when one of his insured customers is in a car accident where the at-fault party is covered by a rideshare club?
“We write it off,” he said. “You can’t [pursue costs] because it’s not an insurance company and they don't have an AFSL and they'll just deny it.”
Mutton said when these firms refuse to pay, taking court action to recover costs is not an option.
“We've tried, you can't,” he said. “We can take the [at-fault] driver to court, because the situation is that he's had the accident, not the club, but he's got nothing.”
Taxi clubs, alleged Mutton, often abandon their members when they are at fault in an accident.
“They're not going to fix this car because they can't get it off the third party.”
However, when the other party is at fault, they actively pursue payment.
“Where these clubs make a lot of their money is when you're an insured and you hit one of their vehicles,” he said. “If you’ve done $10,000 worth of damage to their vehicle, they're going to put that up and go after you for $20,000.”
He said these rideshare clubs also run panel beating and mechanical repairs shops.
“They inflate the repair costs on the vehicle to an enormous value,” said Mutton. “They've tried to have a go at me.”
Mutton gave the example of one his insureds in Victoria who did about $2,000 worth of damage to a vehicle covered by a taxi club. The taxi club, he alleged, sent him a repair bill for $20,000. He refused to pay.
“Then they'll try and get me for four weeks [replacement car] rental as well,” he said. That cost, he alleged, was $300 per day.
“When you've been in the industry as long as I have – I used to own a panel shop – I can just look at it and go, ‘No mate, not happening, see you in court.’”
The response from the taxi clubs to his rejection and legal threat is to “run for the hills and just deny it.”
One argument from the regulators against taking action is that these taxi clubs don’t have an AFSL license.
Mark Nasralla, partner with Griffith Barton Lawyers, wrote to a manager at ASIC, said Mutton, and asked why the regulator was not taking action to stop the sale of these allegedly substandard insurance products? Mutton said the ASIC manager said there was nothing ASIC could do.
“These clubs won't get an AFSL because of the costs of obtaining and maintaining one,” said Mutton.
He said the license cost, together with the auditing and compliance obligations that go with it, costs him about $100,000 a year. “They're not going to do that,” he said. Also, because loopholes in Victoria do actually allow them to sell coverages without this license.
Apart from costing consumers and insurers millions of dollars a year, another linked issue, said Mutton, could be rising motor premiums.
One driver behind the roughly 30% rise in these premiums in recent years, he said, is likely the millions of dollars lost by insurers following accidents involving drivers with rideshare tax club coverages.
“What basically happens, is when you have an accident and you're not at fault and they [the insurers] can't get the third party [because they are a rideshare club member], it's a loss,” said Mutton. “It could be a loss to them of $10,000, so premiums go up.”
IB asked Mutton if he thinks having compulsory third party insurance in Victoria would fix the problem?
“That would help it,” he said.
Mutton said before deregulation abolished compulsory third party property damage for vehicles in Victoria this problem was “very small.”
“Now it is blown out of all proportion,” said Mutton. “It has gotten out of control.”
IB has emailed and phoned several rideshare taxi clubs. None have responded.
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