Updated at 2:29 p.m.

The state’s top insurance regulator is warning the city about “unacceptable” gaps in app-based transportation company insurance coverage after reviewing a policy from UberX.

Minneapolis enlisted the help of Tim Vande Hey, the deputy commissioner for insurance in the Minnesota Department of Commerce, as it crafts new regulations governing companies like Lyft and UberX.

Those “transportation network companies,” which allow people to essentially become chauffeurs of their personal vehicles, are currently operating illegally in Minneapolis since city regulators say they must be licensed as taxicabs under existing ordinances.

In a letter to the city, Vande Hey said the commerce department believes “there are significant gaps in insurance for both the drivers, passengers and pedestrians using TNCs.” In a separate consumer alert, the department said users of the apps should carefully check both personal policies and those held by companies like Lyft and UberX.

“Finding out after-the-fact that you have gaps in coverage can mean serious financial devastation,” said commerce commissioner Mike Rothman. “Take steps now, ahead of time, to ensure you have the coverage you need.”

At issue is how the UberX commercial insurance interacts with the personal policies held by the drivers. UberX has said the policy, provided by James River Insurance Company, “supplements a driver’s personal auto insurance” and can also become primary insurance if the personal insurance does not apply. Read the full policy here.

But Vande Hey noted that commercial auto insurance was not intended to be supplemental to an existing personal auto policy.

“Commerce recommends that the TNC obtain a commercial auto policy that provides first dollar coverage adequate for the needs of their drivers and customers with no expected reliance or subrogation attempts with the TNC driver’s personal auto coverage,” Vande Hey wrote, adding that the lack of adequate coverage exposes drivers, passengers and other drivers to “unacceptable gaps.”

Just when the commercial insurance policies kick in is relevant, as a recent fatality involving an UberX driver and a 6-year-old girl demonstrated in San Francisco. A proposed city ordinance says the policies must be in effect for all drivers “active on the TNC dispatch system,” which includes when drivers are logged in on the app, have a passenger in the car or are en route to pick up a passenger.

Kenny Tsai, UberX’s general manager in the Minneapolis market, said that they have requested a meeting with the commerce department to discuss their review of the insurance program. He said their coverage meets and exceeds Minnesota standards, and there is additional coverage that the department did not review.

“The coverage is excess to the driver’s own policy, but it acts as primary insurance if the driver’s policy is not available for any reason, covering from the first dollar,” Tsai wrote in an e-mail.

Vande Hey expressed concern that James River is non-admitted, or not expressly licensed, by the state. That could expose drivers or passengers to risk if the company cannot meet its financial obligations. Tsai said the company was rated A- by A.M. Best, a rating agency.

The UberX policy does not include personal injury protection endorsements, Vande Hey wrote, nor does it appear to cover collision or comprehensive damages if a car is used as a livery.

Regarding the collision and comprehensive damages, Vande Hey wrote, “It is possible such coverage could be picked up under the Property Damage liability portion, but again it is difficult to determine from the policy specimen provided to the Department.”

The app-based companies have raised the ire of the taxi industry, who complain the city is setting up a two-tier regulation system that is more burdensome on on taxicabs. In response, council members are considering methods of simultaneously relaxing some taxi ordinances.

UberX is distinct from the company’s other offerings, Uber Black and Uber SUV. The latter services use licensed limosine drivers and are subject to different regulations.

Click here to see a comparison of the taxi insurance requirements and those proposed for TNCs.

Below is the full Vande Hey letter, sent to city officials after Tuesday's hearing:

Vande Hey Letter

Photo: UberX supporters at Tuesday's City Hall hearing.