Why Uber Relies On Insurance

Uber has become one of the most widely used apps in the world ever since it debuted in the public consciousness, with the app having helped bring about the reality of the rideshare economy. Despite Uber’s prominent brand and the company’s forthcoming IPO, however, few people have an accurate understanding of how fundamentally Uber relies on insurance in order to survive in a competitive market.

Without certain insurance schemes, Uber would crumble in upon itself. As filings made by the company indicate, Uber relies heavily on insurance because the company faces so many liability problems. Here’s a deep dive into Uber’s reliance on insurance, and how the ridesharing giant is moving forward with its eyes towards the future.

Transportation can be tricky

One of the reasons that Uber relies so much on insurance is that the transportation sector can be quite tricky, especially when it comes to liability and who’s at fault in the event of an accident. Uber has many things that it has to keep an eye on during its daily operations; whether drivers are getting speeding tickets, running red lights, or getting into a collision, Uber has to keep tabs on what they’re doing and how they’re performing. If a passenger is fatally injured or killed in an Uber vehicle in the midst of a ride, the company could have its public image tarnished while facing serious legal jeopardy from any survivors or relatives of those injured.

Uber certainly isn’t blind to the risks associated with becoming a transportation giant. As a matter of fact, the company took explicit steps to address its abundant reliance on insurance when it made S-1 filings with the SEC ahead of its forthcoming market debut. According to documents released by the company, motor incidents and related scandals “may subject us to liability and negative publicity, which would increase our operating costs and adversely affect our business, operating results, and future prospects.” In other words, the company is aware that it’s on thin ice when it comes to liability in accidents.

Furthermore, Uber’s insurance risks aren’t going anywhere anytime soon. As the company notes in its prospectus, Uber hopes to expand and offer dockless e-bikes and scooter, which will also generate unique liability risks on their own. More than anything else, however, the real reason that Uber relies so heavily on insurance has to do with drivers and how the company classifies its employees.

Being an Uber driver is a tough gig

Uber drivers aren’t technically employees of Uber but are rather considered freelancers or gig-economy workers who don’t have the rights and privileges traditionally associated with a full-time employee. The company does this for a reason; it saves them an ungodly amount of money and allows them to keep the Uber brand at arm’s length from any scandalous drivers. When noxious headlines detailing the gruesome death or injury of a passenger at the hands of an Uber driver start going viral, the company wants to be able to say that said driver wasn’t really an employee, but rather a lunatic freelancer.

The fact that the company doesn’t consider drivers to be full time workers means that shuttling passengers for Uber can be a tough gig. With Uber having ferreted away some $3 billion in insurance reserves throughout 2018, according to its prospectus, that doesn’t mean the company is always helpful when it comes to securing drivers insurance. Third party auto insurance is often needed by drivers, though Uber has partnered with Allstate and some other notable carriers in an effort to develop coverage for drivers whose personal policies are insufficient by themselves. Uber predominately does this to protect the brand rather than out of love for its drivers, though, so don’t think that the ridesharing giant is shelling out the big bucks for the sake of its gig workers.

In certain ways, Uber benefits from its competitors in that they also suffer from the same liability issues, thereby ensuring that the insurance industry must take a unique approach to how it caters to these rideshare companies. With both Uber and Lyft sharing some risk with captive insurers, it’s important for analysts, shareholders, and those interested in ridesharing to keep a close eye on how captive insurers are leveraged by these companies in the near-future. Particularly as regulatory pressure heats up, it will be worth seeing how these companies adjust to changing insurance conditions.

Uber relies on insurance so much because the rideshare company is a fundamentally risky endeavor that puts passengers and drivers into harm’s way by the very nature of its business model. Motor vehicles and modern infrastructure simply aren’t safe enough to be entirely trusted, which means that companies like Uber will always need to depend heavily on insurance. Uber’s peculiar arrangement with its workers and captive insurance schemes can be confusing, but they’re doubtlessly a huge part of why the rideshare giant has come so far so quickly. 

Alex Hamilton