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Uber Inc. Part 2 – Insurance throws a wet blanket on cheap rides!

A follow up to our first article on Uber Inc. in June
Need a ride? There’s an app for that!

Rides-on-demand is an app created to connect passengers to rides available in your immediate area – you simply summon your ride using your cell phone. Never heard of it? It is certainly catching on. Simply put, it is a service whereby ordinary drivers like you and me offer to pick up others who need a ride. You can drive to work, and make some money while doing it. Yes, the driver gets paid.

Uber originally launched in 2010 in San Francisco, and has grown rapidly ever since, now operating in 128 cities across 37 countries. Competitors include Lyft, Wingz, and Flywheel, but Uber is well ahead of the pack. Uber recently snagged $1.2 billion in funding; making it one of the fastest growing companies worth $18.2 billion just four years after it began, it is “one of the highest valuations ever for a Silicone Valley startup.”

Backed by such major investors as Goldman Sachs and Google, this company and its app are changing the way we look at drive-for-hire services. This forward thinking company not only offers rides to the regular everyday commuter at the touch of a button, but also delivers roses on Valentine’s Day, Christmas trees to your door and small package courier services too.

The easy to use app takes advantage of three technologies, GPS, Smartphones and Social Networking, finding rides for those who need it, and filling those empty passenger seats too. Sounds like a win-win. This ride sharing program is great for areas that do not provide public transit systems; it reduces traffic congestion and mitigates the environmental impact of traffic too.

Sounds great! No, so says the taxi services. The huge success of this app sparked a massive protest by taxi drivers across Europe, slowing traffic in major cities during the morning commute. The taxi industry, which hasn’t seen competition in decades, argues that these apps break the laws governing taximeters and road-side passenger pickup, and that it threatens their livelihood. Uber maintains the app complies with local regulations and responded by offering its passengers a 50% discount during the protest. Brilliant business strategy. Definitely a dot com to watch.

Recently launched in Toronto as UberX, the rates start at $2.75 for the base fare plus 90 cents per kilometer and 30 cents per minute, plus a surcharge of $1 that goes toward safety training. All total, this provides the ride sharing program at a rate much lower than the average taxi ride, up to 40% lower. The driver pays Uber 20% of the fare, then keeps the rest!

Uber pre-screens all of the drivers, ensures that a criminal background check is completed and any passenger is sent the UberX driver’s name, a photo and the make and model of the vehicle. Each community has its own by-laws and requirements, and the drivers must be in compliance with these. For example, city issued licenses which require the safety training; also vehicles must be inspected and adequately insured.

As this service grows substantially, questions have arisen around insurance. Uber announced it has its own $5 million insurance policy that will cover liabilities that go above and beyond the drivers’ insurance policy: however, anyone who considers providing this service must inform their insurance broker in ontario.

The application for insurance in Ontario specifically asks if you will take passengers for compensation. In addition, an insurance company can deny coverage if they feel the risk has materially changed from when the application was originally written. Carrying passengers for compensation is definitely high risk car insurance.  This is also a concern if you are a passenger of Uber. What coverage will you have if you are involved in an accident with someone who may or may not have insurance? If you are considering using Uber, as a driver or as a passenger, please contact your trusted advisor at McDougall Insurance & Financial at 1-800-361-0941.





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