The Problem With Uber
Does Uber Have an Insurance Problem?
Uber is an incredible company. A beacon, a symbol, for all that is right about disruptive economics and the ability of a few small entrepreneurs to put a dent in the world with the appropriate innovation, dedication, and know how. Uber is expanding at a blistering pace, and it is only a matter of time before your community is finally able to access the best thing to happen to automobiles since the invention of the wheel. Nasty, violent taxi drivers are doing everything they can to save their outdated, inefficient businesses while hiding behind decrepit, protectionist governments, but never fear – Uber will not let these fossils stand before it. No, Uber is coming. And with it, the next step in public transportation, nay, human, evolution.
This is the common narrative that you have undoubtedly heard about Uber within the media for the last few months. Uber is literally better than sliced bread, puppies, and Gandalf combined, while the Taxi industry is trying its best to replicate the Atlantic slave trade. Something about that doesn’t exactly add up, and in this blog I’m going to point out the dark side of Uber. My goal here is not to dump on Uber, or to defend taxi drivers, or to criticize government choices or consumer economics. In fact, I think that what Uber is doing is pretty cool – exactly the kind of disruptive innovation that has the potential to make our economy strong. Except I don’t believe they are doing it right. Not right at all. No, Uber is not going to hire me or suddenly listen to what McDougall Insurance has to say an go “hmm, actually you know what, we probably should change that about our business model”, but maybe by reading this our customers (and people in general) will get a more rounded understanding of this new service. Because it has its problems. And the big one… is liability (dramatic thunder and lightning flash).
Liability Insurance and Why it Hurts Uber
Liability Insurance is by far the biggest component of Automobile Insurance. In my personal policy, liability coverages and the like compromise 80% of the premium I pay, and that is about typical for an auto policy (that isn’t for a Ferrari). In fact, liability insurance is the only insurance that is positively mandated by the government. That’s right – when you hear that it is illegal to drive without insurance in Ontario, that means that it is illegal to drive without liability coverage.
The reason liability insurance is so expensive, and so important, is simply because it gets used the most. When you hit another vehicle, its liability insurance that is intended to cover whatever you do to that vehicle (now this gets cloudy with Ontario’s no fault insurance system, which is the topic of an upcoming blog, and for this illustrative purpose will be ignored). It’s also liability insurance that comes into effect when there are injuries resulting from any kind of car accident. Knowing this, you would think that liability insurance is a very important thing for all vehicles on the road to have.
Imagine, for a moment, what would happen if you were hit by a car while crossing a street. Naturally, you would sue that negligent driver, and get a judgement to cover all your expenses (and missed wages). But lets pause here for a second. What if the person who hit you isn’t doing well financially, and actually has only about $10,000 in assets to their name? What if they simply cannot pay the judgement? Suddenly, through no fault of your own, you are in a very bad position.
Therefore, you as an individual want every vehicle on the road to have liability insurance (and because of this, the government made insurance mandatory). Great, fantastic, everyone is safe and no one gets their life ruined because someone made a mistake and didn’t have enough money to pay. Except Uber drivers… might not… uh… have liability insurance.
UBER DRIVERS DON’T HAVE LIABILITY INSURANCE!?!
No, I didn’t say that Uber drivers don’t have liability insurance. I said they might not. That’s better right? Its not like you are guaranteed to be screwed if you are hit by an Uber driver. It’s just probable. Er, I mean possible. Unfortunately, a key part of how Uber works is it essentially is just a middle man between drivers and fares, and keeps its nose out of the operations of its drivers. This gives it a flexible advantage over its taxi competitors, but also keeps it from being able to mandate insurance coverage.
Of course, Uber doesn’t see it that way, proudly boasting that they provide “end-to-end insurance coverage”. Naturally, I’ve never heard of “end-to-end coverage”, and Uber conveniently adds the caveat that “the specifics vary depending on what local governments allow”. Even accepting that their standards are flawless, its been proven that Uber drivers have been able to scam the parent company and drive without insurance anyway. Of course, there is also a powerful incentive for drivers to not have the appropriate insurance, since commercial vehicle insurance is expensive (your car insurance would be too if you were driving people around all day), and Uber isn’t exactly a high margin business. Hmm, could this form of irresponsible cost cutting be part of the price advantage Uber enjoys over the tightly regulated and supervised taxi industry?
Misrepresentation – A Big Issue With Uber and Its Drivers
Sadly, its not just nefarious drivers that will put street-goers at risk. It can also be regular, hardworking Uber drivers who simply don’t understand their insurance policy (or controllers at Uber who don’t understand the same). A recent publication by Alberta’s Superintendent of Insurance declared there were “significant issues with regulatory compliance” for Uber drivers, while the Insurance Bureau of Canada has said “There may be some gaps [in coverage]”.
The issue here is that personal automobile policies may explicitly exclude commercial use, meaning that a claim will be denied if the insured vehicle is used to generate income. Commercial use is exactly what Uber is, and which makes the possibility of claim denials a very real concern. Many well-meaning drivers will apply to Uber using their personal insurance policies, and without an in-depth examination, Uber won’t know of the exception (consequently, if you are a ride share driver and want to know what coverage is available, click here to speak to Lance, our ride-share specialist). This coverage-denial is bad for the drivers, who could be on the hook when they thought they were covered, and bad for the public for reasons mentioned above.
Unfortunately, Insurance companies also need this exception to be in place, since they rate your policy based on the assumption that you are driving it (mostly) alone. Add paying passengers and high amount of vehicle use and you incur a whole lot of risk the insurance company wasn’t prepared, or charging you, for.
This, at its very root, is insurance fraud. Even if the drivers don’t realize it, not accurately reporting the use of the vehicle is misrepresentation, which will get claims denied. And denied claims are bad for drivers, and bad for the rest of us too.
What Needs to Happen to Fix Uber’s Insurance Mess
At the end of the day, Uber is not necessarily the bad guy. I will always commend a company attempting to improve our world by providing a better service or lower price. The issue in this case is that, although Uber undoubtedly has service and price advantages, they are obtaining them by exploiting the public. They are generating an extreme amount of risk and not getting the proper insurance coverage for it, which puts the rest of us on the street in financial danger. That simply cannot be tolerated.
So what is Uber to do? To be honest I’m not sure. I have no doubt that smarter men than I have worked at Uber to try and ensure that adequate insurance coverage is obtained, and they’ve been beaten by unscrupulous drivers. It is possible that domestic insurance companies could start to sell “ride-sharing” insurance for people who get hit by ride sharers, but people just wouldn’t buy it. That leads me to believe that the solution will be from a public, not private, organization. The government has to step in to regulate these services, just like they have done with taxis. Maybe it is through expansion of the contemporary taxi licensing scheme, or maybe its through establishing a new licensing arm for ride sharing companies that will ensure adequate coverage. Either way, it has to happen. Because right now, we are all at risk.
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