Ride-sharing companies like Uber and Lyft have become all the rage over the last decade. It’s true that their heyday may have come and gone, but most experts believe that Uber isn’t going anywhere anytime soon. That does not mean that these companies are not facing any challenge in the marketplace today.
For better or worse, companies like Uber have been under an increasing amount of scrutiny for their safety measures and liability is suddenly a major concern for insurers. Knowing that, it’s not overly surprising to learn that James River Insurance decided to sever ties with Uber Technologies Inc. Why? Because they underestimated the risks involved and vastly under prices their policies early on.
According to the Insurance Journal the Bermuda-based insurer “…boosted its cash reserves by a total of $57 million during the 2019 third quarter. Of that, $50 million was for 2016 and 2017 losses stemming from its Uber account.”
The underestimation of costs stemming from Uber accounts can not be entirely blamed on the insurers. Uber has, after all, greatly expanded its business operations since it first hit the market years ago. Uber isn’t just a ride-sharing service anymore, they also offer professional delivery services and freight.
As Uber’s services changed, so to did the nature of the risks being insured against. Many insurers will soon find themselves facing the same decisions that James River did. Is it too expensive to adapt to Uber’s new reality, or is it better just to cut ties with that particular insurance business altogether. These are the questions insurers need to be asking themselves moving forward.
Further complicating this mess are the laws surrounding the classification of ride-sharing drivers. Those who follow the space will remember that California recently passed a law limiting the use of “gig” workers—which is what most ride-share drivers have traditionally been classes as.
For now, ride-sharing doesn’t seem to be going anywhere, but it is still a live-wire in the insurance space. Yes, there is a lot of money to be made there; it’s a huge market. But there is a lot of risk still associated with that space. Insurers putting to much of their business into the ride-sharing space are taking a big risk.