Uber Technologies Inc., on its way to an initial public offering that some media reports say could raise $10 billion, might not be in the position it is in without insurance.

“Our business depends heavily on insurance coverage for drivers and on other types of insurance for additional risks related to our business,” the ridesharing pioneer notes in its recent filing.

Uber faces many potential liabilities, some that come with the field of transportation and others that come with forging a new industry. There are traffic accidents and injuries, assaults on passengers, even e-scooters left on sidewalks. Like every business, Uber faces cyber risks. It also faces challenges to how it classifies and treats its independent contractor drivers.

Then there the risks to its brand and reputation from all of the negative publicity stemming from what it calls its “workplace culture and forward-leaning approach” to operations, compliance and personnel under previous management.

Given that risks abound, it’s no surprise that Uber depends and spends heavily on insurance.

“If insurance carriers change the terms of such insurance in a manner not favorable to drivers or to us, if we are required to purchase additional insurance for other aspects of our business, or if we fail to comply with regulations governing insurance coverage, our business could be harmed,” the firm noted.

At the end of last year, Uber had insurance reserves of close to $3 billion set aside, according to the regulatory filings made in preparation for its planned IPO.

That was a big jump from 2017, when it had $2 billion in reserves. The 2017 reserve figure was itself a similar jump over 2016.

(In its filings, Uber disclosed that it had a $3 billion operating loss last year on revenue of $11.3 billion. Over the past three years, its operating losses have topped $10 billion. The company achieved net income of $997 million for 2018, but that came primarily as a result of selling some foreign assets and a boost in the stock it owns in China’s ridesharing company. The company said it expects its operating costs to increase “significantly in the future” and it “may not achieve profitability.”)

Insurance Needs

Uber’s insurance reserves are just estimates of its potential losses and related expenses. The company acknowledges that its estimates are subject to “inherent variability” due in part to its “limited historical experience” as a startup in a new industry. That can mean there are risks that traditional insurers are not yet ready to assume.

For some of their insurance needs, Uber and its drivers rely on traditional insurers. Insurance for Uber’s ridesharing operations include third-party automobile liability, automobile comprehensive and collision, physical damage, and uninsured and underinsured motorist coverage.

Allstate provides Uber with commercial auto insurance in some states. Uber has partnered with Allstate, Farmers, James River Insurance, Progressive and other carriers to develop coverage for its drivers that supplements their personal auto policies that do not cover commercial use. Various other insurers including Geico, Slice, State Farm, American Family, Liberty Mutual, Mapfre, Mercury, Erie, Travelers and MetLife have come out with their own insurance policies for drivers.

In addition to insurance related to its ridesharing products, Uber carries other automobile insurance coverage for owned vehicles and employee activity, as well as insurance coverage for non-automotive corporate risks including general liability, workers’ compensation, property, cyber liability, and director and officers’ liability.

Traditional insurers aren’t handling everything. Uber also has a captive insurance subsidiary to cover for certain risks including auto liability, uninsured and underinsured motorist, auto physical damage, general liability and workers’ compensation. Its Hawaiian captive company, called Aleka Insurance Inc., is managed by Aon. Its smaller rival Lyft also has a Hawaii captive insurer, Pacific Valley Insurance Co.

Lyft, Uber Shift Some Risk to Captive Insurers

As heavily dependent upon insurance as Uber is, the company has said it is not interested in entering the insurance business. Rather, the global transportation firm is content to focus on being an “intelligent purchaser” of insurance, continuing to work with insurance carriers and brokers.

“No, to be honest, we’re trying to get out of the insurance business,” Curtis Scott, global head of insurance for Uber, said at the Insuretech Connect Conference (ITC) last October.

Citing reports of other tech firms including Amazon showing an interest in insurance,he said Uber is not among them. “I can tell you that Uber doesn’t have a desire to. We are good at being a tech company that’s in logistics and we want to do that. That’s what we’re strong at,” he said.

“Insurance companies are good at being insurance companies and that’s hard to do,” he added.

Going forward, insurance is bound to remain an important focus for Uber.

There are the liabilities that will arise as it continues expanding into freight handling (Uber Freight), fast food delivery (Uber Eats), e-scooters rentals (Jump) and autonomous vehicles (Advanced Technologies Group).

In addition, Uber says service providers and business customers of Uber Freight and Uber for Business may require higher limits of coverage as a condition for contracting with them.

Uber also recognizes that its insurance will be affected if lawmakers change insurance requirements for ridesharing or if municipalities mandate certain levels of insurance for dockless e-bikes and e-scooters.

Big Worry

While Uber worries about insurance requirements, that’s not its biggest concern. Its biggest worry is if its drivers have to be classified as employees instead of independent contractors.

The status of its drivers as independent contractors continues to be challenged in courts in the U.S. and abroad. The firm notes in its regulatory filing that it is involved in “numerous legal proceedings globally, including putative class and collective class action lawsuits, demands for arbitration, charges and claims before administrative agencies, and investigations or audits by labor, social security, and tax authorities that claim that drivers should be treated as our employees (or as workers or quasi-employees where those statuses exist), rather than as independent contractors.”

Uber holds to its belief that its drivers are independent contractors “because, among other things, they can choose whether, when, and where to provide services on our platform, are free to provide services on our competitors’ platforms, and provide a vehicle to perform services on our platform.”

However, it recognizes it may not win this argument everywhere. For example, in March, Uber agreed to pay $20 million to settle California and Massachusetts lawsuits challenging the company’s classification of drivers as independent contractors, and not employees. The settlement is subject to a final approval hearing in July.

According to Uber, more than 60,000 of its drivers have filed or expressed an intention to file arbitration demands against it asserting similar claims.

The company is closely watching various court cases and legislative proposals here and abroad that could establish new rules for determining employee or independent contractor status. Uber says that if it is required to reclassify its drivers, not only would it incur considerable additional costs but any such reclassification would require it to “fundamentally change” its business model, and would have an “adverse effect” on its “business and financial condition.”

*This story appeared previously in our sister publication Insurance Journal.