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Why Uber's deal with big insurance companies matters

Uber CEO Travis Kalanick.
Uber CEO Travis Kalanick.
Steve Jennings/Getty Images
  • Uber says it has struck a deal with several major insurance companies to overhaul how personal insurance policies cover Uber drivers who get in accidents.
  • The deal is supported by State Farm, Farmers, and USAA, as well as the American Insurance Association, according to a post on Uber's blog.
  • Supporters hope the deal will become the basis of legislation in a number of states in the coming months. It is designed to prevent drivers from falling into a gap between insurance coverage offered by ride-sharing companies and a driver's personal insurance policy.

Right now, ride-sharing drivers can fall into a legal twilight zone

After I wrote about my week as a Lyft driver back in December, the most common feedback I got was that I should have written about Lyft's (and Uber's) problems with insurance. Traditionally, the car insurance market has been divided between commercial insurance policies for people who use their cars to earn a living, like taxi and limousine drivers, and personal insurance for everyone else. But ride-sharing drivers too often fall into a legal gray area: their personal insurance won't cover accidents that happen while drivers are on the clock, but full commercial insurance was too expensive for part-time drivers to afford.

Uber and Lyft have stepped in with their own insurance policies that cover drivers most of the time they're working for the ride-sharing companies. However, there have still been gaps in coverage that can leave drivers exposed. Drivers have sometimes been caught in the middle of disputes between Uber and insurance companies about who should cover which accidents.

The new framework is designed to eliminate these gaps by establishing a clear set of rules for which accidents can be covered by personal insurance policies and which ones must be covered by either Uber or drivers.

The framework may also provide a boost for a new breed of supplemental policies being offered by a growing number of insurance companies. In January, both USAA and Farmers Insurance announced a limited ride-sharing plan that covers a driver between the time "driver mode" is enabled and the time the driver accepts a hail (at which point full coverage from Uber or Lyft kick in). GEICO began offering a ride-sharing plan in Maryland last month. The cost of the coverage is fairly modest — USAA plans to charge just $6 to $8 per month. The Farmers ride-sharing option is expected to boost drivers' premiums by about 25 percent.

Update: I've updated this post to reflect Uber's confirmation of the deal first reported in Insurance Journal.