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Ability to measure usage in miles not months leads to creation of new models

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Uber Technologies Inc.'s approach to obtaining insurance for its part-time drivers has led to the creation of new coverage models.

Before the ride-sharing models and its insurance solutions were in place, drivers in many jurisdictions had the choice of buying a personal auto policy or a taxi insurance policy at six times' the price of the personal coverage, said Gus Fuldner, the San Francisco-based firm's head of insurance.

In addition, a taxi often is driven by multiple drivers 24 hours a day, because a taxicab companies are essentially in the business of renting taxis.

In New York City, to take what he said is an extreme example, “the fixed costs of being a part-time driver were so high that if you were doing it 10 hours a week, you would be spending your entire time paying the fixed costs of the business.”

While personal automobile insurance is based on time, generally one year, the model Uber has developed pays for ride-sharing coverage on a per-mile basis.

It has “changed the fixed cost of insurance and made it a variable cost,” which has enabled the part-time Uber drivers to obtain affordable insurance coverage, said Mr. Fuldner.

People do not necessarily think about the price and rating structure of auto insurance as leading to growth in the ride-sharing business, “but in this case, it very much was,” he said.

By simply changing insurance from being paid on a vehicle-per-year basis to an activity basis, “we changed the economics” to enable people to drive part-time, Mr. Fuldner said.

Historical perspective

Whether “largely for historical reasons or administrative reasons,” auto insurance was paid on a vehicle-per-year basis, he said. “In 1950, that made sense. You had no ability to measure anything else. Now, we know exactly how much” vehicles are driven, and insurance for Uber drivers is paid on that basis, he said.

“It's kind of fascinating thinking about first principles” of how the business operates, Mr. Fuldner said. “Insurers don't know how much the vehicles they're insuring are being driven or where or when or any of that detail. And to me, that's one of the advantages of coming to this as an outsider to the insurance industry — to look at this from first principles and say, "That's how it's being done. Is that how it needs to be done?'

“If you combine that fresh look with the team of actuaries pricing things and a team of regulatory lawyers” and challenge past approaches, the focus moves to “what is needed to be done from a legal perspective or, in some cases, change the law because the law didn't contemplate” the changes in transportation and insurance to cover it, he said.

“If we were having this conversation 18 months ago, there was an awful lot of public and legislative and regulatory discussion of insurance that you don't really see much in the U.S. anymore except for a few straggler states,” said Mr. Fuldner.

“It's still a topic of discussion in other countries. As we educate policymakers and insurance companies in different parts of the world” about what was accomplished in the U.S., the ride-sharing model will move forward, he said.