Uber’s business model is so crooked, their insurance carrier may collapse

Critics of Uber Technologies — the tiny San Francisco company with the mammoth equity valuation that is threatening America’s local taxi companies — are calling the firm’s business model so ‘crooked’ and ‘off-tilt’ that it’s financially crushing its business partners.

Yesterday, shares of Uber’s insurance company dropped by more than 20% on news that the firm’s business relationship with Uber was so unprofitable that it was dropping its coverage of the company.  Uber is the carrier’s largest customer.

But the situation illustrates a much bigger issue about Uber’s business practices: that it is willing to squeeze its business partners — most especially its drivers — until they are on the brink of financial collapse, in order to extract every cent of value they can from an always unbalanced relationship.

James River Group (ticker: JRVR) stock dropped 22.5% to $37.95 near midday Wednesday shortly after the Bermuda-based company announced it was terminating all policies issued to Uber Technologies subsidiary Rasier as of the end of December, two months early.

“This account has not met our expectations for profitability, and we think it best to terminate the underwriting relationship as of year-end,” James River CEO J. Adam Abram said in a statement.

James River insures Uber drivers in Washington, D.C., Puerto Rico, and 20 U.S. states, and it would likely bring on another insurer to replace James River.  It’s unclear how difficult — and how costly — that insurance carrier will charge Uber for coverage.

Rasier accounted for about $294 million in James River’s gross written premiums in 2018, or a quarter of its total; the segment into which that business falls grew 24% year over year.

The segment increased its noncommercial auto gross written premiums by 72% in the third quarter.  Despite those gains, the firm announced a loss of $55 million to $60 million for the third quarter, mainly in connection with the 2016 and 2017 underwriting years of its Uber business.

Uber’s stock price remains relatively stable just under $30 per share, but it’s unclear how long that will be sustained, as analysts increasingly scrutinize the firm’s business model as it relates to risk allocation.

Academics in labor economics have argued that Uber’s business model reallocates nearly all of its business risk onto its operating partners — namely, its drivers.

The collapse of its insurance coverage, they argue, is emblematic of a school of thought in management economics that is prevalent in Silicon Valley, prizing leanness, efficiency, and flexibility, over other business considerations.

As the national electorate increasingly supports the enforcement of anti-trust laws against the nation’s largest technology companies, Uber is quickly becoming a political target in the presidential primary discourse.

But some in labor economics worry that it would be easier for drivers to unionize under a single, giant Uber with the financial wherewithal and market dominance.  If Uber were broken up into regions or national competitors, labor may continue to be squeezed.