The challenges in navigating the ridesharing insurance minefield

Despite using a wholly-owned captive insurance subsidiary and third-party insurance, ridesharing company Lyft Inc. cannot ensure its coverage will sustain all of its business risks and costs, the company acknowledged in a recent stock-listing prospectus of risk factors.

San Francisco, Calif.-based Lyft uses the subsidiary and third-party insurance, which may include deductibles and self-insured retentions, to insure or reinsure costs. These costs include auto liability, uninsured and underinsured motorists, auto physical damage and general business liabilities up to certain limits.

“The company cannot predict whether this insurance will be adequate to cover all potential hazards incidental to its business,” Lyft said in the early March filing with the U.S. Securities and Exchange Commission (SEC).

Lyft noted it has worked with a variety of third parties to provide insurance required by various state, province and city regulations in the United States and Canada. In Canada, Aviva Canada announced in December 2017 it would be Lyft’s official Canadian commercial auto insurance provider.

Since October 2015, Lyft has “elected to reinsure substantially all of [its] financial risk with respect to auto-related incidents in the United States using [its] wholly-owned insurance subsidiary,” the prospectus said. However, as the number of rides provided by drivers and its brand awareness has increased, Lyft has also witnessed an increase in the cost of ridesharing insurance claims.

As well, “in the future, we may decide not to reinsure the risk of the third-party insurance company we use, which may minimize the volatility of our insurance costs,” the company said. The subsidiary reinsures the auto-related risk from third-party insurance providers. These “restricted reinsurance trust investments” totalled $863.7 million as of Dec. 31, 2018, the filing noted. As of Dec. 31, 2016 and Dec. 31, 2017, the investments were $118.3 million and $360.9 million, respectively.

Lyft said in the SEC filing it was “the first to provide up to $1 million in commercial automobile liability insurance for transportation network company (TNC) drivers from the moment they are matched with a rider until that rider is dropped off.” It also procures third-party insurance policies to cover various operations-related risks, including employment practices liability, workers’ compensation, business interruption, cyber security and data breaches, crime, directors and officers liability and general business liabilities.

“For certain types of operations-related risks or future risks related to our new and evolved offerings, such as a scaled network of autonomous vehicles, we may not be able to, or may choose not to, acquire insurance,” the prospectus pointed out. “In addition, we may not obtain enough insurance to adequately mitigate such operations-related risks or risks related to our new and evolved offerings, we may have to pay high premiums, self-insured retentions or deductibles for the coverage we do obtain. Additionally, if any of our insurance providers becomes insolvent, it would be unable to pay any operations-related claims that we make.”

Defending against claims or litigation based on any security breach or incident is another concern for Lyft. The company said it can’t be sure the coverage will be adequate for data handling or data security liabilities actually incurred; that insurance will continue to be available on “commercially reasonable terms;” or that any insurer will not deny coverage as to any future claim.  Likewise, business interruption insurance may not be sufficient to cover all losses.