Why Uber should become a car insurer

What’s the next big thing for Uber? In its early years, a lot of people thought that it would slowly become a global logistics company, moving stuff around cities and the world. And indeed it’s dipping a couple of toes into that market, with its messenger service, Uber Rush, and its nascent food delivery operations, Uber Eats.

Both of those businesses are small by comparison to Uber’s core taxi service, however, and are likely to remain so. There’s a different business, on the other hand, which Uber could quite plausibly move into, and which could potentially make the company much bigger than even its current trajectory and valuation suggests.

No, that business isn’t banking. But it’s close: it’s insurance.

To understand why, it’s important to first understand Uber’s biggest weakness, which can be summed up in the word “suburbs.”

One of Uber’s great strengths is that it thrives on urban density, which is fantastic in a world where more than 50% of the planet’s population lives in cities. Having lots of people in a relatively small area works for both passengers and drivers: it attracts lots of drivers because there’s always demand, and for passengers it means getting a ride is easier than ever before.

The flipside of this equation, however, is that Uber is not particularly good in the endless tracts of suburbia, and it’s worse in even more far-flung exurban reaches. Availability falls as distances rise, even as fares tend to be significantly higher, since they’re calculated on a per-mile basis.

In some cities around the world, it already makes sense to use Uber instead of owning a car: the total annual cost is lower. But people still have a good reason to want to own their own car, even if they don’t need one to transport pets or small children: driving your own car is often the only option when you want to go further afield than is feasible with Uber.

Certainly, if you regularly need to make the commute from the suburbs into the city and back, then Uber is, at least today, a non-starter: owning your own car is still significantly cheaper. Car-sharing services, both formal and informal, exist, but they’re not offered by Uber. So how can Uber start moving into that area, which accounts for a massive proportion of daily traffic?

The first thing it needs to do is stop thinking of drivers as people who are being paid to drive other people from A to B. That’s certainly the model right now: the only reason for an Uber driver to drive where you’re going is that she’s being paid to do so.

But it doesn’t need to be that way. Ben Thompson, for instance, has made the argument that Uber 2.0 is human self-driving cars. If today’s Uber is devoted to utilizing cars that would otherwise simply be parked, going nowhere, then tomorrow’s Uber can start utilizing all the passenger space in the millions of cars which get driven every day by just a single driver:

Approximately 75% of Americans drive alone to work. Every one of those solo commuters is a potential UberPool driver, and not just that: because they are making the trip whether they are an UberPool driver or not, they are, from Uber’s perspective, self-driving cars. They are drivers Uber would not need to pay for. This, I believe, will be Uber 2.0: human-powered self-driving cars primarily focused on commutes.

Of course, Uber will be paying these drivers something. It just won’t be paying them nearly as much as it pays its current drivers. (Thompson suggests 36 cents per mile, compared to the $1.44 per mile it’s paying right now.)

But how do you sign up drivers if all you’re offering is 36 cents per mile? Commuters already earn more than most Uber drivers, and Uber is going to want to maintain at least its current standards for cars and drivers. If you’re a commuter with a nice car, it’s not at all obvious that you’re going to go to the trouble of signing up to become an Uber driver just for a bit of pocket money once in awhile. (If anything, giving people the ability to use the carpool lane would probably be a bigger incentive than the money.)

The solution is for Uber to become a car insurer.

Uber’s relationship to the car-insurance industry is a fraught one: Uber doesn’t want to pay for its cars to be insured, and insurers don’t want to pay for non-personal use. But car insurance is a fundamentally profitable business. (Just ask legendary investor Warren Buffett, who has made billions from Geico.) Uber doesn’t want to insure its cars for free: that’s understandable. But if it could make money from being a car insurer, then everything starts to change.

On top of that, Uber has incredible amounts of data on how people drive. There’s only one company in the U.S. currently offering true per-mile car insurance: Metromile, which is active only in six states: California, Illinois, Oregon, Pennsylvania, Virginia, and Washington. But the model makes a lot of sense. After all, you don’t get into accidents when you’re not driving.

If Uber became a per-mile car insurer, and started offering great rates on car insurance, millions of Americans who would never normally sign up to be Uber drivers would go to the trouble of installing the app—and allowing Uber to see where they are at any given time. There wouldn’t have to be an obligation to pick up anybody. But Uber has already integrated its app with Google Maps and Waze, and offers driving directions of its own, which means that it would be very easy for all these new drivers to use the Uber app to help them avoid traffic on the way to their destination.

And at that point, Uber will not only know where millions of new drivers are; it will also know where they’re going, and it will be able to ping them very easily when someone else wants to go their way.

Drivers would then have four different reasons to pick up a ride-share. First, it’s just polite, and friendly—you’re helping people out. (Moving into this area could definitely help Uber in terms of its reputation.) Secondly, having a passenger can help with carpooling lanes. Thirdly, drivers will get paid a modest sum when they’re driving a passenger. And fourthly, Uber can make it so that you don’t need to pay for its per-mile car insurance when you’re driving a passenger.

This new breed of Uber drivers could be choosy about who they pick up: maybe they would restrict passengers to their Facebook friends, for instance, or friends of their Facebook friends. Maybe they will only pick somebody up if it doesn’t take them more than five minutes out of their way. Maybe they will only pick somebody up if they have to sit on the freeway for an hour. It doesn’t matter: thanks to the insurance business, they’re making money for Uber whether or not they ever pick anybody up.

The idea is that once you’re signed up for Uber insurance, you’ll probably pick somebody up once or twice, just to try it out, see how it goes. If you enjoy it, you’ll do it more; if you don’t, you won’t. No harm, no foul. But the people who do enjoy it could transform Uber’s entire business model, bringing it out of the cities and into the ’burbs. That, plus the insurance business, is an opportunity even a $50 billion company like Uber can’t ignore.