If you’ve recently hitched a ride with Uber, Lyft, or any other rideshare company, chances are you spent more than you bargained for. That’s not just because of high gas prices. Unwanted auto insurance laws have hijacked the passenger seat for years, raising fares and passing the costs on to consumers. It’s due time for rideshare companies and local actors to kick these laws to the curb.
In the early 2010s, the first transportation network companies (TNCs), such as Uber, debuted, but they faced significant insurance gaps. TNCs relied on drivers’ personal insurance, with commercial insurance options being an afterthought. They also didn’t insure drivers looking for customers, only drivers with a paying passenger in the vehicle.
Insurers weren’t innocent in this relationship, either. They tended to exclude drivers who used their car for rideshare purposes, and denied claims for accidents that occurred while using the app. When an Uber driver fatally struck a six-year-old girl in San Francisco that December, however, Uber and Lyft recognized the need for reform and expanded insurance for drivers waiting for ride requests.
Since mid-2014, states and companies have worked together to address insurance gaps, improve customer safety, and ensure affordable transportation services. Between 2014 and 2016, thirty-nine states guaranteed coverage from the moment a rideshare app is turned on. The push came from Uber, Lyft, and major insurers, which sought to standardize industry insurance requirements. Their success subsequently spread nationwide. By 2018, every state except Oregon had passed legislation making transportation network drivers or companies purchase relevant insurance.
TNCs saw more regulation-related costs, but Uber and Lyft users won big. In 2015, UberX customers got sixty cents of extra value beyond what they paid because the prices were below what they were willing to pay. The TNC-state relationship was friendly and innovative, enabling scaled operations and good prices.
Today’s environment for TNCs is far more hostile. The results are higher fares for all.
Some states force companies like Lyft to carry much higher insurance coverage than taxis and other commercial vehicles, which increases trip costs. For example, California Governor Newsom signed Senate Bill 371 late last year. The Bill kept the required insurance at $1 million per accident— a very steep limit — but did decrease uninsured driver coverage by 94 percent. Still, Uber reported that in California and New Jersey, “nearly a third of a rider’s fare goes toward state-mandated insurance costs.” Contrast that rate with those of Massachusetts and Washington, DC, where, because of simpler rules and lower rates, less than five percent of riders’ fares go to insurance.
The lesson? Areas with more relaxed insurance requirements prosper; heavily regulated areas struggle.
Surging personal injury claims and lawsuit abuse also drive up ride prices through premiums. A major culprit is no-fault insurance, which can pay out $50,000 per person after a crash in states like New York, regardless of who caused the accident. Sensing easy money, residents flood the system with false complaints. In 2024, The New York Department of Financial Services received 28,500 reports of no-fault insurance fraud, accounting for 75 percent of all fraud reports. Insurers like Geico are blasting New York health clinics for billing $1.8 million in false no-fault auto insurance claims. The cost is sent down to riders, with such exploitation costing every American over $1,400 yearly.
Broader economic trends do little to ease the pain. Since the COVID-19 pandemic, vehicle parts and repair costs have been more expensive, alongside rising post-crash medical costs. Nationwide premiums also jumped by an average of 55 percent during the Biden era. Since rideshare companies generate lots of business in cities and use vehicles that rack up mileage, insurance and repair costs are outpacing profits. The result is a handicapped industry on the defensive against state overreach and economic uncertainty.
Rideshare companies and states must restore their working relationship to set clear rules and stabilize fares without sacrificing passenger safety. TNC insurance limits should match those for taxis so all vehicles function under the same standards. Doing so would make the system tech-neutral and dismantle the extra fees that bog down rideshare drivers.
States with no-fault insurance could retool their approach, too. They should look to Colorado, which ditched its no-fault laws in 2003. The following year, auto injury claim costs per insured vehicle plummeted by 27 percent, and liability premiums fell by 15 percent. Another model is Pennsylvania, which repealed its no-fault law and switched to limited tort and full-tort options in 1990. Over time, Pennsylvania fell out of the top 10 most expensive auto insurance states, ranking #39 as of 2019.
Taken together, lower regulatory and licensing per vehicle will make the rideshare market more competitive and slash prices. TNCs are in for the long haul, and, with revamped laws and regulations, they can continue contributing to and enhancing American transit.
