Business As Usual: Taxi & Uber for Hire

Commentary, Disruption, Eamonn Brosnan

Cabs or taxis, have been a commonplace sight in our cities for many years. The first documented coach for hire was in 1621, in London, England. It only took 33 years (1654) for there to be enough issues with irregularities and numbers of them that the English Parliament passed an ordinance to limit the numbers by a licensing system and to regulate their behaviour. This regulatory system has been used, in some form since then, in a wide variety of locales.  Every modern city regulates the number of cabs allowed on their streets, the rates that they can charge, and who is allowed to own and operate taxis under these licenses.

This regulation style has traditionally served several purposes: the first is to limit the number of cabs on the roads, ensuring that our streets aren’t congested with cabs picking up and dropping off while also ensuring that drivers and owners aren’t flooded with excessive competition, driving down income. The second is to protect customers by guaranteeing a price that won’t leave you gouged. The third is a guarantee of safety by ensuring that the drivers have been vetted and are properly insured.

In recent years we have witnessed a new idea seize the industry: companies like Uber and Lyft have leveraged new technologies and a distributed model that allows almost anyone to become a driver, working whenever they choose to rather than being committed to a fulltime job. The opportunity that Uber sells, to augment one’s income with some after hours work driving people around, appeals to people who have been struggling to make ends meet in an economy that has left so many people far behind. A few extra dollars that you can earn without any extensive commitment and using a vehicle that you already own sounds like a great deal. But how much do you really earn? As it turns out, after you have accounted for extra insurance (yes, your regular insurance doesn’t cover you to work as a taxi), gasoline, extra wear on the vehicle (cars wear out more on mileage than time) and your time (you turn the app on and could be waiting for a stretch of time in between pickups), it turns out that most people earn much less than minimum wage when doing Uber runs. Some drivers have discovered that they are even losing money over the course of a day. So why is it so appealing to so many people?

There is the benefit of extra income in one’s regular downtime, this is true. But in truth, like with most things, people often ignore the extra costs that aren’t immediately evident. Many drivers don’t consider the extra vehicle maintenance or depreciation when they trade it in when considering their profits. In addition, many Uber drivers have inadequate insurance to cover them when driving. Uber’s insurance does cover the driver while he/she has a client in the vehicle, but regular non-commercial insurance doesn’t cover your vehicle (or you) the moment you are using the vehicle for commercial purposes, which happens the second you turn the app on to indicate that you are available to take a ride. There is a more expensive add-on insurance product that you can get to cover this gap, but many people don’t realize it is an issue or if they do would rather not add cost eating into their profits. In Ontario and Alberta the provincial governments have plugged this gap by working out a deal with Uber and an insurance company to have an Uber-financed plan that extends coverage to all of their drivers in that gap time. I would hope that the rest of the provinces will follow suit on this and adopt a similar solution.

Anyone who has looked for a cab during a busy time of day or night can attest to the fact that there always seems to be a shortage of cabs, which has been exacerbated by the antiquated method of doling out licenses. This system seems to benefit the people who already have licenses the most and doesn’t seem to be focused on the two most important stakeholders, the drivers and the customers.

While some of Uber’s drivers have started to protest, either demanding higher rates or else simply quitting altogether, the free-market system at work will eventually balance out Uber’s rates and their drivers’ share. However, Uber and other ride-sharing companies need to recognize that as a part of the transportation industry, some regulation is inevitable. All jurisdictions should follow the lead of Ontario and Alberta and work with Uber to ensure that they provide insurance that covers their drivers and clients completely. They should also be required to have a more thorough vetting system to ensure that their drivers are safe for the public. In London, England, Uber has been banned from operation due to recent violent crimes by some of their drivers who allegedly hadn’t been given thorough enough background checks. Let’s step back and take a look at where we have come from and, more importantly, where we want this to go in the future.