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The Uber app allows users to hail cabs in 300 cities, however, many drivers only have personal insurance policies.Andrew Caballero-Reynolds/AFP / Getty Images

Embattled ride-sharing company Uber says its greatest challenge is getting drivers who sign up for its service properly insured.

"Getting insurance right is probably the thorniest issue" facing the Silicon Valley firm – which has faced threatened injunctions in Canada and service suspensions and police raids in Europe – Ian Black, general manager for Uber's Ontario operations, told a luncheon in Ottawa Thursday.

The six-year-old company has become one of the most controversial technology companies of the mobile era, resisted by municipalities and taxi operators who accuse Uber and its operators of flouting rules that have governed ride-fare services for years. Alleged safety concerns have also dogged the service.

The backlash is part of a larger issue as online "sharing" services including Airbnb challenge hotels, taxis and other traditional service providers in an era where people are more comfortable interacting commercially over the Internet.

Uber's foes haven't stopped it from expanding to 300 cities and garnering a valuation of more than $40-billion (U.S.). The company says it is not a taxi company but a technology firm: Its app allows customers to order rides on their smartphones, have them automatically billed to their credit cards and monitor who is picking them up. Uber says its drivers, who also sign up via the app, must pass background checks, vehicle inspections and have proper insurance.

Uber claims it is creating jobs, improving safety by keeping drunk drivers off the road and keeping the planet greener by encouraging people to share rides. It is also calling on municipalities to work with the company to create regulations that allow Uber and its drivers to operate lawfully, as 25 jurisdictions in the United States, including the state of Illinois, have done. "Uber and ride-sharing should be regulated" in Canadian cities, Mr. Black said.

But while Uber encourages its drivers to get properly insured, most face a difficult choice, said Philomena Comerford, CEO of Baird MacGregor Insurance Brokers in Toronto. While they should get an expensive commercial licence, most stick to their existing personal auto insurance policies, which don't allow them to operate as paid drivers, she said.

But if they get into a serious accident while doing an Uber run, Ms. Comerford warned, insurers would likely limit the amount they pay out in claims, and then go after the drivers for the money for violating the terms of their personal policies.

That could leave drivers and passengers financially exposed, warned the Financial Services Commission of Ontario, which regulates provincially-incorporated property and casualty insurance companies. The commission said in an online posting that while ride sharing sounds simple, the service could "significantly impact your insurance coverage" and warned most Ontario auto insurance policies will not cover cars being used to transport paying passengers.

Uber has responded by providing contingent insurance to cover drivers in case they encounter problems – but the company has refused to divulge any information about its policy. It may have to, after an Ontario court ordered Uber to reveal details about the policy should it be introduced as evidence in the City of Toronto's pursuit of an injunction against its service.

Mr. Black acknowledged Uber's extra layer of insurance is an "interim" measure, "but it doesn't remove some of the complication of the fact that existing insurance policies are not written in a way [that] contemplate ride-sharing," he said. Mr. Black said Uber is working with insurers in Canada to create hybrid policies that cover drivers who use cars both for personal and commercial uses. "That's the hardest part of the work that we need to do now."

But Ms. Comerford said "I find it very strange that the business model doesn't have the insurance issue bolted down correctly so that there's no ambiguity."

Insurance industry sources said companies are monitoring Uber, and some are considering how coverage could be provided to drivers who use their cars for both personal and commercial purposes.

With files from reporter Jacqueline Nelson

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