Tuesday, June 28, 2016

Ride-share companies riding on the American society?

Uber, Lyft and SideCar are companies that provide an app which is downloaded by both drivers and passengers seeking a taxi, to make it easy for them to engage. Traditionally, these companies should be regarded as software companies. However with megabucks riding on the transportation business, these companies have morphed into full-fledged Transportation Network Companies (TNCs), but would prefer to be called as ‘ride-share services provider’.

However, the problem does not lie merely in the nomenclature for these companies. A larger problem is the dubious means employed by these companies to dodge regulatory policies that govern all TNCs. One such regulation pertains to the insurance cover provided to drivers of their cabs.

Lyft is a conventional TNC but Uber works on a sub-contracting model. That is, their drivers are mix of owner-driven personal vehicles (called UberX) and fleet-owned commercial cabs (called Uber).  The fleet-owned commercial cabs are covered by commercial insurance but the owner-driven independent contractors are covered in a different way. Such drivers are offered non-primary coverage with $1 million coverage for driver liability and $1 million to cover uninsured or underinsured drivers. However, this cover only applies when a passenger is being driven.

During times when the cabbie is looking for a passenger or responding to a hail, a much lower insurance cover is provided to the driver:
  • $50,000 injury,
  • $100,000 injury total, and
  • $25,000 in property damage
This means that when cabbies are not driving a passenger around, they are at the mercy of their own personal insurance which puts them at risk.

Thankfully, the Federal and State Governments have woken up to what looks like a scam, and are passing bills to regulate these companies. Two such bills being passed by California state senate are:
  • AB 2293: This would eliminate the double-layered insurance cover for cabbies and require all kinds of TNCsto mandatorily have taxi-like primary insurance. This will protect the drivers against lawsuits for loss of life, and/or injury whenever they are on road, irrespective of whether a passenger is being driven or not.
  • AB 612: A more important bill, this mandates these companies to conduct alcohol and drug tests on drivers at regular intervals of time. Also, no drivers can be contracted, unless a thorough background check is conducted on them.
While the ride-share companies may fall in line on the above requirements, there are other questions to be asked. Do they provide workers compensation;do they pay payroll taxes; are they avoiding the normal costs of doing business; are they taking the American society (not just the passenger) for a ride? Questions one must ask oneself before hailing these taxis.

Thursday, June 16, 2016

Affordable Care that American economy can ill-afford

“The best customer service is one where the customer doesn't need to call you, doesn't need to talk to you. It just works”. - Jeff Bezos, Founder and CEO of Amazon

There is little doubt that President Obama is inspired by the Amazons of the world. That is why; he is trying to create an Amazon of sorts to hawk insurance products to the American citizen. This is what the insurance industry is calling the Healthcare Exchanges that are mandated to be setup under the Affordable Care Act (ACA), nicknamed ‘Obamacare’.

The intent behind setting up these exchanges may be a good one, albeit: to reduce dependence on insurance agents. The exchanges will help buyers compare different insurance covers and choose the one which works best for the individual/small company. Not only is the argument flawed for various reasons, Obamacare has created various other issues, which don’t make sense for the American economy.
  • Reduced subscription to insurance cover: It’s well known that insurance agents act as motivators, pulling buyers out of their inertia and getting them to buy cover. With ACA slashing the commissions doled out to agents, the motivation to push insurance cover reduces, leaving more Americans uninsured.
  • Replace insurance agents with Navigators: ACA aims to create a new breed of advisors called Navigators who just need to take up an online examination and pass the same to qualify.
  • Poor service: These navigators will not receive commissions like agents but will receive ‘grants’ from the ACA program. This will dilute the quality of service provided and open up doors to new problems like wrong products being purchased, inadequate cover etc.
  • Higher costs to small companies: Insurance agents often act as the HR departments by managing all the formalities required while selling cover to their employees. Now, with agents out of the picture, either companies will have to invest more time into the exercise, or let employees manage everything at their own risk.
  • Impact on (un)employment: With more people coming under healthcare insurance, the cost to employers increases making them restrict new hiring even more. This will have an adverse effect on the economy which is already reeling under heavy unemployment.
What Obamacare fails to recognize is that health insurance contracts are complex and it needs an agent’s expertise to advice buyers on the same. It’s one thing to buy pantyhose on an e-shoppe, another to put your health and life at risk on a do-it-yourself portal. Which is why; it’ll do good to the Obama administration to remember another quote by Jeff Bezos:

“I think that, ah, I'm a very goofy sort of person in many ways.”