Uber, Lyft and AIRbnb Are Innovative, but Are They Good for Society?

When I first heard about Uber, Lyft and AIRbnb, I thought the “sharing economy” was one of the worst ideas I had ever encountered. I’ve been involved in gauging risk in the insurance industry for five decades and have some expertise on innovative stupidity. For the last year or so I’ve watched huge amounts of venture capital pour into these entities and have had to reassess my opinion.

Venture Capital Pouring Into Sharing Economy

Bottom line, with the Federal Trade Commission reporting that 7% of all U.S. citizens over sixteen were victims of identity theft in 2012, why would you turn over your personal security to anyone outside of a traditional setting where you have regulations to protect you, and recourse if something goes wrong.

Taking considerable risk for what seems to be small gain is stupid.

Yet . . . I like to think I have an open mind. One of my favorite essays is called “Youth” by Samuel Ullman. He contends that as long as you’re receptive to new ideas you remain young. I agree wholeheartedly.

Unfortunately for me, I’ve been an innovator for five decades in an industry that hates change. My life has been all about rolling a boulder up a hill. That hill has been all the more inclined against my efforts because of people who “innovate” without regard for long-term consequences. Although many of my ideas have been embraced, some on a national level, the amount of effort involved could have been substantially less.

I’ve read quite a lot about the sharing economy and most of it has been positive. It is heralded by many as positive disruption of a staid and lazy industry. You can even book a ride through Facebook now.

While I understand that not everyone has a positive experience in a taxi, I can’t believe that our very competitive capitalistic society has allowed that particular niche to languish to the point of needing a major remodeling, especially if that change comes with a huge “risk” price-tag.

Over the years I’ve been a fairly good salesperson. My agency was the top producer in the nation for Metropolitan Property and Casualty Insurance Company for two years in a row. We continue to be a top producer for several national companies. I know enough about selling to realize that discovering the potential buyer’s pain and solving that problem leads to commission.

However, one of my favorite movies is “The Music Man” which teaches us all about creating a “problem” you can “solve”. “Well, ya got trouble, my friend, right here,

I say, trouble right here in River City.” I have to wonder if the taxi industry isn’t being wrongly maligned in an effort for the founders of Uber and Lyft to profit?

While I’ll admit the app for the sharing economy is an innovative idea, I’m not convinced that all innovative ideas are good for society.

Let’s take a look at some “innovative” ideas that didn’t turn out to be all that wonderful. These are in no particular order…

1. New Coke

New Coke

http://www.coca-colacompany.com/history/the-real-story-of-new-coke

In the mid 1980s I was addicted to Coke, drinking two to four cans a day. I was young and running five to ten miles a day, often competing in road races. It was a very dark day for me when Coke decided to change their formula to a sweeter model, which had supposedly wowed the test tasters. Obviously many others felt the same way I did about taking away “our” Coke. Coca-Cola eventually decided to make a “Classic” move by reinstating its old formula as Coke Classic.

I haven’t had a Coke for years, but my taste buds fondly remember that unique bouquet. If only my knees and other joints would allow me to run enough miles to drink that many calories, and my heart was fifty years younger so I could stand the caffeine.

2. Subprime Mortgages

Remember the TV ads for Countrywide Financial. Their tag line, “No one can do what Countrywide can” became tragically prophetic. As it turned out “no one” could, including Countrywide. They were later merged into Bank of America, who paid a $335M settlement for alleged racial bias in their lending practices. Their actions were part of a recent $17B settlement with the Department of Justice for mortgage practices.

Countrywide’s actions and those of thousands of people in the financial industry resulted in financial problems for most of the people in the world. Personally I believe the mortgage crisis cost me about $2 million.  It remains to be seen if I can recover in time to retire as comfortably as I might have.

3. Hydrogenated Oils

Those of us who have had a heart incident, I had total blockage and had to have my heart restarted by a terrific EMT, understand the effects of trans fats. It might surprise you to learn that a French scientist, who is known as the father of hydrogenated oil, won a Nobel Peace Prize for his efforts. The process he invented allowed people to store food on the shelf for much longer, which seemed like a truly marvelous advancement.

Unfortunately, what he invented didn’t occur in nature and his innovation caused the unintended consequences of contributing to bad cholesterol. Bad cholesterol, according to my cardiologist, contributes to heart disease. So much for French Fries, although many food processes now have eliminated hydrogenated oils and the day may come when Woody Allen’s movie comes true and French Fries are known as the perfect food.

4. The Ford Pinto

Ford Pinto

http://bestartcarz.com/ford-pinto.html

In 1986 I purchased a home in Bismarck, North Dakota. My family had grown, and we went from a small colonial with about 1,200 square feet of living room to a house with about 5,000 square feet and a pool. The previous owner was a man by the name of Harry Pearce. Mr. Pearce had moved out of Bismarck after his career took off in the wake of him being the lead attorney on the infamous Pinto Case. He later became Vice-Chairman of General Motors and later Chairman of Hughes Electronics.

Ford rushed the new and innovative Pinto into production in an effort to stop the erosion of market share to Volkswagen. Along the line Ford made what some have termed “unethical” decisions regarding the gas tank, which had a tendency to explode in a rear-end collision. Those decisions were said to have led directly to the deaths of between 500 and 900 people in accidents that otherwise would not have resulted in serious injuries. Ford had done a cost benefits analysis that placed an economic figure on human death. Ford paid out $millions in court awards and out-of-court settlements.

5. Leaded Gasoline

I grew up on a farm. All of the gasoline we used when I was a boy was leaded. Gasoline contained lead to maintain a higher octane rating, which allowed for better engine performance without “knocking”. Another benefit was that leaded gas prevented premature wear to valve seats. If you’ve ever done a valve job and gone through the tedious process of grinding using compounds, you can appreciate that enhancement.

Leaded Gasoline

Holm Family Farm – circa 1950s

After a long day in the fields it was almost a daily ritual to wash my hands and arms with gasoline to remove the grease and oil that had accumulated. I find that cleaning process disturbing now considering that when leaded gasoline was first “invented” by General Motors in the 1920’s they were warned of the dangers of poisoning. The General Motors employee brushed aside the warning stating the no one would come into daily contact with the gasoline and pushed the product out into the market. Within a very short time, people started to die. In 1985 it was estimated that about 5,000 people a year died in the United States due to heart disease attributable to lead poisoning. The product remained generally available in the United States for seventy years.  It still is used for some sanctioned industries.

I could go on for a very long time listing inventions and ideas that were lauded as wonderful at the time and later found to be poorly conceived. This list might include doing away with streetcars so that cars could rule the road, cigarettes, TNT, the guillotine, and land mines.

I am not a Luddite. I embrace new technology and love the energy it takes to create new concepts. I’ve been on the cutting edge of many new and innovative programs. I have great empathy for pioneers. I understand the old saw about being able to tell the pioneers, “because they’re the ones with the arrows in their backs”.

However, I despise the Professor Harold Hill wannabees, cynical salesmen who make life harder for real innovators. I believe we really do have “trouble, trouble, trouble” coming in the not too distant future, when the bad element realizes the opportunities abounding for mayhem in the “sharing economy”.

When that trouble hits, it will cause turmoil in the insurance industry because people don’t like it when their losses aren’t covered by their policies. For the immediate future I see bad times for little gain, except for those few who have ownership in these new companies.

Other Enhanced Insurance articles related to the sharing economy:

A Lyft Out of An Uber Mess

Are Uber and Lyft Innovators or Scofflaws

You Wouldn’t Trust a Cab without Insurance Would You

The Uber Risk of the Sharing Economy

Auto Insurance Coverage for Taxis

Have Uber and Lyft Used Insurance to Their Advantage

Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.

While the majority of people want an agent involved in their purchase of insurance, many people want to see if they can save money by buying direct from the insurance company. Others want to try a direct quote to make sure the premium they’re now paying through their local agent is fair. If you want a quote for your coverage, click on the competitive quote button on the right side of this page.

Jim operates an insurance agent network called Insurance Partners, aggregating agents in the Midwest for over 25 years. He was National Agent of the Year for Metropolitan in 1993 and Midwest Agent of the Year for Travelers in 2011. He served as a founding board member of the Surplus Lines Association of Minnesota.

4 comments on “Uber, Lyft and AIRbnb Are Innovative, but Are They Good for Society?

  1. Jim,

    You seem to be very knowledgeable about the topic. What is your take on RelayRides and Getaround? They are similar to Uber, except instead of insuring a ride they insure the car while it is being rented. They are not TNCs, but I am not sure about their insurance either.

    Would you look into it?

    Thank you!

  2. Relayrides and Getaround seem to have done a better job of providing coverage. I can only go by what they “say” they have for coverage on their webpages. If you happen to be in a state that has PIP (No-Fault) coverage you need to ask Getaround if coverage is provided for PIP. They don’t mention having it. Relay Rides say they have it, but at minimum limits.

    Years ago I was the lead underwriter on a national rental car account. Two of the insured rental cars ran into each other. Both cars contained six adult. All twelve people claimed soft tissue injuries. It obviously was a set up. It happens.

    Say the same thing happened and you had allowed your personal car to be rented. Your personal insurance would not cover the loss because “livery” is excluded (for hire). Let’s say the loss became quite large and went beyond what either Relay Rides or Getaround had in their policies. You could be held liable.

    These sharing economy things act as if the world is full of puppy dogs and rainbows. I once had a claim in which the insured stuck one part of the welder on the horses anus and the other end on the horses tongue and arced it. He claimed his horse had been struck by lightning. Prior to insuring his horse he and a buddy had bought and sold the horse between themselves several times raising the price many times over the real market value.

    Insurance should be set for covering a notch or two above “probable” loss. These sharing economy companies seem to want to set their insurance at two or three notches below “probable” loss.

    The Getaround and Relayride websites are also silent on underinsured motorist coverage, which can become quite important. I recommend that uninsured and underinsured motorist coverage have the same limits as the bodily injury coverage. It is only logical to have them the same as you’re protecting the same assets.

    Remember, I haven’t seen the actual policies and their webmaster might not know what the policy actually says. Also, I’m not an attorney.

    If you happen to have a copy of either policy I would be happy to review it for you.

    JIm

  3. Jim,

    I too had been thinking of signing up as a part-time driver (Lyft). Would having both personal and commercial coverage suffice?
    Sounds too easy and likely prohibitive making the whole idea moot. Whats that age old adage about risk vs gain?!?

    Thanks for your sage advice,
    Tim

    • Tim –

      I’m not an attorney. I do have some experience that leads me to believe that attorneys like the phrase “but for”.

      “But for’ being a Lyft driver would have you driven to that part of town, in order to be in the area for prime action? If your answer to that question would be yes, the lawyer would say that you where actually working even though you hadn’t accepted a ride. It is my understanding the Lyft policy starts coverage as soon as you accept a ride. Your private passenger auto policy excludes coverage when you’re acting as a livery. The attorney for your private coverage will argue you’re on the job and the Lyft policy will argue you’re not on the job, which leaves you in a rough spot.

      The amount of arguing will depend on the size of the loss.

      This is just my opinion. Also consider I have not seen the actual current policy. You should talk to your insurance agent or an attorney. And, ask Lyft, and get your answer in writing.

      Thanks for asking.

      Jim

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