Healthcare Hullabaloo: Geico-nomics

Who doesn’t love Flo - the quirky spokeswoman for Progressive insurance?

Well, probably a lot of people can’t stand the weirdo, who encourages consumers to customize their auto insurance coverage with Progressive. But, love her or hate her, she is now a part of the American culture, thanks to Madison Avenue.

Flo is well known for hawking of Progressive's 'name your own price' program - which is a pretty neat innovation.

Traditionally,auto insurance consists of several well established components: Liability, Collision, Comprehensive, Fire, Theft, Glass breakage, etc. These are the areas that companies like Geico let you mix and match in order to customize your policy. This was pretty innovative thinking by Progressive, and helps explain why Progressive is so successful. (As annoying as Flo is, she;s much less annoying than those stupid cave men commercials that Geico uses).

It occurs to me that Geico could be more successful if they ditched the cave men and talking lizard and followed the example of the health insurance industry. Here's what I have in mind.

First and foremost, we would introduce an entirely new type of Auto insurance - something that I would call a ‘VMO’, or Vehicle Maintenance Organization. For only a $10 deductible (or "co-pay"), it would would cover everything on your vehicle - not just catastrophic loss like traditional insurance. It would even cover expenses that you never even thought of as being insurable, including maintenance items like oil changes, car washes - even filling your gas tank. Of course, drivers would have to go to a particular service Station to receive these services - ones who had agreed to be in our network of participating stations (Preferred Petroleum Operators, or PPO's).

The VMO model would be very attractive to consumers, who would be drawn in by the perceived cost savings. This attraction would be enhanced by a catchy name - something like 'US Vehicare'.

Unfortunately, the independent service station owners would soon find that they were losing money on their VMO clients. Out of desperation, they would compensate by raising their rates for service and gasoline to their non-VMO clients. Soon, once the VMO system reached critical mass, no one would be able to afford to drive a car unless they belonged to a VMO or a similar insurance program.

The VMO system would have other long term effects. The service station owners would have to hire a small army of clerical people in order to handle the mountains of paperwork associated with processing VMO claims. Gasoline companies, now with their prices masked by the VMO system, would be able to raise their prices well past what they are in Europe or Canada. All of this increased expense would be passed on to the consumer in the form of higher premiums - and would lead the way to landmark profits for the VMO insurance companies.

If Geico decides to pass on the VMO idea, perhaps I'll start one myself. If history repeats itself, I'll be able to make hundreds of millions squeezing the vehicle owners on one side and the service providers on the other, leaving more for me in the middle. After a few years, I could sell the company to a big auto insurance company for a billion or 2, and then retire to a golf course.

Sounds like a plan.

But, on further thought, it probably would never work. After all, the American public would never be stupid enough to fall for such an obvious rip-off scheme, would they?

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