Car Insurance

This volume presents an enormous amount of information that will take students of consumer-driven health care a very long time to read and digest. It will be tempting for both advocates and opponents of the movement for greater consumer control to browse through the work and pick out and trumpet those nuggets of information that suit their predispositions.

This would be unfortunate because the information that runs counter to our biases is the most important information to understand. Good policy can be developed only when we listen closely to honest criticism and respond accordingly–as difficult as that may be.

Still, the work presented here requires some context. Consumerism in health care is in its infancy. We do not yet know what the optimal approach is and we are in a period of experimentation and trial and error. Like most other new ideas, the initial models will need to be revised and improved. Prototype designs are almost never without flaw.

One of the marvels of any market-based system is the ability to make those corrections and revisions quickly as more information becomes available.

Too many health policy analysts take a governmental program approach to design questions–the model must be irrefutably effective before it is ever implemented. Once a program is “the law of the land” it is nearly impossible to change. Witness the protracted debate over adding prescription drug coverage to Medicare.

Fortunately, consumer-driven health care (CDHC) was born in the market and will be revised in the market. To the extent there has been governmental involvement (such as the IRS guidance on Health Reimbursement Arrangements), it has been extraordinarily flexible and permissive.

Vendors and employers are free to refine their products in accordance with changing conditions and growing knowledge. In that context, identifying problems is seen not as an attack on cherished ideas, but as a welcome opportunity to improve the product offerings. Criticism is valued as product feedback. A company that wants to succeed in the market is eager to hear what the problems may be.

Market approaches have some other advantages over a governmental orientation, as well. Government programs are essentially political. They are aimed at pleasing 50 percent+1 of the population. Opinion surveys are conducted to see how close a new idea is to achieving that goal.

Few companies in the private market think in those terms. If a new product or a new company feels it can reasonably attract even just 10 percent of a market, it views the prospects as very promising. Hertz is not the only success in the rental car business. Avis and National and Budget and Alamo and many others manage to succeed without being Number One.

Readers of the papers in this volume will likely conclude that the experience at Humana was not very favorable, the experience of the Definity-covered University of Minnesota was more favorable, and the large, unnamed Definity-covered employer was very favorable. What does that mean? Clearly different locations and different designs lead to different results. If CDHC were a government program, this might be worrisome–have we chosen “the right” model? But because CDHC is a market-oriented approach, it is not discouraging at all. Definity is doing something right and will build on it. Humana may revise its approach or drop the program altogether. It does not matter in the slightest. Humana is not disadvantaged because Definity is succeeding. And Humana’s problems do not detract at all from Definity’s Success.

Certainly there are things to be learned in both cases, and market-oriented companies will study these experiences closely. But no company–including Humana–is stuck with a problematic design. Humana’s product did not allow rollovers and the funds in the “allowance” could be spent only on in-network provides and for covered services. These features remove the most promising elements of consumer-driven health designs–consumer choice and the opportunity to save money for future needs. It is simple enough for Humana to incorporate those features in its next round of offerings.

Market-oriented companies also know that early adopters are different than the rest of the market. The people who are the first to sign up for a new product or service tend to be risk-takers. They accept risking the unknown for the privilege of trying something new. They also tend to be younger and better educated than the rest of the market. They volunteer to be “test cases” and product developers rely on them to refine their offerings. People oriented toward government programs may view this as a selection problem, but innovators expect this to occur in the first couple of years of new-product roll out. If the product is successful at this stage, word gets out and the new idea attracts a wider market segment.

The research presented here does not address the “early adopter” phenomenon very effectively. We are told that the enrollees in the Humana program tended to be actuaries and financial service personnel. These individuals are presumably better educated than most Humana employees, and they certainly know their way around a benefits program better than the average person. It is interesting, for instance, that the studies report no end-of-year rush to consume unspent dollars in the allowance, even though Humana included a use-it-or-lose-it provision characteristic of flexible spending accounts (FSAs). This contrasts with the Countrywide Financial experience that did have an FSA-type year-end rush, even though those employees were able to roll over unspent balances. It is possible that the self-selected Humana employees understood the dynamics of forfeited balances and did a better job of spending their money through the course of the year, while less-savvy Countrywide employees stuck to their FSA-induced spending habits.

Most of the studies report income disparities between CD-selectors and nonselectors. It will be interesting to see if this difference continues over the years, but it is also possible that income is a proxy for education. This should certainly be the case at the University of Minnesota where educational attainment should correlate closely with income. If it is true that early adopters tend to be more highly educated, we would need to control for differences in education before concluding there is an income effect unique to CD health.

We also think of early adopters as being younger, but that does not seem to be the case here. If anything, CD-selectors appear to be somewhat older than nonselectors (though age is another underreported variable in these studies). Is it possible that early adopters for electronic gadgets are different from those for health insurance programs? Perhaps younger people pay so little attention to their health care needs that a choice of benefits plan is of little interest to them.

Since we cannot yet distinguish between the behavior of early adopters and a more mature market for consumer-driven health, the research presented here is of limited (but not unimportant) value. Most of this work looks at baseline information in 2001, first enrollment in 2002, and renewals in 2003. That means there is only a single year’s worth of data. Given that the IRS did not issue guidance until June 26, 2002, the products were very tentative and in some cases did not incorporate the more attractive features of the approved health reimbursement arrangement (HRA) model. It was not at all clear at the start of 2002 that the IRS would allow year-to-year rollover and buildup of unspent balances.

Even more importantly, none of the pioneer models anticipated that postemployment access to the funds would be allowed. The prospect of saving money for future needs even after leaving one’s current employer could very well skew enrollment decisions from what this research presents. Lower-income workers in particular might find that prospect more attractive.

The body of research presented, then, is looking at a moment-of-time of an extremely fluid and dynamic environment. Much of the experience studied predates the IRS guidance. And, while Humana and Definity are both very serious and credible players, they are not the only vendors, nor the only models available. Destiny Health, for instance, takes a radically different approach to the market and to product design. It distinguishes between “discretionary” and “nondiscretionary” spending and applies the cash account only to the former, It also requires portability for account balances. Its market targets fully insured smaller companies, rather than the larger self-funded employers studied in this research, It would be worthwhile knowing the experience of this different design and different market segment.

It is impossible to know ahead of time if the Destiny model is superior to the Definity model or the Humana model (or the models from Aetna, HealthMarket, Lumenos, or dozens of other variations). Clearly, behind each design are a number of credible and serious people who believe their approach is superior to all others. It will not be academia that answers the question of which approach is best, but the market.

Enterprise ranks highest in satisfying rental car customers, according to the J.D. Power and Associates 2004 Rental Car Satisfaction Study(SM) released today.

The study, now in its ninth year, measures customer satisfaction among business and leisure customers who rented a car at or near an airport. Overall satisfaction is based on performance in six areas. In order of importance, they are: pick-up process, rates/value, return process, rental car, reservation and shuttle bus/van.

Enterprise receives high ratings from customers in all factors and leads the industry in the areas of pick-up process and shuttle bus/van. Hertz follows Enterprise in the rankings, receiving the highest ratings in reservations, rental car and return process.

“While Enterprise was not originally known for its airport presence, recently the company has been aggressively adding rental car facilities at airports,” said Linda Hirneise, partner and executive director of travel industry research at J.D. Power and Associates. “Enterprise has been particularly successful in expediting the pick-up process at its airport locations, which can have a dramatic impact on overall customer satisfaction.”

Wait times to pick up rental cars have increased significantly over 2003. The study finds that 43 percent of all rental car customers had to wait an average of 19 minutes for a shuttle bus to pick up their rental car — up from 11 minutes in 2003.

“Overall customer satisfaction falls significantly the longer a customer has to wait to pick up the car,” said Hirneise. “Speed and efficiency are critical after a long day of travel. The importance of valuing a customer’s time cannot be overstated enough in this industry.”

The Internet continues to have a growing impact on the way customers make reservations for their car rental. Customers book their reservations on rental car company Web sites twice as often as on independent Web sites (35% vs. 17%, respectively). Satisfaction is higher for customers who book their reservation directly with the rental car company, whether through the company’s toll-free number or via the brand’s Web site.

The number of customers who report experiencing a significant problem with their rental car experience is the lowest it has been in five years, which is similar to findings across other travel-related industries in 2004. On average, just 6 percent of customers experience a significant problem. Problems during the pick-up process are the most frequently reported.

The study also finds that fewer than one in five customers purchase any form of optional coverage when renting a car. Among the optional coverage offered, 19 percent purchase personal accident insurance, while 17 percent purchase a loss damage waiver.

The 2004 Rental Car Satisfaction Study is based on responses from 4,696 customers who rented a car at an airport location within a six-month period.

WOBURN, Mass. & TULSA, Okla. — Thrifty’s Successful Deployment of Rhythmyx as the Content Management Foundation To Drive Its Brand Across 250-plus Web Sites Honored at Content Week 2005

Percussion Software, a leading developer of practical software solutions enabling customers to maximize the value and quality of enterprise content, and Thrifty Car Rental, a subsidiary of Dollar Thrifty Automotive Group, Inc. (NYSE: DTG), today announced that THRIFTY.com has won a first place IBIC (Internet/Intranet Best in Class) Award for its use of Percussion’s Rhythmyx Enterprise Content Management system. The IBIC awards are presented by the International Quality and Productivity Center (IQPC). IBIC winners were announced February 2 at IQPC’s Content Week 2005 Conference and Exhibition in Miami.

“IQPC’s IBIC Awards honor and promote the best Internet and Intranet over the past year,” said Amy Thistle, Show Director of IQPC. “These awards showcase the best Internet and Intranet applications and designs for the many industries that currently use Internets and Intranets. Companies like Thrifty are setting the standards of excellence for other Intranet and Internet professionals, and we are pleased to recognize their contributions as part of Content Week 2005.”

Thrifty is a value-oriented car rental company with a significant presence both in the airport and local car rental markets. It operates in 64 countries and territories with more than 1,100 locations worldwide. Rhythmyx was chosen in 2003 to replace a proprietary system that Thrifty had developed internally. Thrifty’s deployment of Rhythmyx began with the company’s online Special Marketing Programs, which are used by the headquarters staff, as well as users at the store level, to drive sales and build brand loyalty. Thrifty’s Web presence now includes www.THRIFTY.com and some 250 city-specific store sites, its extranet hub and its corporate Intranet - all powered by the Rhythmyx content management system. More than 100 Thrifty authors and producers across the U.S. and Canada rely on Rhythmyx.

“We are honored to receive the IBIC Award - especially since more than 30 percent of our reservations come from the Internet,” said Thrifty’s Director of Internet Strategy Brad N. Rosenthal. “This makes the Web one of the most important tools driving our business,” he added. “Once we deployed Rhythmyx, technology was no longer a barrier to delivering messages to our customers. One recent study of car rental Web sites showed that Thrifty.com is among the easiest to access and use for average consumers, and we will continue to improve the quality that will bring them back for repeat business. The Rhythmyx content management system has become the cornerstone of our e-commerce efforts.”

“We congratulate Thrifty for being a very consumer-oriented company that has leveraged its Web site to provide customers with faster and better service and easier access to timely information,” said Barry Reynolds, CEO of Percussion Software. “Thrifty realized early on that Rhythmyx was a perfect fit to meet its content management needs, so it comes as no surprise to us that the company has built an award-winning Internet presence that strengthens its brand and enhances its appeal to consumers.”

About Thrifty Car Rental

Thrifty Car Rental is a subsidiary of Dollar Thrifty Automotive Group, Inc. (NYSE: DTG), a Fortune 1000 Company with headquarters in Tulsa, Oklahoma. Together with its corporately-owned locations and those of its franchise owners, the Thrifty Car Rental brand serves value-conscious travelers from more than 1,100 locations in 64 countries. To make a reservation with Thrifty, visit www.THRIFTY.com, call 1-800-THRIFTY or consult your travel agent.

About IQPC

The International Quality & Productivity Center (IQPC) provides millions of business executives with tailored practical conferences, keeping them up-to-date with industry trends, technological developments and the regulatory landscape. Last year alone, IQPC produced more than 1,200 events. Founded in 1973, IQPC now has offices in 11 countries across five continents around the world. To best address the changing needs of its diverse audience, each office is divided into core industry practices. These divisions leverage a global research base of best practices to produce an unrivalled series of conferences, with special emphasis on: Oil & Gas, Defense, Transport, Marketing & Sales, Finance & Capital Markets, Healthcare, HR & Training, Six Sigma & Quality, Pharmaceuticals, I.T. & Technology, Government & Public Sector, Call Centers and Strategic Management.

About Percussion Software

Percussion Software’s family of practical software solutions enables customers to maximize both the value and quality of their enterprise content through cost-effective content management, ease of content reuse, optimized delivery to multiple channels and increased efficiency. The company’s flagship product, Rhythmyx 5.5, based on open standards, is the first Enterprise Content Management (ECM) solution to provide cost-effective, multi-channel delivery of easily reusable content. Percussion’s Lyrix 2 product, the first comprehensive Lotus Domino Content Integration solution, unlocks proprietary Domino content for reuse in other enterprise applications. Lyrix 2 builds on Percussion’s Domino expertise, gained over the past 10 years from the company’s line of award-winning and innovative Power Tools for Lotus Domino: Notrix, PowerFlow, and ServerAdmin Plus.

Percussion’s portfolio of over 2,500 customers includes Fortune 1000 companies as well as other global, industry and public sector leaders, including Armstrong World Industries, Bank One, Bayer, Colgate, the FAA, Hitachi, HUD, IBM, ICI Paints, Intel, Jefferson Health System, MasterCard International, McKesson, Merck, Motorola, Northrop Grumman, Prudential Insurance, Shell Chemical, the Dept. of State, 3M, Thrifty Car Rental, Toshiba and Verizon. Founded in 1994, Percussion Software is self-funded and profitable.

Ostensibly, this is a column about cars (or trucks, or SUVs, or whatever; vehicles, as it were). So, to that end I’m writing about this vehicle named “Ironman” (my apologies to both Stan and Ozzy) that was shown by a company called “Model E” (hailing from Fremont, CA; more on it later) at this past October’s SEMA show in Las Vegas. Ironman is essentially a welded stainless steel spaceframe, its only body panel being the hood. It will be powered by some sort of a V8 in a mid-engine configura tion with full-time 4WD. It has a wheel-base of 103 in. with a 63.8 in.-track. Ground clearance ranges from 8-13.5 in. Approach and departure angles are 45[degrees] and 42[degrees], respectively. Oh, and acceleration 0-60 mph is “less than 6.0 seconds.” (Must have been a steep hill.) The Ironman concept was built by Rod Millen Special Vehicles (Huntington Beach, CA), and although the many Model E people at its unveiling seemed very proud of this fact, Millen himself was not in attendance. Instead, he of Toyota Tacoma Pike ’s Peak Hillclimbing fame was on the other side of Vegas hobnobbing with his corporate sponsor. Model E seems to think that it’s going to start building these things in 2002 and that you (or more likely someone not quite as smart as you) will be willing to shell out $82,500 for one (the minimum security deposit being a mere $10,000). Presumably, doors, roof, and other body panels are optional.

So by now you’re probably asking yourself why I am even writing about this overwhelmingly irrelevant concept vehicle (other than to make fun of it)? Because, unfortunately, the people at Model E seem to know very well how to say all the right things that I want to hear about the automotive future. They throw around phrases

like “Internet built-to-order vehicle” and “Subscribe S Drive.” They talk about zero asset production, modular assembly, direct-to-consumer sales, pull systems, mass customization, transforming the supply chain, and micro-factories. They drop Jim Womack’s name and impress Business 2.0 writers who pen great feature stories (but apparently know little to anything of the realities of the auto industry). Of course, none of this has anything to do with the ludicrous Ironman, at least nothing that the people at Model E can explain.

Otensibly, Model E is a car company. Ostensibly, it is a car company that I would like, as its ostensible mission is to use the Internet to overthrow the current automotive power structure. How? Ostensibly, it would: (i) Directly communicate with consumers in the design process to produce vehicles that are desirable and, more importantly, pre-sold. (2) Use a networked supply chain to produce these largely modular vehicles, such that Model E itself has little-to-no capital investment. (3) Deliver the product directly to consumers using a subscription-based service model that takes care of everything including insurance. What’s particularly annoying about this business plan is that it’s: (i) Possible. (2) Probable. (3) Unlikely to be accomplished by Model E.

There are others out there that are trying to do many of the same things, including even some of the big car companies. No doubt in my mind, these ideas are indeed the future of transportation, the future of mobility. But most of the people that I see who are trying to make these ideas happen spend their time talking about how they’re changing processes, developing new manufacturing technologies, creating new materials, programming new software, and managing new organizational schemes-all the stuff you read about in this magazine every month

A bill passed by the House of Representatives just a few days ago could be beneficial to the U.S. consumer vehicle leasing and daily rental car sectors if it becomes law, according to Fitch Ratings. The bill is Bill 6862, which may repeal existing vicarious tort liability laws where the owner (lessor) of a vehicle may be held liable for damages or injury cause by the vehicle operator (lessee).

This could help lessors and rental car companies by reducing or eliminating vicarious tort insurance and settlement costs, as well as spur activity as savings are passed on to consumers,” said Chris Mrazek, Managing Director, Fitch Ratings. “Existing auto lease securitizations would also benefit from tort relief — though no direct rating implications are anticipated — as structures are now exposed to a limited degree of claims paying uncertainty and timing risk.” While most rental car ABS ratings are tied to surety bond enhancement, the bill could reduce the cost of doing business in certain states.

Current vicarious tort liability laws have led major consumer vehicle lessors such as General Motors Acceptance Corp., Ford and American Honda Finance to either curtail their activity, or suspend it altogether, in states that have no ceilings on tort liability. In New York, for example, it is estimated over $6 billion in claims were paid out from 2000-2003. Other large states such as California, Michigan and Florida, cap potential claims though the amounts may vary. Mostly, lessors and rental agencies have mitigated the risk through the purchase of various layers of insurance. In the case of the daily rental business, the cost is passed through to consumers in the form of higher rates in applicable states.

In ABS lease structures, to avoid the process of re-registering and re-titling leased vehicles, the lease contracts and underlying vehicles are originated and titled in the name of a special purpose entity, the titling trust. Under vicarious liability laws, although the lessee is the operator of the vehicle, anyone suffering injury as a result of the operation of the leased vehicle could, if applicable state laws permit, file a liability suit against the owner, in this case the titling trust. To overcome the risk, the titling trust is the named beneficiary of all insurance payments, including claims on physical damage, credit/life disability, and vicarious tort liability claims.

With interest rates on the rise, contract rate incentives are becoming more expensive and with some stability in the wholesale vehicle market, lenders and consumers may look a little closer at leasing. “Passage of Bill 6862 through the Senate could alleviate the need for expensive vicarious liability insurance for issuers and securitizations, bringing down overall lease costs and potentially leading to higher volume,” said Mrazek. “For the rental car companies, the repeal could result in an expansion of service in those jurisdictions which previously had substantive vicarious liability laws,” said Philip S. Walker, Senior Director, Fitch Ratings.