In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche
If that prediction is true auto insurance costs could drop by as much as 80% because accidents are the main risk ensured for. By the year 2040 your auto insurance bill could be $10 or $15 a month for a brand new car!! Naturally that won’t do Progressive (NYSE: PGR) and Allstate’s (NYSE: ALL) profit margins much good.
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Entering auto insurance would make a lot of sense for Uber because insurance has been one of the barriers blocking drivers from adopting its service. Some communities, like Kansas City, Missouri, have even banned Uber because of inadequate insurance. Offering insurance could remove that barrier and defuse one of the taxi cab industry’s main objection to Uber.
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Hard to say, but after this deal, Uber is behaving more and more like a hedge fund company or a venture capital firm. It uses its core transportation business to generate cash then reinvests that cash in other ventures.
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An Austin, Texas, resident named Demetrious Kourniaris was left standing out in the sun in temperatures of over 100 degrees because Uber drivers refused to transport him and his guide dog on two separate occasions. To add insult to injury, Uber charged Kourniaris cancellation fees on both occasions.
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The whole telematics issue raises the interesting question of whether auto insurers are still a good investment. Value investors like Warren Buffett have long thought of auto insurers that way because of all the float their premiums generate, but is that still true in the face of all the competition in today’s insurance industry?
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To be fair, there are some signs Lending Club is starting to make money. According to its financials, Lending Club had $64.6 million in cash and short-term investments when it went public. Yet on March 31, 2015, Lending Club had $874.13 million in cash and short-term investments. That shows us that it is capable of generating a lot of cash in a very short period of time, but can it keep that up?
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We need to ask ourselves what sort of future companies like Uber have. If they cannot comply with a few basic regulations and make money, then their business model is not viable. Perhaps it is time we scrapped this ridesharing concept or took it back to the drawing board.
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This could indicate that traditional banking might no longer be a viable business because of the alternatives available. Things could soon get worse because PayPal is about to get spun off from eBay Inc. (NASDAQ: EBAY) and transformed into an independent financial services company that will compete directly with banks.
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Hiltzik and The Baffler’s Helaine Olen pointed out that some of those conditions no longer exist. Today’s would-be Millionaire Next Door would likely graduate from college with a mountain of student loan debt, leaving him with little extra money to start a business and a strong incentive to stay in the cubicle farms. Low inflation, a booming stock market, and high real estate values also make it difficult for working stiffs to accumulate income earning assets.
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Operating a bank would also allow Kroger to interphase directly with apps like Apple Pay, Google Wallet and Venmo and avoid the fees charged by the financial services industry. That alone might be enough to entice Kroger into banking.
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