Thursday, December 22, 2005

railway insurance?

now this one's a stunner on underground market dynamics.

from what i hear there's a quasi insurance scheme running for railway commuters from far-flung areas in the mumbai suburbs. this is how the deal goes, it gets its motivation from the fact that the railway monthly passes are far too expensive for most of the lower middle class commuters. so theres a trust of sorts that accepts a monthly premium and reimburses the fine paid by a commuter in case he is fined for ticketless travel.

brilliant, i say. for example, i pay a monthly premium of 100 bucks rather than purchase a monthly pass for 700 bucks. in case i do get caught and fined then i submit the receipt to the above-mentioned trust and am reimbursed to the full extent of the fine.

any finance student worth his mba can develop a model that will roughly estimate the proportion of subscribers that will get caught and hence the outlay of funds that will be need to be made by the trust. the balance can be deployed in short term instruments so as to become another revenue earning stream. one can even calculate value-at-risk, catastrophic loss scenarios, etc.

needless to say this obviously is an underground operation and hence will eventually lead to the ever burgeoning coffers of the organised criminal mafia, if its not controlled by them already. i can imagine that this would have been started by an enterprising fellow in the suburbs but since its an operation that doesn't walk in the centre of the road it will at some point of time during its existence attract the attention of the protection providers of the mumbai street gangs. from here on its just a matter of time before the sharks take control once they realise its revenue generating potential.

developing a fare structure that incentivises the commuter to purchase a season pass rather than pay the 'insurance' premium in a cost effective manner for the railways seems a classical poser for the planners. this would have to necessarily look beyond the obvious solution of increasing the frequency of checks or increasing the manpower required. neither of these are cost effective and in the long run would be more expensive for the railways than the loss of revenue.

whacky ideas, anyone? give it a shot. and no there are no sponsored prizes for this. not even a free monthly pass.


Legal Eagle said...

Hi Nitin,
Since u have posted so many articles on this Blog, it would be advisable for u to ensure copyright protection therto. In order for u to do so, please insert the folowing at the end of each Article: © Nitin Nair 2005.
This will provide u with the ammunition to go after anyone who infringes your rights to these Articles, in case of any violation or infringement (without your prior written consent) therewith.

aabeirah said...

Hi Nitin, is this you? If it's you, I'm adding you to my blogspot. Love, Sitara.