Question about PrivilegeFlyer
Nov 7, 2001 | 8:22 am
#1
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Question about PrivilegeFlyer
I'm asking this at FlyerTalk because I can't get a response from PrivilegeFlyer (which in itself is not reassuring).
Who ultimately is insuring PrivilegeFlyer?
There is a very good chance that a major airline is going to roll over and die within a year. As I understand it, in this event, PrivilegeFlyer compensates you somehow for your miles, in a manner that I wasn't able to deduce from the website. However, in this case, who coughs up the $$$?
I see an agency problem here, since unlike car/house insurance, it is not mandatory. One, only people with large numbers of miles (over 100,000) will insure them, because the price to insure is so high. Second, those who do so truly believe that their airline is going under. In this event, the payout will be huge. So huge, in fact, that I am suggesting that PrivilegeFlyer will not be able to pay all claims at 100%, negating the whole issue of insurance in the first place.
No offense to Randy, but we've seen what happens to poorly-capitalized dot-com ideas in the past 2 years when bad luck befalls them. How is this different?
Who ultimately is insuring PrivilegeFlyer?
There is a very good chance that a major airline is going to roll over and die within a year. As I understand it, in this event, PrivilegeFlyer compensates you somehow for your miles, in a manner that I wasn't able to deduce from the website. However, in this case, who coughs up the $$$?
I see an agency problem here, since unlike car/house insurance, it is not mandatory. One, only people with large numbers of miles (over 100,000) will insure them, because the price to insure is so high. Second, those who do so truly believe that their airline is going under. In this event, the payout will be huge. So huge, in fact, that I am suggesting that PrivilegeFlyer will not be able to pay all claims at 100%, negating the whole issue of insurance in the first place.
No offense to Randy, but we've seen what happens to poorly-capitalized dot-com ideas in the past 2 years when bad luck befalls them. How is this different?
Nov 7, 2001 | 9:39 am
#2
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You are assuming that one of these carriers will go completely under, and no other carrier will buy them in the process (or take over the miles). In almost every single case of an airline demise, some other carrier took over the routes and the mileage responsibility (just look at Pan Am, Eastern, TWA, etc.). Sure, there are exceptions (such as Midway) but these are fairly rare. I suspect that if either USAirways or America West were to go under, some other carrier (though there isn't much spare cash out there!) would buy them out. It is a cheap way to buy planes, routes and loyal customers.
Nov 7, 2001 | 10:50 am
#3
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This thing is just too expensive for me to consider it. $119 isn't that much money, but at the same time, it's almost as expensive as other real insurance policies I have. I haven't read the rules, so I don't know if there is a vesting period, but if there isn't, I'd just wait until the last minute, when my airline's failure was imminent, then purchase the insurance.
I have around 200,000 miles between two airlines, but I'd only consider the insurance if it were closer to the $50 range.
d
I have around 200,000 miles between two airlines, but I'd only consider the insurance if it were closer to the $50 range.
d
Nov 7, 2001 | 11:06 am
#4
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While it's true that the past is usually a good indicator of what will happen in the future, I would suggest that an analysis of the present provides a better idea. We have already seen Ansett go belly-up and those flyers have lost their miles. One occurrence doesn't make a pattern, but it certainly doesn't give one confidence either. More importantly, the current situation is not that of a single airline having trouble....they all are (Southwest being a possible exception). I don't expect to see another airline coming in and buying the assets of a faltering carrier....none of them have the money and with the schedule cutbacks none of them really need the assets. What's far more likely, in my view, is that a faltering carrier will sell off assets piecemeal to those carriers who want particular routes. Unfortunately, a FF program is a liability and can't really be piece-mealed. In the end, the faltering carriers FF program will simply evaporate when the carrier ceases operations and hard-earned miles will be lost.
Nov 7, 2001 | 11:36 am
#5
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Why pay premiums? I'll buy that life insurance the day before I croak!
Sorry Doppy, but it was too easy to pass up.
Sorry Doppy, but it was too easy to pass up.
Nov 7, 2001 | 3:29 pm
#6
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To get back on track,
who is covering PrivilegeFlyer's liabilities?
If another airline picked up the pieces (e.g. AA getting TWA) this insurance is moot. If an Ansett-type failure happens, who pays the millions of dollars?
who is covering PrivilegeFlyer's liabilities?
If another airline picked up the pieces (e.g. AA getting TWA) this insurance is moot. If an Ansett-type failure happens, who pays the millions of dollars?
Nov 7, 2001 | 10:23 pm
#7
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I believe they originally had a reinsurance policy from Lloyd's of London. I'll bet that the rates got too high and PF is now "going bare". Randy is a great guy, but my guess is that there is no real backing to PF beyond the annual premium income. Anyway, this is what we have to assume in the absence of evidence to the contrary. If true, a cessation of any of US majors would likely bankrupt the coverage, since more than 119/7500 of the members will collect their $7500. I suppose PF could keep going for a while, as claims are paid out from the fees of new members who join out of fear of the second failure. If the second failure does not happen, this strategy might even succeed. But as long as you're gambling, why not just gamble that your miles will survive?
Nov 8, 2001 | 8:35 am
#8
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Hmmm...good analysis. Perhaps I'll try to corner Randy and ask him. A horrific failure could mean the end of this whole enterprise (FlyerTalk included).
If you are truly a gambler, you sell your miles in advance of a bankruptcy.
The scenario that you described almost smells like a Ponzi scheme, if in fact they do not have a financial backer. If they accept new member fees while they know that the payouts from previous claims made the enterprise insolvent, there will be jail time involved. That's a big no-no.
If you are truly a gambler, you sell your miles in advance of a bankruptcy.
The scenario that you described almost smells like a Ponzi scheme, if in fact they do not have a financial backer. If they accept new member fees while they know that the payouts from previous claims made the enterprise insolvent, there will be jail time involved. That's a big no-no.
Nov 8, 2001 | 10:43 am
#9
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I was curious, so I put in a call to them. The CSR said that they are "backed by a big insurance company," but that management wouldn't release any details to them or us.
Not quite sure why there is secrecy though, I'd feel a lot more comfortable and be more inclined to purchase the insurance if there was a big "Underwritten by Lloyds of London" type seal somewhere.
d
Not quite sure why there is secrecy though, I'd feel a lot more comfortable and be more inclined to purchase the insurance if there was a big "Underwritten by Lloyds of London" type seal somewhere.
d
May 7, 2002 | 9:04 am
#10
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by Tino:
I'm asking this at FlyerTalk because I can't get a response from PrivilegeFlyer (which in itself is not reassuring).
Who ultimately is insuring PrivilegeFlyer?</font>
I'm asking this at FlyerTalk because I can't get a response from PrivilegeFlyer (which in itself is not reassuring).
Who ultimately is insuring PrivilegeFlyer?</font>
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Frequent Fliers Worry They May
Lose Miles if Airlines Go Belly Up
By JANE COSTELLO
THE WALL STREET JOURNAL ONLINE
Business travelers who wait patiently at airport security checkpoints have a new topic to ponder while passing the time in line: the safety of their frequent-flier miles.
<big snip>
But some fliers would rather pay for the privilege of playing it safe.
David Morse, a consultant from Los Angeles, has a total of 2.4 million frequent-flier miles spread among the programs offered by AMR Corp.'s American Airlines, UAL Corp.'s United and British Airways PLC. But after the terrorist attacks, Mr. Morse became concerned that his miles might be in jeopardy if one of the larger airlines were to fail.
To safeguard his miles, Mr. Morse spent more than $400 to buy a two-year mileage protection policy from PrivilegeFlyer, a service offered by FlightPlan Inc., a Colorado Springs-based company owned in part by the editor of InsideFlyer magazine, Randy Petersen. Mr. Morse signed up for services that would enable him to claim free travel in the event his miles either expired or became worthless.
"I honestly felt there could be some undesired consolidation in the industry," he says. "On a pure retail level, these miles represent thousands of dollars worth of value. I had thought about purchasing insurance before, but I never really worried about it until now."
Risky Safeguard?
Those who do decide to check out Mr. Petersen's PrivilegeFlyer service should be aware of the fact that what he's selling is mileage protection, not insurance. Mr. Petersen says that the company has bought insurance for its business from brokers in London, and says that FlightPlan would file a claim in the event an airline's frequent-flier miles became worthless.
Experts point out that FlightPlan's PrivilegeFlyer doesn't offer the same guarantees associated with traditional insurance policies. In the event a major airline were to fail, PrivilegeFlyer customers would have little recourse should FlightPlan be unable to pay out.
"Consumers lack the protections that exist for licensed insurers," says Robert Hoyt, professor of risk management and insurance at the University of Georgia. "There is no state insurance regular tasked with overseeing operations, no state guaranty fund available if the 'insurer' doesn't have the resources to pay, and no regulation of the price charged."
Indeed, Mr. Petersen refused to identify the companies that underwrite FlightPlan's miles-protection program, though he says his company is still paying claims to customers who lost their miles when Midway Airlines shut down in 1991.
<snip>
</font>
Lose Miles if Airlines Go Belly Up
By JANE COSTELLO
THE WALL STREET JOURNAL ONLINE
Business travelers who wait patiently at airport security checkpoints have a new topic to ponder while passing the time in line: the safety of their frequent-flier miles.
<big snip>
But some fliers would rather pay for the privilege of playing it safe.
David Morse, a consultant from Los Angeles, has a total of 2.4 million frequent-flier miles spread among the programs offered by AMR Corp.'s American Airlines, UAL Corp.'s United and British Airways PLC. But after the terrorist attacks, Mr. Morse became concerned that his miles might be in jeopardy if one of the larger airlines were to fail.
To safeguard his miles, Mr. Morse spent more than $400 to buy a two-year mileage protection policy from PrivilegeFlyer, a service offered by FlightPlan Inc., a Colorado Springs-based company owned in part by the editor of InsideFlyer magazine, Randy Petersen. Mr. Morse signed up for services that would enable him to claim free travel in the event his miles either expired or became worthless.
"I honestly felt there could be some undesired consolidation in the industry," he says. "On a pure retail level, these miles represent thousands of dollars worth of value. I had thought about purchasing insurance before, but I never really worried about it until now."
Risky Safeguard?
Those who do decide to check out Mr. Petersen's PrivilegeFlyer service should be aware of the fact that what he's selling is mileage protection, not insurance. Mr. Petersen says that the company has bought insurance for its business from brokers in London, and says that FlightPlan would file a claim in the event an airline's frequent-flier miles became worthless.
Experts point out that FlightPlan's PrivilegeFlyer doesn't offer the same guarantees associated with traditional insurance policies. In the event a major airline were to fail, PrivilegeFlyer customers would have little recourse should FlightPlan be unable to pay out.
"Consumers lack the protections that exist for licensed insurers," says Robert Hoyt, professor of risk management and insurance at the University of Georgia. "There is no state insurance regular tasked with overseeing operations, no state guaranty fund available if the 'insurer' doesn't have the resources to pay, and no regulation of the price charged."
Indeed, Mr. Petersen refused to identify the companies that underwrite FlightPlan's miles-protection program, though he says his company is still paying claims to customers who lost their miles when Midway Airlines shut down in 1991.
<snip>
</font>
Ms. Costello also provides quotes from Tim Winship, the editor of Frequentflier.com, who is not overly sanguine on the prospects of exisitng FF accounts being acquired and maintained by the surviving airlines.
May 7, 2002 | 1:08 pm
#11
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I would be very interested in hearing what Randy has to say about all of this.
May 8, 2002 | 3:24 am
#12
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I said (in a thread that has since been deleted) last December that I thought that the whole PrivilegeFlyer thing was worthless and somewhat of a scam. As a result, Randy got all upset and extremely defensive about it.
He emailed me a long, rambling rant on 12/26/01 that included:
He also mentioned all the tag lines that journalists have given him over the years, including on from the Wall Street Journal, which is now pretty ironic.
This will be the second time in a week that his business practices will need a long explanation. Funny how that is.
Cheers.
He emailed me a long, rambling rant on 12/26/01 that included:
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">
Not financially sound? Well, because we've never borrowed money in 16 years doesn't make us not sound. Besides, if we were not sound, do you think any bank like Wells Fargo would have loaned us any money to help finance building our own million-dollar plus office building?
</font>
Not financially sound? Well, because we've never borrowed money in 16 years doesn't make us not sound. Besides, if we were not sound, do you think any bank like Wells Fargo would have loaned us any money to help finance building our own million-dollar plus office building?
</font>
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">
Why won't you find the word "insurance"? If you were as smart as you think you are you might have searched for AwardGuard in the FlyerTalk search engine to see if the topic had been discussed before. This question has been answered before - too bad you didn't feel it was worth searching for. The reason why is because we are the insured company rather than the individual, meaning nothing other than we are not a formal insurance company. Is that bad or good? Depends on how you look at it. Good in a sense because it means we have chosen this path so we don't have to spend the enormous amount of money it would take to have every single employee we have that works in customer service and may answer the phone to become a registered insurance agent in every state. Good because in doing so and becoming registered, the cost of the membership program may be 2-3 times higher.
</font>
Why won't you find the word "insurance"? If you were as smart as you think you are you might have searched for AwardGuard in the FlyerTalk search engine to see if the topic had been discussed before. This question has been answered before - too bad you didn't feel it was worth searching for. The reason why is because we are the insured company rather than the individual, meaning nothing other than we are not a formal insurance company. Is that bad or good? Depends on how you look at it. Good in a sense because it means we have chosen this path so we don't have to spend the enormous amount of money it would take to have every single employee we have that works in customer service and may answer the phone to become a registered insurance agent in every state. Good because in doing so and becoming registered, the cost of the membership program may be 2-3 times higher.
</font>
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">
To my knowledge the Web site has never been down and I can't seem to find any other comments than yours it is not accessible. I know I had no problem this morning finding it. Why would you choose to state something and then say you could not verify it?
</font>
To my knowledge the Web site has never been down and I can't seem to find any other comments than yours it is not accessible. I know I had no problem this morning finding it. Why would you choose to state something and then say you could not verify it?
</font>
This will be the second time in a week that his business practices will need a long explanation. Funny how that is.
Cheers.
May 8, 2002 | 4:31 am
#13
Join Date: Dec 1999
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<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by dbaker:
This will be the second time in a week that his business practices will need a long explanation. Funny how that is. Cheers. </font>
This will be the second time in a week that his business practices will need a long explanation. Funny how that is. Cheers. </font>
Since this is "Question and make baseless accusations week" on FT, allow me to ask for some evidence supporting your business "practices:"
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">I am the founder of I Travel, You Travel, an interactive virtual community and resource for travellers. Available at [URL deleted], ITYT is currently the fastest growing travel resource web site on the Internet. I am currently working to encourage growth, expand the functionality, and fostering valuable discussion in the forums. </font>
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Our members have posted a total of 2166 articles
We have 217 registered members </font>
We have 217 registered members </font>
Cheers!
PS: You might want to check if you paid the bill for your domain www.bakerventures.com as it has been down for over a week.
May 8, 2002 | 5:26 am
#14
Join Date: Nov 2001
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Posts: 1,387
There was a similar discussion last year - a few people got pretty worked up over it:
http://www.flyertalk.com/forum/Forum1/HTML/005223.html
http://www.flyertalk.com/forum/Forum1/HTML/005223.html
