A Business Model Based on Neglect

The agreement by MetLife to better track customer deaths in order to make contractually obligated payments  to the heirs of people with life insurance remind us of how successful businesses often depend on neglect. 

The MetLife building over Grand Central Station?  MetLife bought that for $400 million from Pan Am, the same amount the firm now pledges to give to unknowing heirs whose relatives have died, but who never claimed the insurance payout owed to them.  That building was bought on the backs of heirs not knowing the firm owed them money.[1]

That settlement got me thinking…what other businesses besides life insurance companies depend on people neglecting to act in their best interest?  My list so far:

Banks – Of course.  Huge sums of dead money sit in checking accounts earning zero interest or the equivalent savings accounts currently earning 0.4%.  In many states banks have an obligation to periodically track down customers, and turn over the funds to the state treasury if an account owner does not respond.  A useful link for trying to locate yours or relatives’ lost banking or insurance money is here.

Gyms – A huge percentage of a health club’s business[2] depends on paying customers who never or rarely attend.  Gym owners absolutely build in that expected neglect when signing up customers.

Consumer Electronics Warranty Companies – The warranty company knows nobody will ever claim on the warranty, since the technology will be outdated by the time your purchase breaks.

I wince every time I remember buying the warranty to accompany my awesome 100-CD[3] changer stereo component at Circuit City.  What was I thinking?  Of course the automatic CD changer broke soon after, but by then the CD was an outdated technology and Circuit City was bankrupt.  Never buy the warranty to a piece of consumer electronics;  you will not be able to use it.  I promise.

Federal Government – Did you know the US government is the largest practitioner of the art of making money from neglect?  No?  Two words for you: “Change Jar.”

[1] Of course, to be fair to MetLife, Prudential and John Hancock also settled with multistate regulators for the same reason

[2] Sophisticated Google research indicates indicates between 60% and 80% of users never use their gym memberships.  Sounds about right, but if I had to bet, I’d take the over.

[3] Dear readers: The CD was a now defunct music technology popular a few decades ago, similar to your music on
Pandora except it took up infinitely more space, and could be easily scratched.  You can find out more about the ‘CD era’ on Wikipedia near the entry for gramophone and 8-track music.

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I founded Bankers Anonymous because, as a recovering banker, I believe that the gap between the financial world as I know it and the public discourse about finance is more than just a problem for a family trying to balance their checkbook, or politicians trying to score points over next year’s budget – it is a weakness of our civil society. For reals. It’s also really fun for me.

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