The Universe of Discourse

Wed, 28 Aug 2019

DLR insurance business

DLR is the Docklands Light Railway, a light rail system that operates in East London. The fare collection system is interesting. You buy a ticket, but you don't have to show it before you board. Instead, during the ride, a ticket agent might come through the car and demand to see it. If you can't produce it on demand, you become liable for a large fine. So you can evade the fare, but doing so is a high-risk gamble.

The DLR might like to have enough fare inspectors that the gamble would have negative expected payout for the passengers. But at the time I took it, they didn't do so many inspections. The gamble was actually a good one for passengers, if they didn't mind the high risk of a rare large loss in return for small frequent wins. Most people wouldn't accept the risk, so the system worked.

But about fifteen years ago, some guy in East London had an idea. Insurance exists to diffuse risk! You'd pay him a monthly subscription fee, and then you'd ride the DLR that month without buying tickets. If you were caught by the fare inspectors, you'd pay the fine, send him the receipt, and he would reimburse you. You'd win because the insurance premium you paid this guy cost less than what you would have paid for DLR tickets. He'd win because he could set the insurance premiums high enough to cover the relatively few fines he had to pay out.

For a time this went well for everyone except the DLR. Eventually they caught the guy and punished him for conspiring to evade fares or something like that.

Does anyone remember this? Can someone point me to a reference?

[ Addendum 20190914: Leads provided by Florian Ilgenfritz produced a wealth of information about similar schemes. ]

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