I wonder if it would help to think of David's business as being comprised of two primary services:
The Brokerage is what provided many if the services we think of as any broker, matchmaking, setting/creating a marketplace, providing contracts, setting a price, etc.
David's took this a step further though and added, promoted and marketed the insurance aspect, which was primarily directed at the renters. Many prospective renters were concerned that they would show up and the rental would not be valid/honored. David's saw a business opportunity to mitigate that risk by providing insurance in the form of a rate premium that would cover the risk that the owner, for whatever reason, didn't honor the contract leaving the renter without a room.
However, while he may have understood and managed the brokerage side fine, he appears to have been out of his element on the insurance side. While the only risk he thought he was covering was the owner cancelling or the reservation being cancelled due to the owner's actions (not paying MF's etc.), insurance is a tricky business and there is a reason it is usually highly regulated. It requires the business to understand all of the risks, contemplate them throughout their contracts and set aside reserves to cover the risks. It appears that David's may have set aside funds to cover his known risks (i.e. owner cancelling) but clearly missed the risk that Disney might cancel. Because of that, he obviously did not put aside funds to cover that risk.
While it is true that no one may have contemplated Disney mass cancelling reservations, by getting into the business of providing the insurance he really needed to have. As others have pointed out, what would have happened if one of the resorts burned down? While
DVC may have been reimbursed for rebuilding, what would happen to the reservations for members and how would that have impacted the rentals? This was not considered.
The harsh view of a competitive marketplace is that if he is facing catastrophic losses due to misunderstanding the risk, going out of business may be the right macroeconomic answer. If the brokerage and insurance model is still a profitable one going forward, then the marketplace response would be that someone else would fill the void. Poorly run businesses go out of business all the time. It is the nature of the capitalist economy. While everyone would probably be better off if he somehow stayed in business in order to mitigate the losses, based on his responses to the issue, the lack of trust with significant poprtions of the owners and renters as well as his original inability to price and reserve his risk, he may not be able to continue.
One of the most anti-capitalist and dangerous sentiments I have heard is that businesses have a right to make a profit. They do not. All businesses have a right to try and make a profit. If they are successful they should be applauded. But if they are not, they should fail. Just as importantly, if a business is making significant profits, a competitive marketplace would expect other competitors to jump in and eventually force prices lower down to some level where the strongest will survive. Of course, that sentiment should be applied to businesses large and small, but that is a topic for a different thread.
The bottom line is that he didn't set aside reserves for this risk and therefore probably does not have the funds to cover all of the renters who believe the contract says they should be reimbursed as well as the owners who also believe their contract says they should be paid, even if a bankruptcy court takes his personal possessions.
Retrospectively, some (many?) people are almost certainly going to get screwed.
Prospectively, it will be very interesting to see what happens to the rental market. In theory, the risk of Disney cancelling needs to get priced into the equation, since it doesn't appear that anyone (owners, brokers, renters) have included that in their decisions to date. While renters have considered the risk of the owner cancelling and either paying insurance through a broker against this risk or accepting it and renting direct without the protection, it doesn't appear that they have included mass cancellations by Disney in their thought process.
- If owners take on the risk, then they will need to raise the price in order to make it worthwhile or the supply side will dry up, driving up the price, perhaps to a non-competitive level with Disney direct.
- Alternatively, if renters have to take on the risk, they are going to want a much better discount to take on that additional risk, lowering the price to the point where the supply side will also dry up. If someone offers insurance, either in the David's model or as cancel for any reason from a real insurer, that insurance will most likely be very pricey if available at all and therefore also have the affect of raising the renter's total cost for the rental.
I suppose it is possible that buyers and sellers will disappear in the same ration as to keep the price the same, but that doesn't seem likely. Not sure what that pricing impact will be, but I find it hard to believe that it will be status quo. Someone is taking on a previously non-contemplated risk. perhaps it will be negligible but I can't imagine renters viewing non-cancellable reservations that get impacted only if they cancel as the same as taking on the risk of Disney cancelling, either direct or through a broker.
Of course, it may be hard to measure this affect if the economy doesn't recover and that impacts travel in general.
