Referrals Can Be Costly


By Richard L. Saunders
Special to the Eastern Shore Post

Over the past decade or so, a new business model has become much more prevalent: referral clearing houses. They exist in any number of fields, all being advertised as being FREE to you the consumer. But are they really free? The answer can be hard to determine.
Let’s look at some facts. These referral organizations are not nonprofits. Therefore, they must have a significant revenue stream from somewhere, if it is “free” to the consumer.
So the question naturally arises, where does the money come from? Is it from the entities that get referrals from these third party middlemen? A logical conclusion. Consider that possibility when using the much advertised entity that offers itself as a source for home repairs. Consider that possibility when using the much advertised service that finds low-cost insurance for you. These and other “clearing houses” spend a lot on advertising. You and other users of these referral companies are ultimately paying this money. Companies that list with these referral operations no doubt pay for that privilege, either up front or as a piece of business realized through the referral agency. This cost is no doubt passed on to you, the ultimate consumer. It is simple math. Remember the following acronym: TANSTAFL (There Are No Such Things As Free Lunches).
Doing your own comparative shopping may sound more burdensome, but may be better in the long run. Also know that if you use these middlemen you will probably be deluged by phone calls and emails as I was once when I reached out to a certain service dealing with mortgages.
Remember also another growing endeavor over the past couple of decades: data mining. Much is known about you (unless you have lived in a cave for the past 20 years). The particular surface mail advertisements you get, the ads that pop up on your computer screen, the emails you get are often not random. They are the result of aggregated data collected by data mining operations and sold to commercial (and sometimes political) users. Even your food consumption habits are tracked and stored if you utilize a supermarket loyalty card. The same is true about healthcare products if you utilize a pharmacy loyalty card. This is not necessarily a bad thing for the consumer, just understand the tradeoff. Health insurance companies used to subscribe to something called the Medical Index Bureau. I know this from my long ago days as a health insurance claim approver for a large insurance company. All healthcare claims, whether approved or not, would be passed along to this database, subscribed to by most large insurers. I do not know whether the MIB still exists or in what form.
I mention all this about data mining because these referral clearinghouse operations collect data from you if you engage their “services.” This data can be valuable. What do you think happens to it when you are done with your immediate use of the particular referral service? Does the service sell the data to data mining enterprises? It would be a way for the referral entity to enhance its revenue stream.
The point of this column is not to steer consumers toward or away from anything. Rather it is to hopefully raise the critical thinking quotient of consumers in response to some of the products and services they see advertised.
Richard L. Saunders is a resident of Chincoteague. While living in Pennsylvania, he served on the AARP Statewide Consumer Taskforce. He can be reached at 484-689-9502 or [email protected]

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