Welcome to my Ghana trip blog. I hope to continually update this blog as I travel through Ghana beginning May 25th through June 11th. The background on this trip, our grant, and our rationale are included in the section on the side entitled, About The Trip and Katie School Project.
We have two overarching goals for this trip.
1) Help collect data and information that will support our initial grant-funded project related to developing an indexed-based insurance project that could be used to manage risk for farmers for crop losses. I have a number of people supporting us on that including Dr. Aslihan Spaulding, an assoc. professor of Agribusiness at Illinois State University, three ISU actuarial students (two are even from Ghana), the ISU actuarial program director Dr. Krzysztof Ostaszewski, FSA, CFA, CERA, MAAA . and Dr. Danso-Manu, Chair of Math Department, at University of Ghana in Accra and Dr. Charles Quanseh, professor of agriculture and crop science at KNUST the University of Science and Technology in Kumasi. The following abstract summarizes this part of our project and the rationale behind it:
Extreme weather events impede development of agricultural production and place developing countries at risk. As the backbone of many African countries, agriculture represents 37 percent of Ghana’s GDP and 56 percent of the labor force. Climate change leading to adverse weather events such as drought and flooding now place these developing economies in even greater peril.
Currently very few pre-event risk mitigation solutions exist. Traditional individual indemnification insurance mechanisms are challenged by high transaction costs, adverse selection, poor distribution, and other challenges which have increased the costs and reduced the availability of protection. Furthermore, post-event response in the form of emergency aid, debt forgiveness, and grants are at risk following recent economic crises. Such public capital does not usually help create independent private solutions and can be inequitable and untimely.
However, one possible solution is weather-indexed insurance, a financial product based on local weather indices (like rainfall) that are correlated with local economic loss, morbidity, and mortality. This type of financial product yields payouts based on pre-determined indices which historically is correlated with economic loss and humanitarian need. This type of protection would provide greater economic stability for agricultural production and the economies of countries relying on this.
This project will collect and analyze weather event, crop loss, and other health and economic data in Ghana to develop a weather-indexed financial product that would mitigate agricultural losses.
Ghana’s stable government, yet vulnerable agricultural economy make it a good country for a weather-indexed insurance product. By reducing covariant risk the development of this insurance product would promote private capital to help not only farmers in Ghana, but farmers in more drought prone regions as well.
2) The second goal is to seek out information about future projects that could involve both ISU students and faculty related to microfinance and microinsurance. To that end, understand the risk management needs for the people and small businesses of Ghana is critical. We also need to develop partnerships that could be helpful in future projects. To assist me with this second goal, I will be travelling with Horace Melton, an assistant professor of marketing who has worked on projects involving ISU students working in emerging markets.
Our end goal is to have students doing internships/summer study abroad in Ghana working on sustainability issues like microfinance and miroinsurance. We believe that the educational experience from working in a developing country with emerging markets would be life-altering and invaluable.
We believe that in order for microinsurance to be sustainable it must be self-supporting and not reliant on the gifts of donors or foreign aid. Our hypothesis is that microinsurance is a viable, self-sustaining product for insurers and reinsurers for the following reasons (which we will attempt to corroborate with research in-country):
1. The potential market is enormous and insurers in Africa, especially Uganda, already have had some success on various microinsurance products including life and health insurance.
2. Early entrance into a country’s microinsurance market allows a company to build a brand image and establish a reputation among customers and prospects for reliable service and prompt payment. Microinsurance customers over time will move upscale to consume the brand’s higher value insurance products.
3. The microinsurance market may provide an immediate gateway to offer products to higher income markets, such as city dwelling wage earners who support relatives who are subsistence family farmers, and who cover their relatives’ losses from insurable events such as death of a family member or loss of crops.
4. An insurer may gain more regulatory leeway to enter a country’s market if also providing coverage at affordable rates for the country’s lower income market. The regulatory agencies may allow the firm to offer a broader portfolio for diverse markets if the insurer also includes coverage for the low income market. In fact, this involvement in rural microinsurance may even be a regulatory requirement for insurers.
5. The opportunity exists to form strategic partnerships to make microproducts more viable. Microinsurers and microlenders could use the distribution system and underwriting data of the microlender to insure assets purchased with the use of microcredit.
6. The potential for product innovation which could be applied elsewhere is immense.
7. Insurers benefit from positive publicity in their home market because of their efforts to combat poverty through sustained risk management commerce in developing countries.
We certainly wish to respect the traditional culture of Ghana and we will be meeting with tribal chiefs as well as government officials and business people to help make sure that we have an appropriate respect for their traditions and incorporate those into our project ideas. There are plenty of things that we can learn from African society that would benefit us in the Western World.
I hope you will follow this blog as I travel through Ghana meeting with people along the way.
-Jim Jones
Director-Katie School of Insurance
Katiepedia.com
africanjones2go@gmail.com
Friday, May 22, 2009
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