Joseph E. Stiglitz, a Nobel Laureate in economics in the year of 2001, found asymmetric information theory to explain imperfect market condition from the side of information. Stiglitz argued that different conducts of market agents or actors are caused by asymmetric information they have. Is it true? I think that Stiglitzs theory on information asymmetric is not always true in explaining different conducts of market agents or actors. Such cases are partly caused by different mindset or paradigm, not by asymmetric information. Most cases, for example, in insurance market regarding decision to insure a risk or not, moral hazard behavior either those insured or those insurer, kinds of insurance products, all of which seems appropriately explained by different mindset theory rather than asymmetric information theory. In 2005-2006, I put it the first component in a development stage model (Mustafas Development Stage Model). By applying this model for all development policies, regulations, rules, programs, and projects, it is logic to apply first the component, mindset or paradigm, before setting or improving planning. Building or developing microinsurance business, for example, needs reviewing first mindset or paradigm of all business players involved in the business, namely: consumers (insureds), producers (insurers), government (regulator), intermediate agents, so forth. Microinsurance is a relatively new insurance scheme which is different from conventional insurance in term of its market segments, namely low income entities. Its practices can be found particularly in some countries in Asia, Africa and South (Latin) America, since 1999 till present. the Philippines microinsurance is the highest penetration rate, 20,4%, among Asian emerging market countries, which followed by Thailand (14,1%), India (8,9%), Bangladesh (6,1%), Malaysia (3,6%), Pakistan (3), China (0,9%), Indonesia (0,5) and Vietnam (0,2%) (the Philippines Department of Finance in Gregio, A.R.R, Business World Economy, January 30, 2014) Existence, continuation, and expansion of microinsurance business or industry are subject to its demand by consumers, its supply by insurance firms, and its rules and regulations by government, as well as supporting entities either commercial based or non-commercial based. From this view, some aspects related to microinsurance such as microinsurance economics, microinsurance business, microinsurance rules and regulations, including microinsurance consumers protection, microinsurance development technical assistance, and so forth seem exist either from conceptual or practical sides. A natural characteristic of insurance business (microinsurance) differing it from other businesses is that its product is a risk; not a physical product or services, which embeds for everybody or everything. From this characteristic implies for some important aspects, namely: 1) mindset about a risk and its magnitude either by producer or consumer seems a significant factor for an insurance market; 2) potential demand for or supply of insuring risks seems limitless. What Martina Wiedmaier, et al (2007) view about the influence or at least relationship between microinsurance tool and poverty reduction is still questionable, either from empirical findings or theoretical sides. Almost all of the microinsurance practices over the world reveal microinsurance as protection function only (PFO), without functioning it protection-investment function. With a protection function, microinsurance would protect the poor and/or low-income entities against worse or even the worst condition, but they hardly shift-out from poverty. A space for making microinsurance reducing poverty even overcoming income inequality over the world is by changing paradigm of microinsurance from protection function only to protection-investment function (PIF). Mustafas theoretical proofs through some equations; Mustafas microinsurance cost equation, Mustafas microinsurance price equation, Mustafas microinsurance market size equation, Mustafas microinsurance cooeficient, and supply-demand curves reveals increasing market size of microinsurance or making its market structure more perfect will improve its market efficiency in term of the producers and the consumers surplus, as well as achieving the Pareto Efficiency. mi: Mustafa’s microinsurance coefficient Pi = mi CRi =CRi (1+pi) (1+αi): Mustafa’s microinsurance price equation Ci=CRi(1+pi): Mustafa’s microinsurance cost equation qi = 1/Ci ∑ (CFij+CVij +CBij ): Mustafa’s microinsurance market size equation Both conceptually and practically, a microinsurance business running within a microinsurance market may get profit or loss determining its existance, continuation, and expansion. Whether getting profit or loss are subject to regulatory, macroeconomic and demographic factors, as well as market and cost-structure factors. Within a conducive regulatory setting, stable macroeconomic and demographic conditions, as well as its market structure more perfect, it seems that cost-structure factors would determine microinsurance business either getting profit or loss. A conclussion from Mustafas equations, (29.1) till (29.12), related to policy implications that polices, rules and regulation aiming at increasing microinsurance market size and product types should be directed to micro-macro levels with a set of factors such as profit, prices, costs, product innovations; policy, rules and regulatory frameworks, economic growth, gini ratio and demography. By summing frequency of the positive indicators minus the negative indicators, then deviding it with the 30 indicators of more perfect microinsurance market structure, I identify the Philippines microinsurance index: 0.7619. Maximum and minimum values of the index are respectively 1 meaning all of the 30 indicators positive, and -1 meaning all of the 30 indicators negative. Premium ceiling rate determination of the Philippines microinsurance as much as 0.05w=Pc has produced losses for both the microinsurance producers when equilibrium of premium market price (P*) > premium ceiling rate (0.05w=Pc); and the microinsurance consumers when P*>> $αh= ∑t (-$P-$Ch)t│risk no exist; a Mustafa’s theoritical proof of Pareto Efficiency for the Philippines microinsurance market. Conclusions from Mustafa’s equations and function (57.1) till (57.9) for policy implication seems clear that the Philippines microinsurance producers and consumers within protection-investment function regime will get extra profits/benefits, will produce and consume many more the Philippines microinsurance products in term of expanding market size, and will lessen speculative motives. Given profit motive assumption, shifting the Philippines microinsurance supply and demand curves indicated at the Chart 13 seems logical as the pathway of achieving the Pareto Efficiency. Despite a number of the benefits, it should not be insisted to be applied, but rather providing more better choices for the Philippines microinsurance business. Furthermore, even there will be benefits from risk available from microinsurance business, consumers of microinsurance business naturally expect risk no exist rather than risk exists. Getting healthy condition will always be preferable rather than getting illness or injured even dead, although benefits from the risks available. Property missing or damaged, accidents, or contingency events from stealing, robbery, burning, murder, and natural disasters will always be avoided or unexpected, naturally, either those of which are individual risks or even catastrophic risks such as various risks caused partly by climate change-typhoon, flooding and erosion, rob, harvest failure, forest fire; mountain eruption, earthquake, residential fire, bombing, mass transportation accidents-airplane, ferry, bus, train; so forth. Source: Mustafa Haji Alwy, 2014, The Inception Report Draft of the TA 8258 PHI: Capacity Development for Microinsurance in the Philippines (14/3-11/4/2014, till present draft (4/6/2014) prepared (written) by Mustafa Haji Alwy), Asian Development Bank. Mustafa Haji Alwy Individual Consultant CMS 054913, International Microinsurance Business Development Specialist (45423-001), TA 8258 PHI: Capacity Development for Microinsurance. [email protected], musalwy@ymail +62 878 43585436, 899 8584 314, 878 439 11 719 Skype: Mustafa Haji Alwy, ym:mustafahajialwy@ymail #31 A -32 Haeba Dalam, Kompleks Transito, Kendari, Southeast Sulawesi, Indonesia; #14 Hercules Street, Block D, Curug Permai Bogor, Indonesia 2013-1994, Former Executive Director, Principal Researcher/Scientist, Author at Sustainable Development Institute-the Global Institute for Sustainable-Balanced Development (*SUDEV-GISBD 2013-2011, 2009-2005); Senior Operation Officer at PT. Multi Area Conindo (MACON 2011-2010), Project Officer at World Wide Fund for Nature (WWF 2004-2003), International/National Consultant at United Nations Industrial Organization (UNIDO 2006-2005), The Indonesia Development Planning Agency (BAPPENAS 2005), the European Union; Forest Liasion Bureau (EU FLB 2002), Speaker at International Business Conference (IBC 1999), Asia Pacific People Assembly Forum (APPA 1998), the National University (UNAS 2002), the Indonesia University (UI 2000); Program Director, Facilitator/Trainer, Coordinator, Researcher/Marketing Specialist Lembaga Alam Tropika Indonesia (LATIN 2003-1997), the Indonesia University (UI 2002), the Indonesia Science Institute/Asian Regional Centre for Biodiversity Conservation (LIPI/ARCBC INDONESIA 2001), the Indonesia Department of Forestry (DEPHUT 1999-2001), the Directorate of Regional Development, the Indonesia Department of Internal Affair (BANGDA 2000), the Indonnesia Forum of Biodiversity (KEHATI 2000), the Indonesia Forum of Environment (WALHI 2000), EIDENBERG UNIVERSITY 2000, CORNEL UNIVERSITY 1999), Production Supervisor PT. GREAT IPHOC INTERNATIONAL 1997, Author, Lab. & Class Lecturer (Micro-Macroeconomics, Sociology, Statistics, Planning Economics TRISAKTI UNIVERSITY 2004-2003, Bogor Agricultural University (IPB 1997-1994) 2002-1998, International/Regional Workshops, Conference, Trainings in Thailand, India, Norway, Malaysia, Vietnam, Lao PDR (organized by ARCBC 2001, Indian Institute of Biosocial Research and Development (IBRAD 2001), Southeast Asian Network for Agroforestry Education (SEANAFE 1999), International Centre for Research in Agoforestry (ICRAF) & Centre for International Forestry Research (CIFOR) 1999-2000, IBC, APPA, RECOFTC/Kasetsart University & The Lao PDR Department of Forestry), M.Sc 2002-1999 of Regional and Rural Development Planning Science, Bogor Agricultural University B.Sc 1997-1992 of Agribusiness, Socioeconomics of Agriculture, Bogor Agricultural University Physics 1992-1989, Senior High School 2, Wtp *the founder/the owner, the head
Posted on: Mon, 09 Jun 2014 01:04:02 +0000
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