Month: May 2013

Outside Threats

Outside Threats

by Arusha ♥ 0 Leave a Comment

Yesterday’s deadly grenade attack in Arusha isn’t simply an indication of escalating religious tensions in Tanzania, but of the same escalating individual malevolence evident in the Boston massacre.

In neither incident do I believe there is any kind of organized group involvement, despite FOX News, Representative Stephen King or the other crazies on Meet the Press yesterday. Both cases seem to me to be engineered and implemented by wayward souls.

Wayward souls that have access in Boston to deadly technologies from Google searches. Wayward souls in Arusha who can trade a bushel of tomatoes for a grenade at practically any market in Africa.

It’s all the same. Neither is worse or more terrifying than the other. The higher tech move by the Boston duo was more deadly, just because American society is more sophisticated than Tanzanian.

Escalating religious and ideological tensions in America and Tanzania have been evident for years, and I agree with Arusha’s MP Godbless Lema that governments need to proactively address the schisms growing in their societies:

“”Religious fundamentalism is a reality in this country, but the government does nothing,” Lema said angrily outside the church, as police cordoned off the area.

Lema is one of the few honest, aggressive stars of Tanzanian politics. Like the minority of American politicians who want to address the Boston massacre with better schools and counseling and more jobs, rather than creating more fictitious global enemies, Lema knows the media speculation of the cause is absurd.

The ideologically bankrupt in a society will always point to the outside to explain a cancer within.

Since colonial times Tanzania has been one of the most Catholic countries of Africa, a product of King Leopold’s mid 19th Century conference that divided the colonial African world up by religion, so that missionaries didn’t duplicate their work.

One of the greatest historical ironies of Africa was that during the socialist policies of early independent Tanzanian in the 1970s to be a member of the Tanzanian communist party you also had to be a Catholic.

The amalgamation of Zanzibar with mainland Tanganyika in 1964 was like mixing holy water with myrrh. Since time immemorial Zanzibar was ruled by the radical Islamists of Oman, and even though it’s been given considerable autonomy, tensions have never fully eased with the mostly Christian mainland.

In October a respected Sheik in Arusha was hospitalized after an explosive device was set in his home. That was followed by church bombings in Zanzibar.

And so the cycle goes on and on, individual anger and want having found a convenient battle.

The Tanzanian government today arrested five Saudis, conveniently of a Muslim sect that is mostly disliked in Zanzibar, and charged them with terrorism.

Absurd, of course. This was the same Tanzanian government who employs the Arusha police commissioner who took 2½ hours to get to the church that was bombed Sunday morning, a half hour after the Vatican’s emissary attending the ceremony had been whisked out of the country.

The Honorable Lema is right. Governments do little today, in either America or Tanzania, to mend social schisms. Let’s just blame outsiders.

Obamacare Effects Travel Insurance

Obamacare Effects Travel Insurance

by Arusha ♥ 1 Comment

Obamacare is about to have a profound effect on American tourists who purchase travel insurance. But first, the truth about travel insurance:

(If you know everything you care to know about travel insurance, already, skip down to the little cartoon to get to the meat of this blog, how Obamacare will effect your travel costs.)

Like every kind of insurance you buy in America for yourself or your household, multiple companies are involved, and multiple companies get rich off your premium, which is expensive. A good contrast with us is Britain.

Britain’s single-payer health insurance system, as well as one of its travel insurance systems — both provided by the government — cost individuals using them a tiny fraction of what American consumers pay. A Brit can cover himself for all the normal travel hazards American insurers include for about £75 annually for all their trips (about $120).

Whereas Americans must pay insurers approximately 5-6% of their desired coverage limits per trip.

Most travelers who purchase travel insurance do so for the component of coverage that will repay them the loss they would otherwise suffer if they must cancel after their nonrefundable payment deadline. And as you know payment deadlines with travel are well in advance of the trip.

The variety of conditions that apply to this is huge: all companies will repay you if you must cancel because you suffered an accident. The increased benefits from that point — say because you fell ill due to a pre-existing condition, or because your parents fell ill, or because of a terrorist incident, or because the travel company holding your money went bankrupt, or because you had a business reversal, or … for no reason whatever – are all available at higher premiums.

Premiums start around 3% of the amount you choose to cover yourself for. Average premiums are around 5.5%. Coverage for “cancellation for any reason” can exceed 25%.

Americans spent nearly $1.8 billion on travel insurance in 2010, up from $1.6 billion in 2008, and $1.3 billion in 2006, according to the US Travel Insurance Association.

But USTIA may be low-balling the amount: The IBIS research organization reported last month that it expects revenue will exceed $2.7 billion within five years.

It used to be that the bulk of sales came from older travelers concerned with aged parents, but that’s changing dramatically. I’m personally amazed that current research suggests the largest single demographic is 18-34 year olds.

This likely is the result of so much educational exchange abroad, which requires mandatory and considerable insurance. Underwriters, however, are suggesting more varied reasons, including aged parents from a generation whose parents were much older to begin with.

The usual way a traveler purchases insurance is from the same source from which they purchased the travel: The travel agent or tour operator.

The first level of commission earned by that agent or tour operator, the final seller, is around 30%. Yes, you read correctly, nearly a third. More often than not and particularly with unbundled homogenous products like cruises and airline tickets, the amount the agent earns from selling insurance rivals or exceeds that earned from selling the actual travel product.

But that’s only to the final seller. Everybody in the chain of sale earns well.

TravelGuard is one of the oldest and most respected travel insurance companies. Our own experience with it over decades has been positive.

But TravelGuard sells its policies in bulk to “National Union Fire Insurance Company of Pittsburgh, PA” which is actually located adjacent its parent company in New York to whom it resells its bulk purchases from TravelGuard. Its parent company is AIG.

Ever heard of them?

AIG is the principal global company underwriting travel insurance. American Express is number two. You will not see either of their names on any policy you’ve ever bought or ever will.

I’m not proud to say that in all the years of selling travel I’ve always cringed a bit while also biting my tongue when selling travel insurance. I understand entirely the “peace of mind” it affords the traveler, but it’s a royal ripoff.

Not for that ad hoc traveler who just happened to buy a big trip for the first time in her life just before her folks died. So individually, it’s hard not to recommend.

But for the common traveler who after retirement takes a couple trips annually for maybe 10-15 years, he’s gambling that one in a dozen will result in a need for unexpected cancellation. That seems like a reasonable number, but I doubt it.

Figures are near impossible to come by. The United States Travel Insurance trade group claims its surveys indicate that 1 in 8 adult travelers had issues that lead them to cancellation, and that about 1 in 6 actually filed claims.

But that’s the rub. We don’t know how many claims are paid, how many denied, how many negotiated. The travel writer Damien Tysdal recently listed “six” common reasons that travel insurance claims are denied, suggesting quite a few claims are ultimately denied.

I know that AIG got a bit of egg on its face for financial derivatives, but I got to think that travel insurance isn’t quite as tricky for them.

So how is Obamacare going to effect all this?

Travel agents who have been routinely selling travel insurance, such as EWT, were contacted this week by salespersons with the travel insurance companies. These were supposedly confidential calls to advise travel agents that the Affordable Care Act may disqualify them from selling future travel insurance.

It boils down to provisions in the act that limit all insurance by secondary agents to sales by state. So if you’re a travel agent in New York, you should be able to continue selling travel insurance to your New York customers, but not to anyone out of state.

EWT like many companies has a nationwide client base. Although the rep contacting us said the issue is “still with legal” and that they are “looking for loopholes” it sounded pretty certain: travel agents will now only be able to sell travel insurance to people who reside in the same state that they do.

Here’s what I think will happen:

Travel agents will be cut out of the loop, just as airlines and hotels cut them out more than a decade or two ago. This will mean that consumers will increasingly buy travel insurance on the internet.

And – as with all Obamacare – travel insurance costs ought to come down. In part this will be because more of the sales will be individual online sales, and this will generate more competitive pricing. Right now I think travel insurance pricing is elevated because of the dynamic of travelers buying their insurance from the travel agent who sold them the travel product.

So basically it’s good news for consumers, bad news for travel agents.

And I – at least – won’t feel so guilty, anymore!

Unusual Risks in Africa

Unusual Risks in Africa

by Arusha ♥ 0 Leave a Comment

Investors in new shopping malls for Kenya and Nigeria are expecting a first-year return of 12% and a long-term return of 25%, led by savy South African banks.

Business plans for Africa have always astounded Americans. I’m mostly familiar with the tourism sector, and ROIs (return-on-investments) of less than a third are not considered worth the risk. And the risk is substantial.

And the risk hasn’t for a long time been either political or health, which is what most noninvestors think. Those types of risks have diminished regularly over the years, because of two radically different trends.

The first is simple: Africa is developing. It was never banished to the dustbin of underdevelopment, forever. Roads, schools, factories, hospitals, cinemas, community infrastructure – they have all developed at a faster clip over the last generation than was ever the case when the developing world was getting built.

The second is intriguing: businessmen like tourists have become increasingly immune and enured to politics, even violent politics. With the notable exception of global bad guys like al-Qaeda, turbulent societies somehow manage to court – not scare away – businessmen and tourists.

Egypt is the best example. That society is currently in literal upheaval, yet there were more than 8 million tourists there last year, and “tourist incidents” in Egypt have been fewer since the revolution than prior to the revolution.

It seems that both sides in a local fight have increasingly recognized the importance of foreign tourists and investment.

So what is the main risk, then?

That you’ll come up with something successful. Yes exactly: that your investment begins to pay off.

This totally counter-intuitive notion is what lays bare most poorly prepared investors in Africa. The African playing field is so small by comparison with the home turf from which most investors come, that the amount of investment is usually quite modest.

And that means if you hit on something great, there are lots of bigger guys watching from behind, and they’ll swoop down the moment those high returns actually come in.

And this is inevitably what’s happened over the last generation. A relatively small investor builds a lovely little lodge aside a national park, and the moment there’s positive cash flow, a South African tourism chain eats it up.

Now there’s nothing particularly wrong with this if the investor’s game is to make a little bit of money. And it works specially well for small investments, especially as I described above with small tourism ventures.

But the problem is that while the indicator for a tourism investment is positive cash flow, that doesn’t immediately translate into high return. The originator needs to have the fortitude if foresight to wait for that high return, but the temptation offered by the big guys is often considered just too much to pass up.

African investors’ greatest risk is that they don’t wait for that high return. And it’s often not “won’t wait” but more realistically “can’t wait.” Rarely does a single investor create something wholly unique.

There are lots of tourists lodges being built. Lots of shopping malls. Lots of gas stations. Lots of plumbing fixtures.

If you don’t take the offer the big guy gives you, he’ll buy up your competitors and smother you.

There’s nothing novel in this dilemma. What’s different in Africa is that the quantitative size difference between the Joe who took the first step and his buy-outer is massive. All the leverage is with the big guys.

It’s a simple equation derived of the modern truism that the rich have become richer as the poor have become poorer.

In 2009 Chinese investment in Africa exceeded the U.S.’ By the end of this year, Chinese investment in Africa will exceed the combined investment of Europe and the U.S.

And we’re more afraid of a terrorist attack?