Interview: S. Ganbold
To what extent has a general lack of awareness of insurance inhibited the development of the non-compulsory market segment?
GANBOLD: Insurance in Mongolia started almost 80 years ago, in 1937, but during the socialist era it was operated completely under central planning. The real insurance market started in the last two decades. In the early 1990s Mongolia was transformed from a centrally planned to a market-driven economy, and the former insurance authority was reorganised into Mongol Daatgal and Tushig Daatgal, which are both state-owned companies. In the mid-1990s there were four private insurance companies, but these were very small, with no regulatory or legal framework.
In 1997 we adopted the first insurance law in Mongolia. However, this law failed to meet international insurance principals and standards. Insurance professionals quickly realised that the legislation would have to be reformed or completely replaced. With technical assistance from international insurance experts and development organisations, the first draft of the law was submitted to the government in 2000 and approved in 2004. Still, few people in Mongolia understand what insurance is and how it could be used to their advantage. Indeed, many people mistake insurance for some sort of additional tax payment.
What impact do you expect the proposed compulsory driver’s liability law to have on the sector?
GANBOLD: The general insurance law states that any compulsory insurance law should be separate and have its own framework. In 2007 we submitted the first draft of a law mandating third-party motor insurance. Finally, on October 6, 2011, we successfully passed the law. It is the first compulsory liability insurance law in Mongolia, and we are now working on developing other types of professional liability insurance schemes.
Existing insurance companies are paying a lot of attention to driver’s liability insurance, and all 16 general insurance firms will start servicing this market. The law will take effect on January 1, 2012, and we predict that premium income will immediately double, and increase an additional two to three times in the next few years. However, the compulsory liability insurance system, like the entire insurance industry in Mongolia, is still in the early stages of development.
How has the policy of increasing minimum capital requirements impacted on the sector?
GANBOLD: The 2004 law established the minimum capital requirement at MNT500m ($390,000), and two years ago the law was amended and a request was made to the FRC to increase the minimum requirement. A decree was then issued by the FRC to double the capital requirement to MNT1bn ($780,000), which came into force as of January 1, 2011.
All companies met this requirement with ease. In cooperation with the Insurance Association we received an official request to increase the requirement again in the next two years to MNT2bn ($1.6m), and maybe to MNT3bn ($2.3m) in the next three years. This will help strengthen the financial capacity of local insurance companies. In addition, we have seen a lot of interest from new players wanting to establish a presence, as people increasingly recognise the importance of the market and insurance companies show that it is quite easy to meet regulations.
What are the government’s plans to liberalise capital market investments by insurance firms? How would deregulation change the sector?
GANBOLD: The insurance law states that insurers do not have the right to buy and sell securities trading on our capital markets. In 2009 we drafted amendments that would allow investments in securities. They were not adopted by parliament, but we are on the waiting list. We hope the law will be passed by the end of 2011. This law will drive the development of the sector because insurance companies and their surplus income will add significant capital to the market and the economy.
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