As is the case in many developing markets, insurance inclusiveness is becoming an area of interest in Mongolia. After years of pilots, experiments and one-off commercial efforts – and some notable successes – momentum is building and micro-insurance is set to go from a concept to a business. Considerable institutional and regulatory support is being offered and an environment is being created to encourage product origination and sales.
Mongolia is a country ideally suited for micro-insurance. While poverty levels have dropped in recent years, with the percentage of people below the poverty line hitting 27.4% in 2012 (down from 38.7% in 2010), many in the country remain vulnerable to unexpected expenses. Poverty is higher in the rural areas (above 35%) than in it is in the urban centres (below 24%, and under 20% in Ulaanbaatar).
An estimated 49% of citizens are involved in agriculture. These people always face the possibility of devastating losses. Dzud cold snaps that periodically hit the country can destroy livestock. Fires, both within living quarters and on steppes or in forests, can damage homes and other property. Most people in Mongolia have little emergency cash, so property damage or a major health problem can wipe out savings and put people in debt.
Mongolia has had a number of programmes in the past designed to help poor and rural groups. It started insuring livestock in 1963, and though this system broke down after the democratic revolution of 1990, three post-revolution attempts were made to create programmes that would cover the animals owned by herders. All failed.
In 2005 the Mongolian government and the World Bank initiated the Index-Based Livestock Insurance (IBLI) programme. The IBLI has broadly been seen as a success. Risks were covered, claims were paid, and a portion of the risk was reinsured internationally. Most of all, an innovative structure of payouts using average mortality and estimates was employed to reduce administrative costs, making the insurance feasible as a purely commercial product.
While the programme ended in March 2014, the last season produced encouraging results. According to the World Bank, 19,500 herders bought the product in the 2013/14 season, up 21% from the previous season. Seven domestic insurers offered the coverage and three international reinsurers took on some of the risk. The World Bank programme will officially close in March 2016, but the government has decided to help livestock insurance continue by creating its own reinsurer to run the programme after the exit of the main international partner.
It is not clear whether the programme will be sustainable over the long term and whether it will be able to function without donor support or an unreasonably high level of support from the government. The IBLI ran for long stretches at a loss and required intervention by the World Bank. The customer base also seemed to participate in ways that bring into question the viability of the programme. They tended to buy the insurance after severe cold snaps, but would then appear to drop out after a few years of better weather, leaving them vulnerable to the next dzud. Like many Mongolians, the herders may not fully understand the principles of insurance, or may not fully trust the process or the institutions involved in providing it. More appreciation is needed of the concept of insurance for the IBLI to achieve better and more consistent participation.
A number of commercial efforts have been made in recent years to build micro-insurance. In 2009 Tenger Insurance developed a microaccident and micro-health product. It was launched in 2010 with XacBank acting as the distributor, which made the coverage mandatory with microfinance loans. The policies were designed like those in many developing countries, paying out on a daily indemnity basis when someone enters the hospital. Premiums were set low, starting at MNT30,000 ($18) a year, with a death benefit of MNT500,000 ($300) and a daily hospital benefit of MNT15,000 ($9).
In 2014 an Inclusive Insurance Forum was held in Ulaanbaatar. A wide range of representatives attended, including officials from the Ministry of Finance, the UN Development Programme, the Financial Regulatory Commission (FRC), the Mongolian Insurer’s Association and the World Bank, as well as foreign insurers. While a good deal of progress was made and attention was drawn to the sector, it is still not clear whether a commercial case can be made, and the concern is that the sector is too dependent on donor support. Mongol Daatgal, for example, has dropped its plan for a micro-insurance product due to high development costs.
In a 2014 report titled “Access to Finance: Developing the Micro-insurance Market in Mongolia”, the Asian Development Bank (ADB) noted that, “New and innovative insurance products are needed for this market segment that can provide the following benefits: medical expenses; disability benefits; property insurance, and savings-type life insurance products, with a death benefit included. However, need is not synonymous with demand, and there is little evidence of existing demand within the market.”
As in many developing countries, the most successful programmes offering insurancetype protections to poorer individuals are provided directly by the government. In the case of Mongolia, it is social security and social health insurance. The programmes reach much of the nation – 100% of the population for health cover at certain times – and in some respects are quite generous. Retirement payouts replace a significant amount of income, while survivors’ benefits, disability and sick pay can amount to a high percentage of lost in earnings.
The system does have its problems, however. It is not well funded, and some limits are far too low to provide for effective coverage (health care is capped at under $1000 a year). But it provides a good basis of coverage for most Mongolians. It also provides a good point from which micro-insurance products can develop. Additional health coverage and supplementary life benefits, if properly priced, can add to the government’s benefits and help to cover Mongolians against a wider range of risks.
“There is room for private health micro-insurance products in Mongolia, but these need to be carefully integrated with the benefits and structure of the existing public health system,” the ADB wrote.
Late in 2014 authorities published regulations to provide a legal foundation for micro-insurance (though the FRC decided to go with the term “inclusive” insurance rather than microinsurance). The new regulation says that products designated as inclusive insurance must meet a number of requirements: they must be designed for lowand average-income individuals; the wording used in the insurance documents must be simple and straightforward; claims have to be paid within 10 days; and an option to use a third party for lodging claims must be allowed. The regulators will employ a registration rather than a formal approval process; new products must be submitted to the regulators, but insurers can start selling the product if no objection is raised within five days. A limit is also placed on how much claims may be reduced by the insurer.
The new regulations came into effect on January 1, 2015. All relevant products must comply with the new rules from that date and existing products must be amended to comply with the new rules as well.