The role of the Actuary in Microfinance МОНГОЛЫН АКТУАРЧДЫН НИЙГЭМЛЭГ The role of the Actuary in Microfinance Ulan Bator, Mongolia 14-15 November 2011 Kirsten Armstrong

Agenda What is micro-finance? What is micro-insurance? What should actuaries do in the sector? A case study Specific challenges

What is Microfinance? Basic financial services to poor & excluded Innovating to meet needs: Eg: Mobile phone banking for remote communities Savings, credit, money–transfer, insurance Target groups: Micro Entrepreneurs Small and medium-sized enterprises

Social Goals more important than profit Mission: To contribute to the socio-economic development of the country while creating a fair value for its shareholders. This will be achieved by providing inclusive, value adding, and reliable financial services to all people and entities of Mongolia through establishing a leading financial institution that is equally concerned about Planet, People, and Profit. XAC Bank

Microfinance in Mongolia Loans US$914.7 million Borrowers 390,000 Deposits US$1.2 billion Depositors 1.8 million MFIs 6 Hugjil badrakh, VFM, TFS, Khan Bank, Credit Mongol, XacBank Regulator Bank of Mongolia Source: Mixmarket 2010 Khan Bank has greatest number of deposits, with 2.2 million accounts, althouggh this may reflect the fact that it has Government deposits in the form of children’s welfare money accounts – Government dispursed State allowance for children. XAC Bank is also big – bigger in terms of overall loans.

What is Micro-insurance? Targetted protection for low-income people Simple Affordable Work best when supported with advice & innovation * Microinsurance is still in development.*

Product Groups Complexity Crop Insurance Health / disability insurance Annuities / endowment Property Term life Credit life

Micro-insurance in Mongolia To be updated!

Case Study: Health insurance in India’s slums Date 62 million people live in India’s slums. 300 million people in India live in poverty. Health care is limited & basic.

Micro health insurance Date Micro health insurance Covers insured people in Pune’s slums Annual premium: 60 rupees ($2) Reimburses max 5,000 rupees hospital costs Other benefits health camps, discounts, 24 hour hotline More than 60,000 members Scheme expanded to other slums

Date Community-based decision-making helps manage risk. Some benefits remain discretionary → minimises solvency requirements.

Local systems can be basic – simplicity essential Date Local systems can be basic – simplicity essential Performance monitoring at the community level

…All in a three week visit…. Date What did I do? Supported product redesign Pricing model Performance monitoring tool Minimum Solvency requirements Reviewed accounting procedures Advised on data requirements …All in a three week visit….

Other roles for actuaries Date Other roles for actuaries Identifying needs, gaps and opportunities Risk Management Reserving / outstanding claims valuation Forecasting

Original Benefit Structure

Option 2

Option 3

Unique aspects for Actuaries Poor data: how to price? How to manage uncertainty? Keep costs down : offer simple tools Short tail products; focus on Pricing Good monitoring systems Outstanding claims valuations are less important Design products with risk management levers Don’t want to end up needing big solvency reserves

Unique aspects for Actuaries Always ask: Is this meeting social needs? Measure social outcomes as well as financial outcomes Do you understand the customer? Data collection: What do they need for pricing and evaluation? Offer ideas from the industry – innovate!

Further Information… Consultative Group Assisting the Poor www.cgap.org Microfinance Information Exchange www.themix.org www.microinsuranceacademy.org/ www.ilo.org/public/english/employment/mifacility/

The role of the Actuary in Microfinance МОНГОЛЫН АКТУАРЧДЫН НИЙГЭМЛЭГ The role of the Actuary in Microfinance Ulan Bator, Mongolia 14-15 November 2011 Kirsten Armstrong