INDEX-BASED LIVESTOCK INSURANCE PROJECT IN MONGOLIA IBLIP, Mongolia INDEX-BASED LIVESTOCK INSURANCE PROJECT IN MONGOLIA

1. Why Government of Mongolia wants to implement this pilot project?

1. Importance of the project Article 5.5 of the Constitution states: “ livestock is a national wealth and must be protected by the Government”

1. Importance of the project Agricultural sector – 20% of national GDP in the Mongolian economy. Livestock sector - 87% of agricultural GDP. Livestock husbandry supports ½ of the population, particularly in rural areas.

1. Importance of the project However, extreme climatic events cause high rates of livestock mortality, jeopardizing rural livelihoods: Example: 1999 to 2002 frequent droughts and severe winters/springs (known as dzuds) caused loss of 1/3 of the national herd, 81,000 households lost ½ of their livestock, 12,100 households lost all livestock GDP growth drop to 1.1%

1. Importance of the project Mandatory livestock insurance before 1990 Voluntary livestock insurance since 1990 1990 - livestock privatized

BACKGROUND: Situation with Livestock Insurance Very little livestock insurance is being sold today in Mongolia. Livestock risks are considered to be uninsurable due to very large risk. Herders are dissatisfied of past failures in paying indemnities/low animal values on insurance. Lack of local branches to offer insurance in the country side/ poor contracts.

BACKGROUND: Needs for New Livestock Insurance Since 1995 three attempts of the Government to create and implement mandatory livestock insurance have failed due to lack of feasibility and expected high administrative cost and high exposure to major cost during the event. The index-based livestock insurance (IBLI) is linked to the direct outcome from dzud – high livestock mortality provides incentives to continue to manage herds by herders low administrative cost for ICs secure indemnity payments to insured pays out whenever the mortality rate in the local region (soum) exceeds a specific threshold.

2. Current progress and updates of the project

Project’s Development Goal The development objective of the IBLI project would be to ascertain the viability of index-based livestock insurance in Mongolia. This would be achieved through: Developing and piloting IBLI program in three provinces of Mongolia; and Building institutional capacity and legal framework for the prospective replication and scale-up of IBLI nationwide. The IBLIP is to be implemented by the Government of Mongolia with financial assistance from IDA, World Bank, Japanese Government and FIRST Initiative from September 2005 to June 2010.

Pilot Aimags Implementation is on going in 3 provinces: Bayankhongor, Khentii and Uvs. Provinces were chosen considering geographical dispersion (different types of climate and terrain), agro-climatic variation and relative risk (low correlation of livestock losses).

Base Insurance Product Layers of the Risk 100% Mortality 30% Mortality 6% Mortality Disaster Response Product Base Insurance Product Retained by Herders

IBLI Sales 2006 Sales Result 2007 Sales Result 2008 Sales Result Total insured herders: 2412 Bayankhongor aimag:949 herders (8.3%) Uvs aimag:1184 herders (12%) Khentii aimag:279 herders (4.2%) Total livestock insured: 292000 heads (5.5%) 2007 Sales Result Total insured herders: 3705 Bayankhongor aimag:1708 herders (14.7%) Uvs aimag:1431 herders (14.2%) Khentii aimag:566 herders (7.9%) Total livestock insured: 409000 heads (5.8%) 2008 Sales Result Total insured herders: 4047 Bayankhongor aimag:1910 herders (16%) Uvs aimag:1388 herders (13%) Khentii aimag:749 herders (10%) Total livestock insured: 489800 heads (6%)

IBLI Sales 2007 Sales Result 2008 Sales Result 2006 Sales Result 3 Insurance companies 144 Insurance agents Total premium collected: 85.5 million MNT 2007 Sales Result 4 Insurance companies 154 Insurance agents Total premium collected: 129.1 million MNT 2008 Sales Result 4 Insurance companies 183 Insurance agents Total premium collected: 140.1 million MNT

Indemnity payments 2006 Sales Result 2007 Sales Result Total insured herders: 2412 Total indemnity payment received herders: 47 Total premiums collected: 85.5 million Total indemnity payments: 1.8 million Insurance coverage: all 56 soums of 3 pilot aimags Indemnity coverage: 2 soums of 2 aimags 2007 Sales Result Total insured herders: 3705 Total indemnity payment received herders: 1742 Total premiums collected: 129.1 million Total indemnity payments: 380 million Insurance coverage: all 56 soums of 3 pilot aimags Indemnity coverage: 35 soums of 3 aimags

Financial Linkages: Current achievements “XAC Bank” 0.1% discount on loan monthly interest Up to 14 months loan “Mongol Post Bank” Extendable loan amount “Khan Bank” (Agricultural Bank of Mongolia) 0.1% discount on loan monthly interest Extendable loan amount

3. Challenges Data Insurance companies

1. Data Accurate, affordable, and timely methods for estimating livestock losses Accuracy National statistics office responsible for official statistics data Full time census twice a year? New method like sample survey?

2. Insurance companies Profitable? Reinsurance Delivery systems

Thank you for your attention! For more information please visit our website at www.iblip.mn Project Implementation Unit Ulaanbaatar, Mongolia Tel: 976-70112005 E-mail: info@iblip.mn