iblip, mongolia 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).

Layers of the Risk

100% Mortality

30% Mortality

6% Mortality

Disaster Response Product

Base Insurance Product

Retained by Herders

IBLI Sales

2006 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

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

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 UnitUlaanbaatar, Mongolia

Tel: 976-70112005E-mail: info@iblip.mn