MARKET ASSESSMENT FOR SME INSURANCE IN

MONGOLIA

Presented by on behalf of

ACKNOWLEDGMENT

This market assessment was carried out by the Deutsche Gesellschaft für Internationale Zusammenarbeit Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia program (GIZ RFPI Asia), funded by the German Federal Ministry for Economic Cooperation and Development (BMZ). Its completion was made possible by the support of the Financial Regulatory Commission of Mongolia (FRC). GIZ RFPI Asia expresses its gratitude to colleagues from the FRC who were instrumental in the design, implementation and evaluation of the results of this assessment. Further contact details: GIZ RFPI Asia Dr. Antonis Malagardis Program Director Insurance Commission Complex 1071 U.N. Avenue, Ermita, Manila Philippines 1000 Telephone: +63 2 353 1044 -45 E-mail: Antonis.Malagardis@giz.de Financial Regulatory Commission of Mongolia Ganbold Sodnom Director Insurance Department 15160 Chingeltei District, Baga Toiruu 3 Government Building, Ulaanbaatar City, Mongolia Telephone: +976 51 266420 E-mail: ganbold@frc.mn

PREPARED BY:

Denis Garand, Dr. Erdenechimeg Bayar, Lilian Steinhäuser AFC Consultants International GmbH (AFC) Dottendorfer Str. 82, 53129 Bonn, Germany Telephone: +49 – 228 – 98 57 9 – 0 E-mail: info@afci.de Web: www.afci.de For any further information please contact at AFC: Mr Johannes Buschmeier Telephone: +49 – 228 – 98 57 9 – 0 E-mail: johannes.buschmeier@afci.de Ms Lilian Steinhäuser Telephone +49 – 228 – 98 57 9 – 63 Email: lilian.steinhaeuser@afci.de

Ulaanbaator, September 2014

EXECUTIVE SUMMARY

The objective of this market assessment is to assess the demand for insurance products among small and medium enterprises (SMEs), review the current supply of inclusive insur-ance products, identify policy and regulatory barriers, and on the basis of this analysis, pro-pose prototype insurance products and recommended changes to the regulatory framework.

The SME market in Mongolia employs 251,000 people and with their families, results to a potential market of 1,000,000 people insured. The demand research conducted with 37 SME in Erdernet demonstrated that there is a strong demand for insurance products in the SME sector. Potential clients are especially interested in a product of supplemental health that covers some of the gaps in the current state health coverage. There was also interest in an accidental death policy to cover the risk faced by motor accidents, grass fires and other risk to life. These first two are of interest to the business owner, for themselves, their employees and dependents of both. The third priority was a need for protection for their business such as losses due to fire, flood and robbery. Considering these demand areas will be an excellent foundation to develop the inclusive market.

The FGD discussion also unveiled the target group’s knowledge of insurance and concerns. With the introduction of mandatory motor liability insurance and mandatory employees acci-dental coverage there is an increased knowledge of insurance however there is increased confusion. The population does not understand the risk covered and what is not covered. There needs to be clearer communication by the industry to explain the coverage. Currently clients feel there is poor product explanation and difficult claims settlement processes. Also communication is required to indicate the strength of the insurance industry to allay the fears of the potential market that companies are at risk of failure.

There are few inclusive insurance products1 available currently, but none that particularly

caters to the needs of SMEs. There is a health product (hospital cash) which is sold to clients of Xac Bank. UNDP project has launched Ger insurance with several companies. The Index Based Livestock Insurance is considered by some as inclusive insurance and by others as reaching the larger herders. In our interviews the authors of the study found some insurance companies are interested in covering SME, however there needs to be a strengthening of capacity and a regulatory framework that is adapted to an inclusive insurance market.

The regulatory framework will need to be adjusted to effectively reach the target population in an inclusive insurance market. Changes should be considered to:

Define inclusive insurance appropriately to help increase access to insurance

Permit a variety of distribution channels

Relax or change regulations on agents training and who can sell inclusive insurance

Permit the use of group insurance

Reduce the requirements for branch offices

This kind of improved regulatory framework is expected to promote the development of inclu-sive insurance in Mongolia to make it more accessible, especially for SMEs.

1 Inclusive insurance and microinsurance are used interchangeably; we prefer the use of inclusive insurance.

TABLE OF CONTENTS

Abbreviations 1

1 Introduction 2

1.1 Background 2

1.2 Objectives of this Market Assessment 2

1.3 Survey Methodology for Demand and Supply 2

2 Demand for insurance 4

2.1 Profile of SMEs participating in Erdenet FGDs 4

2.2 SME Insurance Coverage 5

2.3 Risk Assessment 6

2.4 Precautionary and Mitigation Mechanisms 7

2.5 Understanding and Perceptions of Insurance 7

3 Recommendations for Potential market for SME insurance 9

3.1 Target market 9

3.2 Affordability 9

3.3 Desired products 9

3.4 Distribution method 11

4 Supply Chain 12

4.1 Existing inclusive insurance products 12

4.2 Distribution channels 15

4.3 Recommendations for the Supply chain 16

4.4 Prototype Products 16

4.5 Partnerships in market development 17

5 Regulatory environment 19

5.1 Current issues 19

5.2 Industry perspectives on regulatory improvements needed 22

5.3 Recommendations for Regulatory improvements 23

6 Financial Literacy and Consumer Protection 26

6.1 Current environment for promoting financial literacy and consumer protection 26

6.2 Recommendations to improve financial literacy and consumer protection 26

7 Conclusion 28

Appendix 1: Qualitative questionnaire for SME 29

Appendix 2: Quantitative questionnaire (filled by SME representatives) 34

Appendix 3: Risks perceived by FGD participants 35

Appendix 4: Product Design 36

Appendix 5: Regulations regarding opening branch offices 37

Bibliography 38

LIST OF FIGURES

Figure 1: Number of employees of participating SMEs .......................................................... 4

Figure 2: Legal form of participating SME's ........................................................................... 4

Figure 3: SME Year of operation start up............................................................................... 4

Figure 4: 2013 Turnover of participating SMEs ...................................................................... 5

Figure 5: Insurance coverage of selected SMEs in the past 5 years ...................................... 6

Figure 6: Risks perceived by selected SMEs ......................................................................... 7

Figure 7: Desired insurance for named risks ........................................................................10

LIST OF TABLES

Table 1: Official Definition of SME (according to the SME Law, 2007) ................................... 4

Table 2: Social insurance types and payment percent according to the Law on Social

Insurance ................................................................................................................. 5

Table 3: SMEs in Mongolia (2010) ........................................................................................ 9

Table 4: GER and small home property product design framework ......................................13

Table 5: Summary of Tenger's microinsurance product design ............................................14

Table 6: Health and Accident Prototype product design .......................................................17

Table 7: Summary of regulations and impact on SME inclusive insurance ...........................19

1

ABBREVIATIONS

AFC AFC Consultants International GmbH

BMZ German Federal Ministry for Economic Cooperation and Development

FGD Focus Group Discussion

IAIS International Association of Insurance Supervisors

IBLIP Indexed Based Livestock Insurance Project

IMRI Integrated Mineral Resources Initiative

LIIP Livestock Indexed Insurance Program

MEFIN Mutual Exchange Forum on Inclusive Insurance

MOF Ministry of Finance

SME Small and Medium Enterprises

NBFI Non Bank Financial Institution

RFPI Regulatory Framework Promotion of Pro-poor Insurance Markets

SCC Savings and Credit Cooperatives

TOR Terms of Reference

2

1 INTRODUCTION

1.1 Background

The German Federal Ministry for Economic Cooperation and Development (BMZ) funded program the Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) seeks to improve the regulatory and supervisory preconditions for effective insurance protection of low-income people in Asia. Until the end of the program phase in 2015, RFPI Asia plans to support countries in Asia to enhance their insurance regulation and supervision towards improving access to insurance products. Its activities will include spearheading the development of enabling insurance regulatory and policy environments in the region towards ensuring inclusive insurance markets as well as promoting innovative insurance solutions that meet the needs of the low income population, including Small and Medium Enterprises (SMEs).

AFC Consultants International (AFC) was commissioned by the RFPI Asia program to con-duct this market assessment in Mongolia and three other Asian countries. Of great priority to Mongolia is how to serve SMEs with innovative risk protection solutions so as to further pro-mote their financial inclusion. Currently, there is an increasing number of SMEs linking with various parts of the mining value-chain. However, the knowledge about their demand for in-surance is currently very limited. Additionally, the regulators do not have in place a sound regulatory framework to accommodate this new line of business. “Mongolia's extensive min-eral deposits and attendant growth in mining-sector activities have transformed Mongolia's economy, which traditionally has been dependent on herding and agriculture”2. The presence of current and newly developing mining sites results in the growth of SMEs, with a few serv-ing the mining companies directly and most of them serving the growing economic activity due to the presence of the mining sector. Risks to SME business operation and personnel are inevitable concurrences of the sector’s growth, which will affect social and economic de-velopment in the country. This warrants the development of risk protection and management solutions such as insurance.

1.2 Objectives of this Market Assessment

This market assessment of insurance for SMEs particularly operating in mining communities is part of an AFC assignment on behalf of RFPI Asia which is intended to provide inputs to the thematic area of SME insurance in Mongolia. To be more specific, this market assess-ment aims at providing insights on the supply of and demand for inclusive insurance products that target the SME market including those in the mining communities. Based on the results, AFC will hold workshops with the industry and the insurance regulator Financial Regulatory Commission (FRC) on the design and regulation of inclusive insurance products. Further-more, AFC will develop capacity building materials needed for potential SME clients and in-surance salesmen. The follow-up work on drafting and implementing an improved insurance regulation will be supported by RFPI Asia.

1.3 Survey Methodology for Demand and Supply

AFC worked with a team of three experts to conduct this market assessment. Focus Group Discussion (FGD) guidelines and risk provider questions were developed to solicit pertinent information for the assignment.

From April 22 to 23, 2014, FGDs were held in Erdenet3, Mongolia. All in all participants rep-resented 37 SMEs from 4 industry sectors; 10 trading, 8 production, 10 service, 9 agriculture and construction. Interviews and questionnaires focused on:

2 CIA Factbook April 2014 3 Erdenet is the second largest city in Mongolia and the capital of Orkon aimag, selected as the FGD site for the level of

concentration of SMEs after Ulaanbaatar and the level of organizational development of SMEs. SMEs in the two other

considered sites were mostly start-ups and while these also potentially offered valuable insights, time allocated for data

gathering led to the prioritization of the developed SME sample group.

3

What are the risks of SMEs?

What are the priority areas to insure?

What is their attitude towards insurance?

What is their willingness to purchase insurance?

How can they be reached? Banks, NGO, other?

The guidelines for the qualitative group discussions are in Appendix 1.

Participants were asked to provide written information in addition to participating in a group discussion. The quantitative information provided through a written questionnaire asked questions in regards to the legal form of the SME’s entity, percentage of foreign ownership, number of employees, industry type, sales revenue and historical insurance information. The complete quantitative questionnaire is in Appendix 2.

On the supply side, between April 14 to April 25, 2014, 7 insurance companies4 were inter-viewed to solicit their views on:

Corporate objectives

Interest in inclusive insurance market

Regulatory barriers to reach inclusive insurance market

Mining companies where consulted to gauge their interest in promoting access to inclusive insurance products to their employees, partner SMEs and the community within which they operate.

The FRC was consulted to understand the current state of the industry, concerns and the interest in inclusive insurance concept. At the end of the first field visit a stakeholder dialogue was conducted with FRC and the in-surance industry on April 24, 2014 to present the initial assessment findings. Desk research was conducted on the state of the SME in Mongolia, IAIS regulatory recom-mendations on inclusive insurance, and a review of specific regulations in selected countries. A second field visit from June 5 to June 17 was conducted to:

Do a workshop on product development best practices for inclusive insurance and methodologies to price, with proposals based on the FGD results. This workshop was attended by 10 insurance companies and 2 banks

Hold a workshop with FRC on the findings and conclusions for inclusive insurance, in general, and SMEs in particular

Hold a workshop with FRC and other interested stakeholders on a case study of Phil-ippines and Ghana’s regulations for inclusive insurance

Do extensive follow-ups with individual stakeholders to finalize this report.

4 IBLIP, Practical, Mandal, Tenger, Soyombo, Ard, Khaan, Mongol

4

51%

3%

19%

24%

3%

Co. LTD

Cooperative

Partnership

Proprietorship

NGO

Figure 2: Legal form of participating SME's Figure 3: SME Year of operation start up

0

5

10

15

20

25

before 2000 2000-2010 2011-2014

2 DEMAND FOR INSURANCE

2.1 Profile of SMEs participating in Erdenet FGDs

Micro, small and medium enterprises, in short SMEs, are broadly defined as companies with less than 200 employees and an annual turnover below MNT 1.5 billion. Whereas microen-terprises usually have legal status by action at the soum level5, SMEs are registered busi-

ness which can be categorised as follows:

Table 1: Official Definition of SME (according to the SME Law, 2007)

Small enterprises Medium enterprises

Manufacturing / Processing

< 20 employees < ₮ 250 million turnover < 200 employees

< ₮ 1.5 billion turnover Retail trade

< 10 employees < ₮ 250 million turnover

Wholesale trade < 150 employees < ₮ 1.5 billion turnover

Services < 50 employees < ₮ 1.0 billion turnover

Erdenet is the major city of the small aimag of

Orkhon where only 3.4% of Mongolia’s popula-tion reside. A total of 101,600 enterprises are registered in the business registration of Ork-hon as of the 1st quarter of 2014. Of these en-terprises, 82.3% are small enterprises which have 1-9 workers (source: Statistical bulletin of Orkhon aimag, March 2014). As illustrated in Figure 2 more than half of the selected 37 SMEs that participated in the FGD also fall into this category. Of the 37 SMEs participating in the focus group discussions, 6 (17%) had some relationship with mining companies and the rest are linked indirectly with mining companies through the goods and services provided to the community which includes the mining company employees.

Compared to other more recent mining areas the enterprises in Orkhon are already well-established so that 88% of participating SMEs have been operated for more than 3 years. Approximately half of them chose the legal form of a limited liability company and 20 out of 37 were established between 3 and 13 years ago as indicated in Figures 3 and 4.

5 Micro enterprises are granted loans by local soums for the purpose of economic development. This example of action by

local government attributes a de facto legal status to them. A soum is a district level administrative unit.

58%

39%

3%

1-9 employees

10-50 employees

> 50 employees

Figure 1: Number of employees of participating SMEs

5

In terms of turnover, almost all participating enterprises fall into the category of small enter-prises. Only one participant had a turnover of more than MNT 250 million. Even if most of them are reluctant to state their net profit, it is estimated at approximately 10% of total sales volume.

Figure 4: 2013 Turnover of participating SMEs

2.2 SME Insurance Coverage

Statutory insurance

In accordance with the Law of Mongolia on Social Insurance, all SME employees shall be covered by the social insurance policy (see Table 1). It shall cover only the SMEs’ manage-ment staff, particularly its head and main officers meaning that if an SME has 20 employees, only the 1-4 people who are in management pay the social insurance payments.

Table 2: Social insurance types and payment percent according to the Law on Social Insurance

Types Percent of payment

covered by employer Percent of payment covered by insured

Pension insurance 7 7

Benefit Insurance 0.5 0.5

Health insurance 2 2

Industrial accident and occupa-tional disease insurance

1 0

Unemployment insurance 0.5 0.5

TOTAL 20 19

As seen in Figure 6, 18 of the 37 SMEs have statutory insurance and pay the social insur-ance payments of contracted workers and 19 of these enterprises did not provide infor-mation. The remaining 18 SME’s indicated they have mandatory and voluntary insurance

0

1

2

3

4

5

6

7

8

9

Nu

mb

er

of

SME'

s

Turnover (in million MNT)

6

(motor vehicle, accident and property). Extra and temporary workers are not covered by so-cial insurance.

Figure 5: Insurance coverage of selected SMEs in the past 5 years

Participants of the survey indicated dissatisfaction with the public insurance system (includ-ing inpatient care, limited outpatient services in traditional medicine facilities, sanatoria and rehabilitation centres) and more than half of the total participants of the survey feel the sys-tem needs to be restructured. They said that in most cases, social insurance does not pro-vide adequate coverage and they are therefore diagnosed and treated by the private hospi-tals at a higher price if they have a disease (especially serious illness, cancer and treatment after an accident occurs). Therefore the health system causes a large amount of financial stress for small business owners.

Mandatory insurance

40.7% of SME’s participating in the survey were covered by the Mandatory Drivers’ Liability Insurance and have this insurance. However, most of them have the understanding that in-sured people never receive a claim payment when an accident occurs. To some extent this discontent can be explained by confusion between drivers’ liability insurance and vehicle insurance but also a lack of understanding of the complicated claims procedures.

The private cash savings of citizens of Orkhon aimag reached to 98.9 billion MNT. There are approximately 1,094,272 MNT per person and 1,176,431 per savings holder (source: Statistical office of Orkhon aimag, June 2013). Participants indicated that they had no awareness or information about mandatory insurance for bank deposits.

Voluntary Insurance

Only 2 out of the 37 participants were covered by additional or voluntary insurance (property or accident). However they do have awareness of different insurance products as the follow-ing types of insurance were named by the SME representatives:

Regular insurance (Worker's compensation insurance, Business property insurance, Car and vehicle insurance, Freight insurance, Construction insurance, Group insurance, Do-mestic animal’s insurance, Airplane insurance, Liability insurance and Financial insur-ance)

Long term insurance (Term life, Whole life, Endowment, Pension, Private health and An-nuity).

2.3 Risk Assessment

Figure 6 below summarises the risks mentioned by SMEs participating in the FGDs by major

category. For a detailed list please refer to Appendix 3. As participants ranked risk on an

open format, there is mention of many types of risk. For insurance products it is clear that a

health and accident product would serve the demand of the SME market as well as a busi-

ness package.

19

18

16

2

18

Non insured (or no information)

Statutory insured (4 types ofsocial insurance)

Mandatory insured (car + driverliability insurance)

Voluntary insured (live +property insurance)

7

Figure 6: Risks perceived by selected SMEs

Willingness to purchase insurance: The participating entrepreneurs generally do not know how to protect their businesses from risks. There is little knowledge of voluntary insurance and insurance organizations in general, so they do not trust or go to them.

They expressed their willingness to purchase insurance that has reasonable fees and recog-nized that insurance is significant in addressing financial shocks around health issues and death, especially death due to accidents.

2.4 Precautionary and Mitigation Mechanisms

Most SMEs only become aware of the necessity to protect themselves against risk after the damage has already occurred. For example, a shop owner decided to install cameras after two cases of burglaries which caused her a total loss in cash and goods of approximately MNT 2.5 million in value. In more severe cases, such as disability due to an accident, SME personnel often rely on the support of their husband or wife. The consequences of severe damage to property, for example in case of a flood, often force SMEs to close their business for several months or even to declare bankruptcy. This strong vulnerability of SMEs reflects their great demand for risk mechanisms such as precautionary measures but also insurance.

2.5 Understanding and Perceptions of Insurance

Since the introduction of mandatory products, the awareness of insurance has increased but there is a lot of confusion on what kind of damage insurance products cover and which ones are useful. For example, many people are confused why drivers’ liability insurance does not cover damage caused to their own vehicle. When motor vehicle liability insurance was intro-duced, many believed that the insurance covered both liability and vehicle damage. Even if it was clearly communicated in documents and by the sales agent, the population does not have enough experience with insurance and insurance terms to fully absorb and understand what has been communicated to them. The salesmen of insurance thus have to improve how they explain the product and service claims to the client. If the insurance industry can con-duct surveys of the population to improve knowledge of how the product is understood, future communication can work to improve how and what insurance does.

There is also a concern that the insurers are not financially strong and may go bankrupt. They do not feel that the insurance industry is transparent on the financial strength. It is not clear why the FGD participants have this concern. Perhaps it is due to the economic slow-down Mongolia has experienced recently and the financial bankruptcy experienced a few years back by the cooperative sector. The relative lack of information from insurance indus-tries that could attest to their credibility could also be a factor in the participants’ doubts.

The authors of the study believe there is an opportunity for the insurance industry to combine efforts to explain the basics of the mandatory product versus the voluntary motor insurance. It will also be important to have current financial statements available publicly with a measure

9%

39%

67%

73%

0% 25% 50% 75% 100%

Risks to business transactions

Risks to life

Risks to health

Risks to assets

% SMEs who mentioned this risk

8

of how much capital and surplus they have compared to total assets. Currently the FRC web site provides information on Gross Premium Written, Profitability, Total Assets, Reinsurance, Claims paid. In addition there is the address of the insurer, management, licensed products and branches. An important piece of information missing would be to provide the financial statements (Income Statement, Balance Sheet and Cash Flow) and a risk-based capital lev-el. FRC is currently not on a risk-based system. The current information is adequate until the risk based system is in place.

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3 RECOMMENDATIONS FOR POTENTIAL MARKET FOR SME INSURANCE

3.1 Target market

As the development of inclusive insurance remains very limited, the authors of this study be-lieve the SME market would be of interest to insurance companies and based on the re-search, there is a need for insurance among SMEs. The SME market has more financial ca-pacity to pay for benefits and based on experience in other countries, it has been successful-ly tapped to provide benefits to employees and their family.6 The challenge will be to find a suitable distribution network to reach the potential market.

According to the World Bank, in 2010, there were 72,473 SMEs employing approximately 251,000 people as seen in the below table.

Table 3: SMEs in Mongolia (2010)

Number of Companies Employment

Micro 60,317 88,000

Small 5,772 37,000

Medium 6,384 126,000

Total 72,473 251,000

Source: World Bank

7

The size of this market should be of interest to the insurance companies. The products pro-posed later in this document, indicate potential market and if Mongolia follows other insur-ance markets the overall size and potential products will expand over time.

3.2 Affordability

Many market studies ask only the question of willingness to pay (WTP), without presenting an expected product design and premium. In this situation clients cannot estimate the benefit of insurance and thus expect rates that are often a fraction of what would be a sustainable pricing for a well-designed product.

At this stage of the market assessment, the product design and premium calculation is still to be done. Therefore, an effective survey on the WTP for the specific product can only take place afterwards. Nevertheless the authors of the study do have an idea of the general WTP thanks to the micro-insurance product “Happy Residents” which is available at an annual price of around MNT 40,000 and is now reaching more than 4,000 clients. Further description of the product is found in Section 4.

3.3 Desired products

The desired products of the survey participants correlate with the risks they and their respec-tive enterprises face. Responses to the questions “What risks are you most worried about in

6 In West Africa mutual health schemes struggled for years to become viable, until they started approaching SME market and

employers facilitated coverage for employees and family. 7 (World Bank, 2012)

10

relation to your work and your company?” and “Please name 3 risks to be insured from these risks?8” indicated:

1. Business Property risks (35% of responses): The business property risks faced by the SMEs are damage to industrial buildings, theft and equipment damages. There are no in-surance companies which insure the expensive equipment.

2. Life, accident and health risks (35% of responses): People are interested in insuring life and health risks especially those resulting from accidents caused by the environment (grass fires), everyday living or in the workplace. Additional health insurance is very im-portant to participants. Employers are willing to facilitate coverage for employees and families

3. Accident risks due to weather related events (9% of responses): Businessmen feel that accidental death insurance is needed because there may be risks caused by fire, flood, drought, disaster and earthquake

4. Crop insurance (9% of responses): Those in the agricultural sector indicated that harvest insurance (against hailstone, freezing, grass fire and impact of animal) is important.

5. Other risks (14% of responses): Other necessary products that address risks including, professional liability, livestock (special livestock not covered in IBLIP), patent and agree-ment responsibility and loan risk insurance of Savings and Credit Cooperative (SCC) are important.

Figure 7: Desired insurance for named risks

Needs on awareness and actions:

Mongolian people trust after seeing or touching anything. Therefore, it is important to use alternative approaches to the more traditional printed presentations in order to effectively promote the insurance products and services. People do not read long texts.

Participants also think that awareness could be increased if risk and insurance were included in school programs. For example, a GIZ Mongolia program on environmental education and communication had a pilot project which included education for sustainable development in the standard curricula of university, institute, school and kindergarten. Results of the ex-post evaluation of the program indicated that education through school programs was an effective method for increasing understanding. It is important to survey the public after education effort to track if the public has improved understanding and find gaps to further improve education.

8 Figure 7 details the total response, this is an accumulation of the total response, weighting response by participate resulted

in the recommended products

11

3.4 Distribution method

In our discussions with SME and other stakeholders they mentioned several methods that

would be of interest to reach them with offers of inclusive insurance products:

Local soums that provides loans

Banks

Co-operatives and Credit Unions

NGOs serving SMEs

Postal offices

Mobile phone companies

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4 SUPPLY CHAIN

4.1 Existing inclusive insurance products

Inclusive insurance is just developing in Mongolia and no insurance products have yet been documented that cater particularly for the SME sector. Thus far, three products are consid-ered as inclusive insurance for this study: Ger insurance developed recently through a UNDP initiative, Tenger‘s accident and hospitalization product and index based livestock insurance Program (IBLIP). These are considered as inclusive products as they are aimed to meet the demand of low income populations. They have simple product designs, clear policy language and benefits are small.9 None of these have a direct link to SMEs but are here being de-

scribed to signal the gaps and opportunities for future product development initiatives.

Currently there is no monitoring by FRC on inclusive insurance products. For the Ger insur-ance only 2 out of 18 companies are offering the product and for IBLIP, 7 companies are participating as of April 2014. The authors of the study estimate that the inclusive insurance is less than 1% of the total insurance premium in Mongolia.

A few companies have indicated they are trying to reach the SME market though there was reluctance in giving out the details. The authors of the study did not do a comprehensive sur-vey to determine the extent of the current offering.

4.1.1 UNDP Small building and Ger Insurance 10

As part of the UNDP- Mongolia’s Capacity Development for the Microinsurance Market pro-ject, the Technical Assistant and the project team, in consultation with the industry, devel-oped a property product for vulnerable communities.

Working with FRC and the insurance companies, two insurance companies launched on 16 April 2014 property insurance products that are suitable for the low income and vulnerable sectors of the population in Mongolia. These products have been launched as pilot products as the regulatory environment is not in place to facilitate the introduction of the products which have some features that are not covered by the current regulations. The project team anticipate that by the end of May 2014 another 3 or 4 insurance companies are expected to launch property products.

The development of the new products was achieved by: 1) holding 4 workshops and training courses attended by staff from all insurance companies and 2) conducting individual meet-ings with insurance companies to listen to, comment on and advise them on their product ideas, marketing strategies, implementation plans and sustainability plans for the product.

It was decided that this product would be designed by the individual insurance companies, but they would qualify to be under the pilot program as long as the product met the following criteria:

9 The indexed based livestock insurance is inclusive insurance to the extant it is aimed at small herders. 10

Adapted from (Leith, 2014)

13

Table 4: GER and small home property product design framework

Requirement Comments

Licensed provider Product can only be provided by licensed insurance company

Insurance company to meet all of its obligation under its current license with FRC

Flexible premium Must be low cost premium to be affordable for the target market, policy holders consider the premium fair.

Premium should reflect the level of risk cover provided to policy holders

Flexible timing and options for premium payments

Simple product All processes for everyone in every way is simple for policyholders, beneficiaries, delivery channels and insurers. For example, policies with pages of small print are useless to illiterate policyholders; and complex claims procedures only frustrate legitimate beneficiaries.

Easy to read Docu-

ments

Policy document is contained in a maximum of one A4 sized page and at its minimum it states: o Name of insured o Name and address of insurance provider o What risks the policy covers o The level of risk the policy covers o The amount of the premium and when and how premium

payments are paid o How to make a claim including details of contact number to

make a claim o Any exclusions ( ideally there will be no exclusions on these

policies) o What to do if they have a problem with the product

Flexible Distribution

options subject to

FRC authorization

Develop a distribution option that gets your product to this market in a cost effective manner

The insurance provider is responsible for the training of the distributor and monitoring the distributors’ performance

Claims paid within 5

days

Claims process is simple, claims paid out at a local level

Disputes resolution

process

Each insurance provider to set up a disputes process and committee at a district level.

The stakeholders agreed that the new products needed to be treated as a pilot product. FRC has the ability, under the insurance legislation, to deem products as a pilot and allow the in-surance companies to use processes or practices that may not be strictly allowable under the current insurance law or regulations. The potential aspects of a product or an insurance ser-vice that may be used by an insurance company for inclusive insurance that would contra-vene the current law or recommendations could include:

Sellers of the product may not be approved agents;

Policy documents may not be signed by the purchaser of the policy;

A policy document may be as simple as a card similar to a top up phone card;

14

Claims may be paid out directly from remote areas away from head offices;

Reporting requirements are likely to be more detailed and require more than just fi-nancial information; and

Products are allowed into the market on file and use basis.

4.1.2 Tenger Insurance/Xac Bank Microinsurance Project11 (Happy Citizen Mi-

croinsurance)

In 2009, Tenger Insurance (formerly Prime General Insurance) started a pilot project to be sold through Xac Bank through funding from the ILO’s Microinsurance Innovation Facility (“the Facility”)

After extensive market research to develop the final product, Tenger’s final product design was a bundled product that includes an accidental death benefit and a hospital cash benefit. The hospital cash benefit is based on similar microinsurance products that have been tried in other countries – the benefit is a fixed amount per night spent in the hospital, after a 1 or 2 day waiting period has been met, with a maximum number of covered days. The benefit is not tied to the state health insurance coverage so if someone is already covered by the state scheme the hospital cash benefit is supplementary. The advantage of this benefit is that the insured person can spend it however they want and the amount is not tied to the services they receive. If they do not need it for medical costs, it can be used to cover transportation costs, childcare, or replace income lost as a result of being in the hospital.

The product is sold in conjunction with microloans offered by Xac Bank, and is voluntary; clients do have the choice of single or family coverage along with 3 different levels of benefits to accommodate different income levels as seen in the chart below.

Table 5: Summary of Tenger's microinsurance product design

OPTION 1 OPTION 2 OPTION 3

Amount paid per day 15,000 MNT 20,000 MNT 25,000 MNT

Maximum number of days 10 days 10 days 10 days

Waiting Period 2 2 1

Premium for single policyholder 30,000 MNT 40,000 MNT 50,000 MNT

Premium for family 85,000 MNT 125,000 MNT 165,000 MNT

*maximum number of hospitalisations per year: 2 per person and 4 per family.

As of April 2014, 4,000 policies had been sold out of 16,000 of Xac Bank’s individual MFI clients; an impressive 25% coverage ratio. Tenger states that the claims ratio is satisfactory.

For administration purposes, Xac Bank collects completed application and policy forms and records all premium payments. The associated Tenger branch then manually collects appli-cation and policy forms from the bank every week and enters data into a database main-tained on MS Access.

In regards to claims, Xac Bank helps clients complete the claim forms and checks docu-ments (official letter for death or hospitalisation letter) before sending the claim form and documents to Tenger Insurance. Claims payments are made via cheques or direct deposit into the policyholder’s Xac Bank account. This product has met all the current regulations of FRC, however it is deemed inclusive based on its target market.

11 Adapted from (Kelly Rendek, 2011)

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4.1.3 Index Based Livestock Insurance Project 12

The Government of Mongolia requested assistance from the World Bank to improve rural herder vulnerability to frequent and high livestock mortality rates due to Mongolia’s harsh and unforgiving climate. This has a great impact on the rural poor and Mongolia’s economy as the Mongolian rural economy is based on livestock reared by semi-nomadic herders who make up 30 percent of the population. Herding accounts for approximately 16 per cent of the gross domestic product (GDP) and livestock provides income to nearly half the residents of Mongolia. Dzud events, (the Mongolian term for a particularly harsh winter), occur approxi-mately once every five years and result in the death of millions of the country’s livestock.

In 2005 the Government entered into a credit agreement with the World Bank to implement the Index-Based Livestock Insurance Program (IBLIP) which was an index-based insurance program based on livestock mortality rates by species and soum (county) rather than an indi-vidual’s livestock mortality. Herders bear the cost of small losses that do not affect the viabil-ity of their business, larger losses are transferred to the private insurance industry and only the final layer of catastrophic loss is borne by the Government of Mongolia. Insurance is pro-vided through partnering with local private insurance companies. The pilot project began in 2006 and was implemented into three of Mongolia’s 21 provinces (aimags) and following the pilot program’s success, IBLIP received funding to expand to reach herders in all of Mongo-lia’s 21 aimags by 2012. This was actually accomplished in 2010.

While not formally designated as “microinsurance”, the IBLI program does provide access to relevant insurance for a segment of the population that would not otherwise have access. While many herders would not be considered low income, they are at considerable risk of losing most of their assets and income potential during a severe winter (dzud). In 2010, ap-proximately 22% of the livestock in Mongolia perished due to the dzud that occurred that winter. Without insurance coverage, all herders are vulnerable to financial insecurity as a result of livestock losses due to severe weather conditions. The authors of the study there-fore include this scheme in the discussion about microinsurance and access to insurance in Mongolia13.

As of November 29, 2013, a Draft IBLI Law with enabling legislation for the program was placed before cabinet and it is anticipated that it will be sent to parliament and passed by 2016. The project is no longer a pilot since it was restructured in 2010 and is now available nationwide. Seven insurance companies are offering IBLI to all soums (counties).

Since inception in 2006, premium has been increasing every year. From 2006 to 2010, a total of MNT 1.4 billion of premium income was collected, MNT 963 million was allocated into the Livestock Indexed Insurance Program (LIIP) account, and a total MNT 2.7 billion of in-demnity payment was distributed to insured herders. As of 2013, 19,447 herder households (13.5%) out of a total 144,512 herder households from 21 aimags voluntarily took part in the IBLIP for a total premium in 2013 of MNT 1,799,184,17114.

4.2 Distribution channels

Regulations only allow insurance to be sold by licensed brokers and agents and very detailed regulations are required for branches. This limits access to microinsurance for the target population including SMEs.

The new Ger product developed by UNDP is structured as a pilot project in order to bypass this regulation and use alternative distribution means. Another successful example of how to reach the target population is Tenger Insurance that started cooperation with Xac bank. This financial institution operates as a distribution channel for the insurance company by means of selected staff members of Xac Bank that are licensed agents of the insurer15 to sell poli-cies.

12 (Mongolia: Index Based Livestock Insurance Project) 13 (Kelly Rendek, 2011) 14 (Indexed Based Livestock Insurance Project) 15 (Kelly Rendek, 2011)

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The authors of the study explored the potential distribution channels. Recently, the FRC started permitting banks to sell insurance. In the FGDs, as well as in meetings with mining companies and cooperatives, all stated that using other distribution channels may be desira-ble to reach SMEs. The insurance companies suggested using banks, mobile phones, post offices or the civic unit that provides loans. Mining companies may be another ideal source to reach the SMEs that they work with. They may want to distribute insurance as part of Corpo-rate Social Responsibility to the broader SME market and more specifically to SMEs they are dealing with directly. They may have a requirement to prove the SME has the mandatory coverage. However in the interviews we did with mining companies there was a lack of inter-est in being a distributor for insurance to SMEs.

4.3 Recommendations for the Supply chain

Interested insurers will have to improve their capacity for inclusive markets on market re-search, designing simple products, pricing, distribution methods, administration and monitor-ing skills. Reaching an inclusive market requires a different mindset compared to conven-tional markets. There are excellent websites that provide information on many of these top-ics:

Microinsurance Network www.microinsurancenetwork.org

ILO innovation facility www.microinsurancefacility.org

Microinsurance Center www.microinsurancecentre.org

Munich Re Foundation www.munichre-foundation.org

As a first step, using this report will guide them on a prototype product to serve SMEs. The companies will have to price the product considering how they will distribute it. Critical to the whole operations is working with a trusted distribution partner that has or can develop the administrative and communication skills to reach the target market.

4.4 Prototype Products

Based on the market research and demand from SMEs the authors of the study propose the

following products.

Health and Accident Insurance:

Based on the demand research, the target market wants additional coverage for health and accident. Therefore a health product (hospital cash) with Accidental death benefit is suggest-ed as a prototype with the choice of either single coverage or family coverage for employees. The family is defined as husband and wife and all of their children. Coverage of Accidental death starts immediately and coverage for the daily cash benefit starts after 30 days with the new policy. On renewal, full coverage for both is immediate. The purpose of the product is to assist with the additional expenses for the covered risk of hospitalization. The accidental component covers the risk indicated by the focus groups, there are concerns about adequate coverage for accidental deaths from motor vehicle, grass fires and other hazardous incidents that impact their lives.

The authors of the study recommend this prototype product as it is the easiest for insurance companies to start with and it meets some of the needs of the clients (as indicated in Section 3.3 and Appendix 3). For it to succeed companies will have to find an effective distribution method.

Two benefit options are to be chosen by the insurance company. Full product design details are in Appendix 4.

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Table 6: Health and Accident Prototype product design

Comprehensive (MNT) Select (MNT)

Daily cash benefit 20,000 15,000

Maximum per stay 160,000 105,000

Accidental death

Adult 800,000 600,000

Children 300,000 200,000

Property Insurance

An appropriate small business package would have the following features (details also in Appendix 4):

Coverage

o Fires, explosions and implosions

o Natural hazards

o Water damanage

o Electrical surge damage

o Theft

Deductible of 100,000 MNT

Co-insurance of 70% of loss for all coverage except theft at 50%

Maximum benefit of 3,000,000 MNT

Requirement of completing and agreeing to a risk management strategy.

4.5 Partnerships in market development

Provided the regulator permits it, reaching inclusive markets will require partnerships be-tween insurance companies and distributors that reach the target market, have the adminis-trative capacity, trust of the target clients and skills to clearly explain the product.

Potential distribution partners to reach SMEs:

Banks. They already are reaching a large segment of the Mongolian population. In the FGDs, the SMEs indicated the need for credit as most have difficulty receiving the credit required. However as some banks have started to focus on this market, they will have increasing ability to reach SME clients and sell suitable products to them in-cluding microinsurance products. Some banks have set up special operations to reach the SME market, if the banks establish trust they could be a good partner.

Soums provide loans to local business to assist in economic development. They could be a valuable parter to reach SME and provide appropriate education to reduce risks faced by operating a business.

Mining companies at this stage showed little interest. Most of their suppliers are not local SMEs, in our focus group over 83% had no direct link to mining companies.

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However some mining companies may want to strengthen the SMEs in their region of operations and would be interested in providing inclusive insurance products.

Co-operatives and Credit Unions. The sector is recovering from the financial failures recently experienced. As they rebuild trust, they may be a good partner for the distri-bution of products. The credit unions already would be good partners for credit life products.

NGOs serving the SME. There are some NGOs providing training and other services to the SMEs so they may be a source to reach the target market based on their rela-tionship of trust. To only name a few, there are national and regional Cooperative In-formation and Training Centres, the Business Council or national cooperative associ-ations.

Postal Offices. The postal system is available widely in Mongolia. This provides a clear avenue for access to inclusive insurance products. Postal offices in several countries already provide insurance services.

Mobile phone company platforms. In several countries, mobile phone companies sell insurance. If there is an ability to provide financial transactions, they can become a new distribution method. This would require the insurance regulator to coordinate and collaborate with the appropriate telecommunications regulating agency and the re-spective companies.

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5 REGULATORY ENVIRONMENT 16

5.1 Current issues

The current regulations do impact the ability to cover SME with cost effective products. Be-

low, the authors of the study have summarized the issues based on the current regulatory

requirements listed in the balance of this section:

Table 7: Summary of regulations and impact on SME inclusive insurance

Regulations How changes can facilitate SME inclusive insurance

Insurance classification Permitting bundled products improves access and market effi-ciency

Group insurance Permits covering employees of SME easily

Claims Process Alternative claims method can be effective

Distribution methods Reaching the client by trusted organization vital

Sales Training For Consumer Protection, important for distributor to know and explain product

Branches There can be more cost effective ways of ensuring service to clients

Loss Adjusters For simple products easier methods can be determined to set-tle claims

5.1.1 No microinsurance regulations

Mongolia does not have microinsurance guidelines or regulations for the industry to follow so any current microinsurance initiatives are bound by the industry insurance regulations. This impacts SME and inclusive insurance if products are aimed at the SME sector.

The current regulatory requirements by FRC are to encourage appropriate behaviour by the insurance companies in the market. As behaviour on consumer protection and prudential standards improve, it would be helpful to make changes to encourage the development of the market to include such evolving sectors as that of SMEs. Changes to make the market inclusive still maintain the requirement of consumer protection and prudential standards, they are however achieved in a methodology that reduces the cost of compliance.

5.1.2 Definition and Classification of Insurance

Strict product demarcation: Article 6.1 deems that “Insurance shall be classified as long-term insurance and ordinary insurance”. It is also clearly stated in the Guidance on Determining Ordinary Insurance Business that:

“2.1 Ordinary insurance activities means according to Ordinary insurance con-tract the activities of undertaking liability by the insurer, under a contract of in-surance, to pay damages or compensation to the insured person upon the oc-currence of an insurance event. Regular Insurance contract duration is 1 year.

2.2 Ordinary insurer is not allowed to conduct long-term insurance activity and

16 All regulatory references, unless otherwise specified, are from the file: (Mongolia - Appendix 1 - laws and regulations in

English - unofficial translation appendix to FRC Resolution No 61 (2008))

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3.2. Following activities are NOT CONSIDERED as insurance activity 3.2.1. Social insurance and health insurance activities”

The implication for microinsurance, including products that could be developed for SMEs, is that product bundling with long-term and ordinary insurance products, which is globally a common method to provide coverage to clients, is limited.

Lack of mention of group policies: As the current regulations do not mention group policies, in its omission, all clients are to be treated as individual policy holders. Traditionally group policies are an inexpensive and common method of reaching the microinsurance sector and by design, premiums are more affordable; however this option is not available in Mongolia. This gap makes it more difficult to reach the employees of SMEs. To allow group policies modifications would be needed to “ 4.1.3 insured person" means citizen or legal entity that has insured certain items for its own interest and concluded a contract with an insurer” of the regulations. This change could also allow for simpler contracts conforming to policies which other microinsurance schemes in the world offer.

Cumbersome claims process: Current regulations could prove to be excessive for the micro-insurance environment and potential SME insurance clients. Regulations state:

“8.4. Insurance payment shall be made based on the following documents:

8.4.1. application of insured person;

8.4.2. insurance policy (original copy);

8.4.3. assessment act on loss written by loss adjuster;

8.4.4. where required a concluding statement from a professional organization.”

In remote areas, obtaining verification from professional organizations or a loss adjuster is not economically or logistically feasible. Globally, modifications have been made to claims documentation requirements in order to make the claims process more realistic for the micro-insurance environment. Such modifications could portray inclusive insurance products as client-friendly for SMEs.

In addition, the regulations suggest that the insurer has to make the claim payment directly to the insured,”4.1.6 insurance compensation means cash paid by insurer to insured person in case of occurrence of insurance event according to the contract”. This limits the role of the intermediary, and potentially technology, in settling the claim payments.

5.1.3 Insurance Intermediaries

Prohibition of unlicensed insurance intermediary activities: Article 9.1 of the regulations spe-cifically states “Conducting of any unlicensed insurance intermediary activities in the territory of Mongolia or in the territories of foreign countries having the head office in Mongolia by any natural or legal person is prohibited.” In addition, Article 56 states the “Prohibition on pay-ment of commission to unlicensed insurance broker, insurance agent or loss adjuster where 56.1. An insurer shall not pay any remuneration, including commission, to any person acting as an insurance broker, insurance agent or a loss adjuster unless that person is licensed”.

Traditionally, microinsurance activities require distribution channels that are familiar and ac-cessible to the target population especially in remote areas. Therefore this regulation limits the channels that can reach clients for microinsurance, especially SMEs in mining areas. The authors of the study understand the need for strong consumer protection, however in inclu-sive insurance it has been found that permitting new distribution channels and ensuring that the channel manages the consumer protection works well.

Cooperatives and MFIs also globally have good access to the target population and success in distribution microinsurance. In Mongolia, NBFIs and SCCs are not allowed to distribute insurance products. But despite existing regulations, current practices show that banks and NBFIs distribute insurance in partnership with some insurance companies. The law on Non-Bank Financial Institutions does not include insurance distribution in the list of activities al-lowed for NBFIs. There is now a pending law that would allow NBFIs to engage in the distri-

21

bution of insurance as this is considered a financial service that could be provided. Article 13.4 and 13.5 of the Law on Savings and Credit Cooperatives which was passed on October 27, 2011 allows SCCs to engage in the provision of financial services other than savings and credit, provided these services are authorized by the Commission17.

In 2010, the Banking Law was changed to allow banks to be licensed as insurance brokers and insurance regulations have been amended to allow this. The Regulation on Licensing of Non-Life insurer, reinsurer, and insurance intermediary stipulate in 2.25 that “If the insurance broker is a bank, an approval letter from the Central Bank of Mongolia must be sent to the Committee, as indicated in Article 6.4 of Law on Banking.” This change could potentially drive the expansion of access to inclusive insurance for SMEs nationwide, and particularly in mining communities, as banks have a wider presence throughout the country more than in-surance companies.

Training requirements and liability coverage to become a licensed agent or broker are oner-ous for microinsurance: Insurance regulations on Licensing for Insurance Intermediaries stipulate that “2.32. Insurance agent must have participated in insurance training and be cer-tified.” RFPI provides further details in its policy review of microinsurance regulations 18 stat-ing that “Issuance of a license to agents and brokers is contingent on meeting the following requirements: attendance in a licensing training for insurance agents, passing of the pre-scribed examination (both conducted by the Mongolian Insurance Association), and meeting the requirements for insurance agents as specified in the laws and regulations. (FRC Resolu-tion 82-1008, 83-2008 and 61-2008). Agents are required to attend the training program eve-ry three years, otherwise license shall be suspended.”

The liability coverage required is MNT 50 million.

Considering the geography, clientele, type of business and “spirit” of microinsurance these requirements may be stringent and prohibitive to encouraging sales agents in areas where the target population tends to live and where SMEs operate.

Onerous requirements for opening branch offices: The requirements are quite detailed in Section Three B: Amendments to license in the Regulations on Licensing. These apply to an insurer, insurance intermediary, reinsurer and insurance loss adjustor. The relevant regula-tions are in Appendix 4, and overall, given the potential remote location and informality of microinsurance clients, requiring a definite address (3.8 of Appendix 4), at least 2 full time employees (3.8.1), car registration (3.9.5.4 if mandatory auto is offered), a list of equipment and software to be used (3.9.5) and a bank account from a branch in the region (3.9.5.1), to name a few clauses, these may not be applicable or even relevant to the microinsurance operations. Also, since intermediation will most likely be through other businesses, only using the given name of the company (3.7 of Appendix 4) may be limiting. These requirements hinder insurance companies from establishing presence in remote areas where SMEs could be operating.

Loss adjuster requirements are too rigid: For the simpler insurance products, a loss adjuster may not be necessary as stated earlier and a research database may not be applicable as required in regulation.

2.28. “A company to carry out insurance loss adjusting business must have necessary doc-uments and research database required to perform its duties. Loss adjustor must have pro-fessional liability insurance coverage with at least 50 million MNT limit and renew it annually.”

The liability coverage may be out of proportion with the size of microinsurance policies, pre-venting opportunities to develop and offer products that meet the needs of SMEs.

Onerous financial reporting requirements for intermediaries: Chapter Five of the Regulation on Insurance Intermediaries indicates financial requirements for intermediaries. In the case of microinsurance, intermediaries may be small and simple and to encourage participation, regulations need to be adjusted proportionally, but still maintain sufficient monitoring and

17 (Geron, October 2013) 18 (Geron, October 2013)

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controls. These requirements will not encourage the participation of intermediaries who have the potential to reach SMEs.

5.1.4 Setting insurance valuation and premium

Premium development methodology: Regulations within the Methodology of setting insur-ance valuation and premium state a premium calculation methodology with the following

5. Confirmation of insurance premium (by FRC)

5.1 Financial Regulatory Commission reviews calculation of Insurance premium within 15 working days.

5.2.1 Calculation of Insurance premium shall be done by certified actu-ary

6.3 Research of risk possibilities should be done based on more than 3 years of statistics.

6.4 Insurer has to inform FRC when Insurance premium calculation made by different methodology.

6.5 If methodology chosen by insurer is disqualified, explanation and statement on formal document shall be delivered to insurer from FRC.

6.6 If insurer did not use qualified methodology which specified in the article 6.5 of this regulation, FRC has a right to charge the insurer with responsibility

In microinsurance, 3 years of statistics are likely not available for the population when the product is new and having approval may cause delays on product offers. It is important for companies to have a basis for pricing, and more importantly, to monitor the results to make necessary adjustments. It is preferable to not change premiums and coverage frequently, however microinsurance has the ability to adjust rates quickly as the product has rarely more than a one year guarantee. These information need to be considered when developing new products such as those for SMEs.

5.2 Industry perspectives on regulatory improvements needed

There is no current regulation aimed at inclusive insurance markets for SMEs, however the authors of the study believe any initiative for inclusive insurance will enable the development of the SME products that will meet the demand of the low income population.

Insurance companies interviewed for this assessment would like to see regulatory improve-ments in the following areas to implement inclusive insurance:

Distribution

o Permit the use of alternative distribution methods without detailed require-ments of setting up an office. The companies want modification to the branch requirements, i.e. not prescriptive.

o Alternative distribution methods have been proven an effective and cost effi-cient way to provide insurance products to clients.19

o Permit licensing of microinsurance agents with proportional educational re-quirements (since it will be a simple product)

Dialogue

o The insurance companies would like a platform to have regular dialogue with the regulator to discuss issues of common concern. The IAIS document “In-surance Core Principles, Standards, Guidance and Assessment Methodology” (12 Oct 2012) state, “The supervisor must recognise that transparency and

19

The traditional agency and selling one on one is the most expensive way to provide insurance. The cost of insurance is lower in markets that permit alternative distribution methods.

23

accountability in all its functions contribute to its legitimacy and credibility. A critical element of transparency is for the supervisor to provide the opportunity for meaningful public consultation on the development of supervisory policies, and in the establishment of new and amended rules and regulations. To fur-ther ensure the proper functioning of the insurance sector and promote trans-parency and accountability, the supervisor should establish clear timelines for public consultation and action, where appropriate”

Other issues mentioned by insurers that do not currently impact inclusive insurance include:

Reporting

o Companies want the same financial statement used for both regulatory report-ing and external audits.

o FRC is requiring higher liabilities compared to the calculations of the insur-ance company. As the authors of the study understand, after the normal tech-nical reserves of Unearned Premium, Incurred But Not Reported liablilites and Claims in Course of Settlement there is an additional liability calculated. Per-haps FRC is using this additional liability to ensure strong companies. The au-thors of the study would suggest a better methodology to ensure sufficient capital is to move to risk based capital level.

5.3 Recommendations for Regulatory improvements

To make the regulations more conducive for SMEs and for inclusive insurance, the authors of the study suggest following examples of microinsurance guidelines as established in Gha-na20 and the Philippines. These guidelines (i) lay out a framework for a definition for microin-surance, (ii) create incentives for those selling microinsurance policies, (iii) create accessible distribution channels for the target population, (iv) establish criteria for policy contracts, (v) simplify the claims process and (vi) create monitoring and evaluation mechanisms for proac-tive product management.

5.3.1 Establish a definition for microinsurance

Microinsurance products need to have guidelines to distinguish what is microinsurance and what is not, develop a specific framework for a lower risk category of insurance and provide additional protection for the specific client group21. A regulatory definition may inadvertently exclude target customers, providers, products and innovations, so it needs to be carefully considered. The IAIS in its 2012 Application paper22 suggests that:

i) Definitions focus on products recognizing that, although there may be the po-tential for dedicated microinsurers, all insurers should be eligible to issue mi-croinsurance products;

ii) Definitions that focus on microinsurers should clearly delineate microinsur-ance business from others and will require a definition of a risk catego-ry/product.

iii) Quantitative elements of definitions should be set at the highest possible level to ensure the defined product is as inclusive as possible;

iv) Quantitative elements should consider the need to align the resulting business profiles with the expected proportionate regulation and supervision.

20 (Ghana Market (Microinsurance) Conduct Rules Guidance Note on Approval process, 2013) 21 (Martina Wiedmaier-Pfister, 2014) 22 (IAIS, 2012)

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The authors of the study recommend that the onus be on the insurance company to identify that a product is microinsurance and state its case in written form to the regulator23 demon-strating that it adheres to specified criteria such as:

(i) designed for the lower income market (in general, specific segments of this market or an identified geographical region);

(ii) accessible for the identified market and

(iii) affordable for the identified market and value for the consumer (in regards to price, nature of risk and occurrence of risk)

It is essential that the insurer conduct a meaningful assessment that describes how the crite-ria are met, the basis for the criteria and the actions carried out by the insurance company that provided the information for their compliance. Therefore the product development pro-cess should be included along with a rating methodology. It is also important that those that are not in the defined target market are also allowed to purchase the policy and having poli-cyholders outside of the defined criteria does not nullify the microinsurance classification.

5.3.2 Create incentives for those selling microinsurance policies

The authors of the study suggest that special conditions are included in the regulations for microinsurance products to encourage sales to the target market.

Allow Group policies

Allow bundling for microinsurance products

Eliminate premium approvals

5.3.3 Expand the available distribution channels

Currently only licensed agents and brokers (including banks) are allowed to sell insurance in Mongolia. The authors of the study propose that regulatory changes allow for alternative dis-tribution channels in the selling of microinsurance. Therefore the authors of the study pro-pose:

Licensing microinsurance agents through relaxed training and certification require-ments and authorizing regular agents and brokers to sell microinsurance

Issuing regulations that allow for NBFIs, SCCs, cooperatives, non-profit organizations and any other organization that has direct and relevant access to the target popula-tion to distribute microinsurance products24

Relaxing regulations regarding the expansion of branch offices to areas selling micro-insurance to allow operations on a proportionate scale

Creating enabling legislation for use of mobile money in premium and claims pay-ments

Open the door for cooperatives and NBFIs to sell insurance.

5.3.4 Establish Market Conduct requirements

Given the unique characteristics of the target population, to facilitate better service and communication with the microinsurance policyholder, the authors of the study propose that regulations outline the simplification of processes and documentation such as:

23 As is the case for the proposed Ghana microinsurance regulations. 24 The variety of distribution partners for microinsurance globally is impressive. E.g. mobile phones, postal offices, retail

outlets, NGO’s, community based organizations, religious organizations, co-operatives, etc. Essentially any organization

having a link with the target client and having the capacity to administer the process.

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Setting criteria for simple policy contracts so they are clear and understood in easy to read language with minimal exceptions and complaints mechanisms clearly outlined. Ideally the policy should be only one page.

Relaxing claims process rules so a submission of the original policy and review by a loss adjustor or obtaining professional certification is not a requirement for claims documentation.

Permitting appropriate licensing for the distribution network to ensure clients are ex-plained the benefits and know how to claim

5.3.5 Establish Monitoring and Evaluation mechanisms

Monitoring and evaluation is essential for the ongoing assessment of inclusive insurance or any insurance scheme to SME. The authors of the study suggest that insurers and interme-diaries supply the FRC with financial data for microinsurance products on a quarterly basis with performance indicators. It is also suggested that the regulations outline guidelines and plans of action for the supervisor to follow when results and indicators reach critical levels. Regulators in insurance have used early warning indicators, in inclusive insurance a docu-ment has been developed to monitor they cover early warning indicators, Consumer Protec-tion and Prudential norms. The document Key Performance Indicators (KPI) for Microinsur-ance can be accessed at:

http://www.microinsurancenetwork.org/publication/fichier/KPI_MI_Handbook_v2_EN.pdf

These KPIs have been adopted by regulators in Asia and Africa, and have been referenced in IAIS documents.

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6 FINANCIAL LITERACY AND CONSUMER PROTECTION

6.1 Current environment for promoting financial literacy and consumer pro-

tection

There is a great need for a financial inclusion strategy in Mongolia that includes a financial literacy component, however “at present, low priority is given to issues related to increasing access to financial services (including insurance) due to more pressing financial system sta-bility issues” 25.

In 2010, ADB, in cooperation with ADRA (an NGO) and the National Cooperative Associa-tion, conducted a review of financial literacy levels among members of Savings and Credit Cooperatives, as well as the results of financial literacy training conducted earlier in the same regions26. They conducted interviews and focus groups in Arkhangai, Khentii, Omnogobi, and Selenge aimags. The primary conclusions from their study were that SCC members are fa-miliar with the basics of household budgets, but face some challenges of financial manage-ment and frequently need to resort to borrowing; members of the general population have a very low level of financial literacy and negative attitudes towards household budgeting. Par-ticipants expressed the greatest interest in TV “serial drama” approaches to financial literacy training, as well as classroom education sessions27.

As reported in the UNDP Capacity Development project report28 in 2014, “there is an in-creased awareness among the donor community and the government ministries on the im-portance of developing a more comprehensive strategy on financial inclusion which should include developing financial literacy in Mongolia”.

UNDP reports that there have been initial discussions with the MOF, FRC-Insurance De-partment and the Bank of Mongolia who have indicated their willingness to participate in a joint working group that will discuss crosscutting policy issues related to financial inclusion. At the date of the report, however, such joint working group had not yet been established29, there has been an initial meeting planned.

The participants of our Focused Group Discussions indicated a lack of understanding of in-surance, insurance products and how to make claims. There has been an effort by insurance companies to educate clients with advertisements, web sites and direct communications by agents. Clients indicate that in some cases agents do not explain products and options well enough. Insurance may be new to many people; the introduction of mandatory products has increased the focus on insurance. Clearly insurers have to better understand how their mes-sage is being received and recalibrate how it is delivered to improve consumer understand-ing.

The insurance carriers that the authors of the study interviewed have indicated that they are doing a lot of training and advertising to develop insurance. They were surprised by the comments from the Focused Group Discussions. The insurance companies do not want to commit to a joint effort but rather prefer to promote and market on their own. It would be best for a joint effort by insurers and FRC to educate the public on the basics of insurance. If this is the direction taken, the authors of the study would suggest that the public be surveyed to track their understanding of insurance.

6.2 Recommendations to improve financial literacy and consumer protection

In the Focus Group Discussions clients said they want insurance agents to explain the prod-ucts better and to discuss the alternative products. Based on the prior discussion, the au-thors of the study note that clients are confused about insurance and that they have con-

25

(Geron, October 2013) 26

(Batchuluun 2010) 27

(Kelly Rendek, 2011) 28

(Leith, 2014) 29

(Geron, October 2013)

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cerns about claims payment practices and financial security of companies. The mining sector of Mongolia may help to explain insurance with the organizations they work with.

A study conducted on behalf of the Microinsurance Network30, concludes that a sound con-sumer protection framework is one that:

Requires the issuance of a certificate to the insured, listing the name of the in-sured(s), benefit of the policy, the period of coverage, who to contact in the event of a claim.

Encourages each company sets up its own arbitration process and records all com-plaints.

Ensures the regulator reviews the complaint register periodically

This methodology is more efficient in lowering cost for all parties, is clear and transparent. For the regulator, it provides a clear path to monitor consumer complaints.

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Will be published in the near future

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7 CONCLUSION

Mongolia is expanding its distribution of insurance, as experienced in the last several years and as witnessed by the banks starting to sell insurance products. To effectively reach SMEs, in particular, and the wider population in general, greater flexibility would be required in regulations on agents, brokers and branch offices for insurance companies.

Growth in Mongolia is being fuelled, in part, by the valuable mineral resource sector and the growth of mining companies; this in turn is providing a robust environment for the SME sec-tor. SMEs are interested in several insurance products covering supplemental health, acci-dent benefits and small business packages. Mining companies can have a potential role in advocating inclusive insurance for their employees, partners SMEs and the community within which they operate.

The SME sector has the potential of 251,000 employers covering a total population of 1,000,000 including families of employees.

The introduction of mandatory insurance has increased the awareness of insurance but at the same time, has also created some level of confusion. A coordinated approach by the insurance industry to explain what mandatory insurance covers would reduce the confusion and increase the knowledge of the insurance products. This would provide an opening to expand to other products that would be in demand.

Potential clients are looking for transparent information on the soundness of the insurance companies. Requiring audited financial statements on the website of the companies can help increase the awareness as well as a publicity campaign by the industry and regulator on where to find the information.

Based on the research the authors of the study recommend three different benefits for SMEs

Health insurance for SME employees and families

Accidental insurance for employees and families

A SME business package for protection for property and equipment, from losses caused by fire, Natural hazards, water damage, power surge, and theft.

To reach the objective on inclusive insurance for SMEs and others:

FRC should consider:

o Defining an inclusive insurance product for SME and others based on qualita-tive measures

o Defining inclusive insurance as a simple policy

o Developing alternative consumer protection measures

o Developing monitoring processes based on Key Performance Indicators

There is a need to modify the regulatory regime to:

o Permit a variety of distribution channels

o Relax or change regulations on agents training and who can sell inclusive in-surance

o Reduce the requirements for branch offices

o Permit group insurance policies

There remains a need to develop the capacities of all participants in the insurance industry. Insurance companies need to increase actuarial, underwriting, distribution, claims, financial accounting, etc. The regulator needs to move towards risk based supervision and train staff and insurers to that skill level.

A periodic dialogue with regulators and insurers on the state of the insurance industry would be beneficial to all parties and especially the end client.

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APPENDIX 1: QUALITATIVE QUESTIONNAIRE FOR SME

Азийн бичил даатгалын зах зээлийн зохицуулалтын тогтолцоог дэмжих төсөл Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia (RFPI Asia) БАЙРШИЛ / LOCATION: ЭРДЭНЭТ / ERDENET ОГНОО / DATE:

22/23.04.2014

ЧАНАРЫН СУДАЛГААНЫ ХЭРЭГСЭЛ / QUALITATIVE SURVEY TOOL – ЯРИЛЦЛАГЫН УДИРДАМЖ / DISCUSSION

GUIDELINE

ЗОРИЛТОТ БҮЛЭГ / TARGET: СОНГОСОН ОРОН НУТАГ ДАХЬ БЖДҮ-Д / SME IN TARGET AREA

АРГАЧЛАЛ / METHODOLOGY: БҮЛГИЙН ЯРИЛЦЛАГА / FOCUS GROUP DISCUSSIONS

Ярилцлагад оролцсон хүний тоо / Number of participants in discussion group:

Доод тал нь / Minimum = 5

Дээд тал нь / Maximum = 8

Шаардлагатай техник хэрэгсэл / Equipment required:

6 цаг ярилцага бичих дуу хураагуур / Voice Recorder with 6 hours recording capacity

1. ТАНИЛЦУУЛГА/ INTRODUCTION (10 МИНУТ) 1.1

Ярилцлагад ирсэнд баяр хүргэх / Welcoming the respondent

Багийг танилцуулах / Introducing team. – ГОУХАН-ийн АБДЗЗТД төслийн болон АФЦ-ийн баг / GIZ-RFPI team and AFC team

Зорилгоо танилцуулах: ЖДҮ, бичил ААН эрхлэгчдийн бизнес, эд хөрөнгө, эрүүл мэнд, амь насанд нь учирдаг эрсдэлийг тогтоох, эрсдэлээс хамгаалах механизмыг, ялангуяа бичил даатгалын хамгаалалтыг тодорхойлох судалгаа хийж, засгийн газар болон даатгалын салбарт зохицуулалтын зөвлөмж гаргах зорилготой болно. / Introduction of Mission: The purpose of the study is to determine the risks faced by SME and micro business entities such as risks on properties, health and lives, to identity risk protection mechanisms es-pecially micro insurance and to make recommendations government regulation & insurance companies.

Тодруулга хийх / To underline:

- Хараат бус байдлын баталгаа / Assurance of independence: ГОУХАН/АФЦ нь аливаа даатгалын байгууллагыг төлөөлөхгүй. Судалгааны үр дүнг зөвхөн ЖДҮ, хоршоодын бизнесийн орчинг сайжруулах, шинэчлэхтэй холбоотой ЗГ-аас хэрэгжүүлэх арга хэмжээнд зориулсан зөвлөмж гаргахад ашиглах болно. / GIZ and AFCI are not representing any insurance company. Survey results are used only for the recommendations for government and insurance branch on micro insurance regulations.

- Нууцын баталгаа / Assurance on confidentiality. Таны хувийн хариултыг Хувь хүний нууцын тухай болон Статистикийн тухай хуулийн дагуу чандлан хадгална. Иймээс таны нэр, хаяг зэргийг аливаа тайланд дурдахгүй. / Your private opinion and answers be kept confidential in accordance with the Law on Confidentiality of Individual and Law on Statistics. Therefore your name would not appear in any report.

Ярилцлагад оролцогчдын товч танилцуулга (нэр, ААН-ийн үйл ажиллагааны чиглэлээ хэлэхэд хангалттай). / Short introduction of participants (name of participants and branches and business activity of entity).

1.2 Харин бизнест учирдаг аливаа эрсдэлийг ойлгоход хэрэг болох ААН-ийн үйл ажиллагааны

холбоотой зарим тоо баримт бидэнд хэрэгтэй. Үүнийг та бүхэн тусгай цаасан дээр өөрсдөө

бичнэ. (хавсралтыг харна уу /see annex) / However, to understand the risks faced by different sizes

of business entities, we need some data. For this reason each participant will be asked to fill in a short

form at the end of our meeting. But let us first discuss some general questions about risks for business

such as yours.

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2. ТОХИОЛДОЖ БОЛОХ ХЯМРАЛ, НӨХЦӨЛ БАЙДЛЫГ ҮНЭЛЭХ / ASSESSMENT OF CRISIS SITUATION AND

NEEDS (15 МИНУТ) Тэдэнд учирч болзошгүй эрсдлүүдийг ойлгох /Understand the unexpected shock/ risk affecting

them.

2.1 Эрсдлүүдийг жагсаах / Risk List

Шалгах асуултууд тавих (ярилцлагыг хялбар болгох, ойлголтыг олж авах зорилгоор) / Probing questions (to facilitate discussion and gain insight)

Таны ажил болон танай компанид хамгийн их санаа зовоодог санхүүгийн ямар эрсдлүүд байдаг вэ? / What financial risks are you most worried about in relation to your work and your company?

Санхүүгийн эрсдэл / Financial risks: Танай ААН-д ямар нэг урьдчилан тооцоогүй нөхцөл байдлын улмаас ихээхэн хэмжээний мөнгө шаардлагатай үе гарч байсан уу? / Can you think back, were there any moments in the life of your company when something unexpected happened and you needed a large amount of money for it?

- Ямар асуудал тулгарч байсан бэ? / What happened?

- Үйлдвэрлэлд шаардлагатай яаралтай ихээхэн хэмжээний мөнгөний асуудлыг хэрхэн шийдэж/шийддэг байсан бэ? (зээл авах, ойр дотны хүнээс зээлэх, ХЗХ эсхүл ББСБ-аас) / How you solve/solved unexpected financial problems? (Borrowed by bank, by relatives & friend, by SCC or by NBI etc.)

БУСАД УЧИР Ч БАЙСАН ЭРСДЭЛ / FACED RISKS: Сүүлийн 3 жилд бусад санамсаргүй эрсдлүүд танай байгууллагад гарч байсан уу? / Unforeseen costs / business risks occur in your business last 3 years: (Эрсдэлүүдийг бүгдийг жагсаан бичих / Write down all risks mentioned by the respondents.) - Бизнесийн салбарын онцлогоос шалтгаалан үйл

ажиллагаа тасалдах / Business Interrupt depending on sektor & branches

- Гэнэтийн осол (хүн гэмтэх, тахир дутуу болох, үхэлд хүргэх, өвчин г.м.) / accident (leading to temporary dissability, accident leading to permanent disability, to death, illness etc.) – жишээг нягтлан асуух – detailed questions to each examples

- Хөрөнгийн хохирол / Damage to property (гал, сүйтгэх, үер г.м. / fire, vandalism, flood etrc.)

- Хулгай / Theft of property Байгууллагын эд хөрөнгөөс гадна ажилчдын аюулгүй байдлыг хэн хариуцдаг вэ? / Who is responsible for the safety of workers beside properties of entity?

2.2 Эрсдэлийг эрэмбэлэх / Ranking of Risks

Гарч болзошгүй эрсдэлийн жагсаалтыг эрэмбэлэхдээ / Out of all the risks listed, which:

1) Хамгийн их санаа зовоодог байдал / Are you most wor-ried about?

2) Эдийн засгийн хувьд хамгийн их хохирол гарч болзошгүй / Causes the most financial stress?

3) Тохиолдох магадлал / Oc-curs most often?

Эрсдэлүүдийг ач холбогдлоор нь эрэмбэлэх / Rank the importance of each risk.

Дараа нь дээрхи жагсаалтын дагуу асуулт тавих / Then ask the question for each item in the list generated from above: Эрсдэлээс гарах зардал хир өндөр байсан буюу байдаг, ийм тохиолдол гарах болмж, давтамж /What was the cost to recover from each event and what is the frequency of occurrence of such an event?

3. ЭРСДЛИЙН УДИРДЛАГЫН СТРАТЕГИ, ДАВАН ТУУЛАХ АРГА / RISK MANAGEMENT STRATEGIES AND COP-

ING MECHANISMS (10 минут) Тэдний эрсдэлийг даван туулах стратеги болон урьдчилан хамгаалах системийг ойлгох

зорилгоор / to understand their mitigation strategies and preventions system & actions

3.1 Даван туулах механизм / Coping Mechanisms

Эрсдлийн даван туулсан туршлага / Mitigation Өнгөрсөн жилүүдэд учирч байсан яаралтай

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and Experiences: Яаралтай гэнэтийн

тохиолдолд хаанаас хохирлоос гарах мөнгө

олох вэ? / When an unexpected event or

emergency occurs where do you get the money

from to recover?

1) Хадгаламж / Savings 2) найз нөхөд, гэр бүл /Friends and Family 3) зээл / Loan 4) даатгал / Insurance 5) нэмэлт орлого олох өөр эх сурвалж олсон

/ Work more to generate additional income 6) Бусад / Others

гэнэтийн тохиолдлуудаа эргэн санана уу /Think back to an emergency that has occurred in the past years:

- Та юу хийсэн бэ? / What did you do?

- Хэнд, хаашаа хандсан бэ? / Where did you go? Who did you go to?

- Танд мөнгө олдоход хэцүү байсан уу, эсхүл шууд л мөнгө зээлүүлэх хүн, байгууллага олдсон уу? / Did you get the money straight away or with difficulties?

- Хангалттай мөнгөө тэгээд олж чадсан уу? Эсхүл зөвхөн нэг хэсгийг олсон уу? Тийм бол та юу хийсэн бэ? / Where there any oc-casion when you could not get the money or could not get the full amount you needed? If so, what did you do then?

- Шаардлагатай мөнгөө олж авахын тулд өөр юу хийж болох вэ? / What else can be done to get the necessary money?

Дорхи байгуулагуудаас алинаас нь зээл авах боломжтой гэж та ханддаг вэ? / To obtain as-sistance in case of emergency, if you need to obtain a loan from an institution which do you turn to: 1) ББСБ / NBFI 2) ХЗХ / SCC 3) Банк / Bank 4) Бусад / Other

Аль байгууллагад та нар илүү ханддаг вэ? Ямар байгууллагыг та яагаад бусдаас илүүд зээл авах боломжтой гэж үздэг вэ? / Which institution do you have the strongest preference toward? Why do you prefer that one over the others?

Энэ туршлагад үндэслэн та цаашид онцгой нөхцөл, хүндрэлээс урьдчилан сэргийлэх санаа, төлөвлөгөө төрж байна уу? / With this experience do you have any plan how you would cope with such emergencies in the future? Is there anything you could do to prevent that kind of emergency from happening in the future? /prevention action/

4. Attitudes towards Insurance/Даатгалд хандах хандлага (30 минут) Даатгалд хандах хандлага, мэдлэгийг ойлгох, болзошгүй саад бэрхшээлийг илрүүлэх. / Under-

stand awareness of and attitudes towards insurance and reveal potential barriers.

4.1 Даатгалд хандах хандлага /Insurance Awareness (10 минут)

Та бүхний хэлсэн зүйлээс үндэслэн гарч болзошгүй хүндрэлээс урьдчилан тодорхой хэмжээний мөнгөн хуримтлал байх ёстой гэж үзэж байна уу? / Considering all you have said so far, do you think you could anticipate some these problems and be prepared for them, in terms of money?

Ямар боломж байж болох вэ? Хэрэв хариулт байхгүй бол даатгалын тухай хүмүүс их ярьдаг болсон... гэсэн маягаар үргэлжлүүлэх. / What ways? If not mentioned spontaneously, prompt on: insurance by saying…. Many people talk about insurance.

Даатгалын талаар та юу мэдэх вэ? / What comes to mind when you think of insurance?

Та даатгалын тухай сонссон уу / юу мэдэх вэ, даатгал ямар давуу талтай гэж бодож байна вэ? Яагаад даатгал давуу талтай байдаг бол? Эсхүл даатгалыг яагаад дэмий гэж боддог вэ? / From what you know or heard about insurance, do you think it has any advantages? What are they? Why do you think these are advantages? What about drawbacks, do you think insurance has any? What are they? Why do you say that?

Даатгал ямар эрсдэлээс хамгаалдаг вэ? / What emergencies do insurance cover?

Даатгалын ямар төрлүүд байдаг вэ? Та даатгалын бүтээгдэхүүний талаар мэдэх үү? Та

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даатгалын бүтээгдэхүүний талаар хэр их мэдээллийг хаанаас авдаг вэ? / Are there different types of insurances? What are they? Are you aware of any insurance products? How did you hear about these products? Where from?

Та даатгуулахаар бол ямар даатгалын компанийг сонгох вэ? (даатгалын компаниудын талаархи ойлголтыг шалгах; орон нутгийн иргэд/байгууллага даатгалд итгэх итгэлийг ойлгох) / Where would you go to buy insurance? (Check perception on insurance company; to understand the level of trust in the insurance providers)

- Та орон нутагт даатгал санал болгож ямар нэг байгууллагын талаар мэдэх үү? Эдгээр даатгалын байгууллагуудын талаар юу мэдэх вэ? Эдгээр даатгалын алийг нь сонгох вэ? Ямар хэмжүүрээр яагаад алийг нь сонгох вэ? / Are you aware of any organi-zations offering insurance? What do you know about these organizations? How do you know about them? Would you consider insuring with any one of these? Which one? Why?

- Даатгал санал болгож байгуулагад та даатгуулахаас татгалзаж байсан уу? Яагаад шалтгаанаар татгалзсан бэ? / Would you re-fuse to insure with any one of these? Which one? Why?

4.2 Даатгалын талаархи туршлага / Insurance Experience (10 минут)

Та болон ажилчид ямар нэг даатгалд хамрагдсан уу? Ямар даатгалд хамрагдсан, яагаад энэ даатгалыг сонгосон бэ? / Did you or your employees insured? Where did you & they are insured? What has been your/their ex-perience?

Ямар төрлийн, аль компанид / What type of in-surance and from which insurance company? Хэрэглэгч байсан /past user: Яагаад даатгуулахаа больсон бэ? Тайлбарлуулах. / Why didn’t you/they continue with the policy? Explain. Одоогийн хэрэглэгч / Current users Даатгалын хугацаа дуусвал та үргэлжүүлэн даатгуулах уу, эсхүл даатгалын гэрээгээ дуусгах уу? Яагаад? / When it will come to an end, will you/they renew it? Why?

Та даатгалын нөхөн төлбөр авч ач тусыг мэдэрсэн үү? Эсхэл тийм хүнийг мэдэх үү? / Have you/or know of anyone that received benefits?

Туршлага / experience Даатгалын мөнгө авахад хир удаан байсан бэ? / How long was it before payment received? Ямар баримт бичиг бүрдүүлэх шаардлагатай байсан бэ? / What documents were required? Баримт цуглуулахад төвөгтөй байсан уу? / Were the documents easy to gather?

4.3 Худалдан авах чадвар үнэ цэнэ / Affordability and Value (10 минут)

Хэрэглэгч бус / non-user: Та даатгалд хир хэмжээний мөнгө төлөх боломжтой / хүсэлтэй вэ? / how much can / would you like to pay? Хэрэглэгч / user: Хир хэмжээний нөхөн төлбөрийг, хэдэн удаа, хэнээс авсан бэ? / How often was the premium paid? How much?

Хэрэглэгч бус / non-user: Хир олон удаа / тогтмол даатгалын хураамж төлөх боломжтой бэ? Та даатгалын хураамжаа хаана төлөх / хэнд төлөх сонирхолтой байдаг вэ? / If you were to take insurance, how much / how would you like to pay the premiums? Хэрэглэгч / user: Хир хэмжээний нөхөн төлбөрийг, хэдэн удаа, хэнээс авсан бэ? / How often was the premium paid? How were the pre-mium payments made and to whom?

Хэрэглэгч бус / non-user: Ямар нөхцөл байдалд та өөрийгөө даатгуулах вэ? / In which circumstances would you see yourself taking out insurance? Хэрэглэгч байсан /одоогийн хэрэглэгч / past/current users: Ямар нөхцөл байдалд та дахин даатгуулах вэ? / In which circumstances

Хэрэглэгч бус/хэрэглэгч байсан/одоогийн хэрэглэгч / non-user/past/current users: Хэрэв даатгалын таны тухайн хэрэгцээ, сонирхолд нийцсэн байх ёстой гэж үзвэл ямар хэмжээтэй, төрлийн болмжтой гэж үзэж байна? / If the insurance was to be adapted to your partic-ular needs and preferences, how should it be?

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would you see yourself taking out insurance again?

Таны бодлоор танай байгуулага эрсдэлээс хамгаалах зорилгоор даатгуулах нь зүйтэй юу? / In your point of view, should your entity be insured? Хэрэв даатгал шаардлагатай гэвэл ямар төрлийн даатгал танай ААН-д хэрэгтэй вэ? / Эрэмблэх / If YES, which insurance would you prefer/need? Please ranking sort of insurance.

Даатгнуулах сонирхол, хэрэгцээг эрэмбэлэх / Ranking of interest & needs on insurance:

Амь нас, аюул осол /Life and accident insur-ance

ЭМ-ийн нэмэлт / +Health

Барилга, байр сууц, үл хөдлөх хөрөнгө / Building, Property

Тоног төхөөрөмж, машин / Production equip-ments & mashines

Бүтээгдэхүүн / Products – Grop, agrar prod., livestock

Түүхий эдийн импорт, тээвэрлэлт/ Transport & import raw materials

Бусад бизнесийн ү/а-д гарч болзошгүй эрсдэл / Other Business interruption risks

4.4 Сургалт, сурталчилгааны материалын хэрэгцээ / Needs on awareness action & materials /takes few minutes/

Та энэ ярилцлагын эцэст даатгалын талаар нэмэлт ойлголттой болох, сургалт, зөвлөгөө авах сонирхол төрж байна уу? Хэрэв авахаар бол сургалт зөвлөгөөг ямар хэлбэрээр авмаар байна? / Did you interested after this discussion more for understanding of insurance, training and advisory service on business secure and insurance? Which form of training, advisory service and awareness materials would be inter-esting and or understandable for you?

Арга хэмжээ / actions:

- сургалт / Trainings

- биечилсэн зөвлөгөө / Individual advisory service

- мэдлэгт хэрэгтэй материалууд / awareness ma-terials:

- танилцуулга / flyer

- видео клип / Clips

- өврийн дэвтэр / booklet...

Ярилцлагыг дуусгах/Closing:

1. Оролцогсдын зүгээс асуулт байвал сонсох, хариулах / Questions from participants and answers to them.

2. Талархалаа илэрхийлэх / Thanks: Энэ хэлэлцүүлэгт цаг заваа гарган оролцсон та бүхэнд баярлалаа. Таны санал бодол Монгол улсын бичил болон ЖДҮ-ийн эрсдэлийг багасгах, бичил даатгалын хөгжилд үнэтэй хувь нэмрээ оруулах болно гэж найдаж байна. / Thank you spend time participating in this discussion! Your responses will be a valuable contribution to se-cure of SME development and also the development of micro business insurance in Mongolia.

Research tool developed by AFC Consultants International, April 2014

34

APPENDIX 2: QUANTITATIVE QUESTIONNAIRE (FILLED BY SME REPRE-

SENTATIVES)

Тохирох хариултыг дугуйлна уу / Please mark appropriate answers

1 Танай ААН-ийн хэлбэр Хувьцаат компани / joint-stock Co. ............................ 1 Legal form of your entity ХХК / Co. LTD .................................................................... 2

Нөхөрлөл, хоршоо / partnership, cooperative .......... 3 ХЭА эсвэл гэр бүлийн / proprietorship, family e. .... 4

2 Танай ААН гадны эсхүл гадаадын ................................................................................. Тийм / yes 1

хөрөнгө оруулалттай юу? Үгүй / no ............................................................................. 2 /any external or foreign direct investment

3 Тийм бол гадаадын эзэмшлийн хувь хэд вэ? / if yes, % of inv. rate………..….

4. Байгуулагдсан он / Founded in …………...

5. Ажилтны тоо / Number of employees ………..

6. Үйл ажиллагааны чиглэл, салбар .................................................................................ХАА / agriculture 1 (олон төрөлт байж болно) Уул уурхайд нийлүүлэгч / mining supply ................2 Specialized branch Боловсруулах / prod. ..................................................3 (can be multiple types) Цахилгаан, дулаан, усан хангамж / energy .............4

Барилга / construction ..................................................5 Жижиглэн худалдаа / retail trade ...............................6 Үйлчилгээ / service ........................................................7 Санхүүгийн үйлчилгээ / finance service ...................8 Нийгмийн үйлчилгээ / social service .......................9 Тээвэр / transport ..........................................................10 Бусад / other ....................................................................11

7. Борлуулалтын орлого 2013 онд Sales revenue 2013 ..............................................

8. Цэвэр ашиг 2014 / Net profit 2013 .................................. 9 . Танайх сүүлийн 5 жилд даатгалд хамрагдсан уу? Тийм ............................................. 1

Did you get insurance during last 5 years?.......................................................................... Үгүй 2

9а Хэрэв тийм бол ямар төрлийн даатгалуудад хамрагдсан бэ? If yes, what kind of insurance? ............... .................................................................... .................................................................................. .................................................................................. .... ..................................................................................

9б Хэрэв үгүй бол яагаад? .................................................................................. If no, why not? ..................................................................................

Танд их баярлалаа!/Thank you!

Research tool developed by AFC Consultants International, April 2014

35

APPENDIX 3: RISKS PERCEIVED BY FGD PARTICIPANTS

Risks (broad category) Number of participants who

mentioned this risk

owner's & family's acute serious illness & death (Health and Life)

21

fire & flood (Assets) 14

equipment damage eg. fence, equipment (Assets) 10

burglary & theft e.g.raw mat., products, equip., harvest (Assets)

9

key worker's illness & death (Health and Life) 9

Loss due to electricity shocks & heat & water piping of building (Assets)

8

rent & work place. E.g. legal guarantees f. contracts (Business Transactions)

7

Workplace accident (Health and Life) 6

transport, especially for sensitive goods (Assets) 6

climate risks (Assets) 5

farmers animals, e.g. illness & death (Assets) 3

employee liability e.g.from workplace errors (Business Transactions)

3

patent & technology (Assets) 2

raw material, seeds & crop (Assets) 2

employer liability (Health) 2

loan repayment schedules remain (Business Transac-tions)

1

borrower's illness & death (Health and Life) 1

customer liability. E.g food poisoning and injury (Business Transactions)

1

36

APPENDIX 4: PRODUCT DESIGN

MICRO HEALTH INSURANCE Policyholder Policyholder must be between the age of 18 - 65 years of age at the time of taking out or

renewal of the policy. Under family policy, husband or wife of the family shall be considered as a policyholder

Insured /Employees/ Employees and their family

Policyholder shall be considered as an Insured under single policy. Under family policy, all members are considered as insured(s). Under a group policy the employer can cover the employee or the employee and the family of the employee Age of the insured must be between 1- 65 years.

Cover for Health of the insured(s)

Coverage and premium

Premiums and limits under the plan applies to each insured. Family members included shall pay additional premium.

Period of insur-ance

Yearly renewable. Insurance company guarantees to renew the policy at the option of the policyholder provid-ed all premiums are paid up-to-date.

Plan: Inpatient Comprehensive Select

Daily cash benefit (prior authorization of insurer)

20,000 MNT per day 15,000 MNT per day

Maximum per stay 160,000 MNT 105,000 MNT

Exclusions: 1. Traditional medicine and treatment 2. Rehabilitation 3. Palliative /stabilization/ treatment

ACCIDENTAL DEATH INSURANCE Plan Inpatient Comprehensive Select

Adult benefit 800,000 MNT 600,000 MNT

Child benefit 300,000 MNT 200,000 MNT

General Exclusions Self-inflicted injuries or attempted suicide, alcohol or drug abuse are excluded.

Grace period Grace period 30 days with first policy, 0 days on renewal

MICRO SMALL BUSINESS PACKAGE

Policyholder Policyholder must have an active business in place

Cover for

Fires, explosions and implosions

Natural hazards

Water Damage

Electrical surge damage

Theft

Deductible 100,000 MNT

Co-insurance 70% of the loss will be paid by the insurance company, Theft 50% of loss will be paid by insurance company

Maximum Benefit 3,000,000 MNT

Payment options monthly or quarterly

Period of insurance

Yearly renewable

Insurance company guarantees to renew the policy at the option of the policyholder provided all premiums are paid up-to-date.

Risk Management Subjet to completing and agreeing to a risk reduction strategy

Exclusions

1. Business interuption by sickness or external events

2. Misuse of property and equipment

3. Replacement at depreciated value

4. Theft by family members or related parties

37

APPENDIX 5: REGULATIONS REGARDING OPENING BRANCH OFFICES

Regulations regarding opening branch offices 3.6. Insurance organization may have branch office and must get approval from the Committee prior to opening or closing of any branch. 3.7. Insurance organization’s branch may only use the given name of the company, and the operational scale and internal regulations shall be governed by the insurance organization itself. 3.8. Branch office of an insurance organization must define the geographical limit of its operations, have definite ad-dress and working place, have insurance professionals as management, and must keep financial accounting which is audited and consolidated into headquarters’ accounting statement.

o 3.8.1. Branch office must employ at least two full-time employees, hold a separate bank account, archive its insurance documents in accordance with related law and regulation. Insurance agents are recommended to give insurance seminars and promotions for Insured, and make claim deci-sions within limit approved by its headquarter. (this section was revised by FRC resolution#33 of Feb 15, 2012)

o 3.8.2. If a branch office will be involved in Driver’s mandatory insurance activities, it must have an emergency dispatch department that is able to receive calls 24 hrs on a landline, an automobile to be dispatched to accident site to adjust loss, and computer software and internet connection that are required to submit information into insurance database. (this section was revised by FRC reso-lution#33 of Feb 15, 2012)

o 3.8.3. Branch office management and employees or insurance agent may not be a ―public posi-tion holder‖as indicated in Article 3.1.4 of Law on Preventing conflict of interest in public sector by regulating public and individual interests‖ (this section was revised by FRC resolution#33 of Feb 15, 2012)

3.9. Insurance organization must submit the following documents to the Committee when requesting to open a branch office;

o 3.9.1. A written request to open a branch office and decree by insurance organization; o 3.9.2. Statement for each employee and management of branch office (as shown in Appendix 3 of

this regulation) (this section was revised by FRC resolution#33 of Feb 15, 2012) o 3.9.4. Annual business plan of branch office including action plan to hold insurance seminars and

promotion for insured citizens; (this section was revised by FRC resolution#33 of Feb 15, 2012) o 3.9.5. Workplace registration (lease agreement) of branch office’s operations, list of equipments

and software to be used; 3.9.5.1. Bank account number of branch office which must be opened in the same re-

gional location. (this section was revised by FRC resolution#33 of Feb 15, 2012) 3.9.5.2. Summary of organizational structure, human resource responsible for emergen-

cy dispatch operations of Driver’s mandatory insurance related incidents. (this section was revised by FRC resolution#33 of Feb 15, 2012)

3.9.5.3. Phone number of branch office, proof of internet connection, phone directory of insureds from the region; (this section was revised by FRC resolution#33 of Feb 15, 2012)

3.9.5.4. Notarized copy of registration of vehicle to be used for emergency dispatch. (this section was revised by FRC resolution#33 of Feb 15, 2012)

3.9.5.5. Statement about attendance in training given regards to information database. (this section was revised by FRC resolution#33 of Feb 15, 2012)

3.9.5.6. Draft of regulation regarding reimbursement of claim at branch office. (this sec-tion was revised by FRC resolution#33 of Feb 15, 2012)

o 3.9.6. The Committee may request additional documents. (this section was revised by FRC reso-lution#33 of Feb 15, 2012)

3.10. The Committee chairman will grant approval to open a branch if the Committee decides that Insurance organiza-tion’s solvency will not be weakened by opening a branch, there is no negative effect on Insureds, Insurer has suffi-cient resources and human capital to carry.

38

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