The year 2014 marks the 80th year of the Mongolian insurance industry, one that has seen a rapid growth in the last five years as the country’s economy similarly experienced growth spurts largely due to a booming mining industry. From 2009 – 2013, collections of insurance premiums grew from USD 13.2 million to USD 52.8 million (a 300% expansion). In the last 13 years, insurance density had skyrocketed from 1.7% to 19%. But insurance penetration has only minimally changed in the same period, from .40% to .54% by 2013.
The Financial Regulatory Commission (FRC), the country’s insurance regulator and supervisor, has recognized that while the industry has rapidly grown, this growth has been stalling. The FRC points to stumbling blocks such as the lack of public understanding about the insurance sector, the shortage of professional insurance personnel and the limited product options on offer as causes of the slowdown.
The market tends to cater to corporate clients while retail opportunities are only minimally explored. In a country where the nomadic tradition still pervades and where the economy is helped by small and medium enterprises, the insurance industry needs an exposure to innovation.
The Inclusive Insurance Forum organized in April by the United Nations Development Programme Mongolia, in partnership with the FRC and the Ministry of Finance, symbolized a widespread recognition that new insurance concepts are becoming a reality in the Mongolian market. The forum sought to highlight the novelty of the “inclusive insurance” concept in the country by convening international insurance experts, international insurance regulators, technical insurance experts and development agencies, Mongolian political and business leaders, Mongolian insurance companies and financial sector stakeholders.
“There is demand to bring insurance to the wider population and we need to ensure that products are sound and safe. We have urgent needs to meet,” stated Mr. Ulaan Chultem, Member of Parliament, Ministry of Finance.
In her opening remarks, UNDP Mongolia Resident Representative Ms. Sezin Sinanoglu pointed out that “while the forum topic is inclusive insurance and microinsurance, our overall goal in inclusive growth and poverty reduction.” According to latest National Statistics Office data, the national poverty rate of the country is pegged at 28% out of the total 2.8 million population.
From novelty to industry practice
Since 2009, the UNDP has been supporting the Mongolian government to improve its insurance sector through a five-year technical assistance project with the FRC. As the project closes in May 2014, how else can “inclusive insurance” transition from a mere novel concept into action and impact? In many instances, the sustainability of such novel development initiatives dims as donor support ends.
GIZ Regulatory Framework Promotion for Pro-poor Insurance Markets (GIZ RFPI Asia), a regional program funded by the German Federal Ministry of Economic Cooperation and Development, aims to take the baton from the UNDP and sustain the inclusive insurance dialogue until the concept graduates from a mere rhetoric piece to a mainstream market practice.
Since 2013, GIZ RFPI Asia has been collaborating with the FRC to understand the evolving situation and needs of the insurance regulatory environment and strategize its enhancement for the incorporation of the inclusive insurance paradigm. FRC personnel have participated in peer-to-peer exchanges and other capacity building activities with other regulator-partners of RFPI Asia from Nepal, Indonesia, Philippines, Thailand, and Vietnam.
The relative nascence of the country’s insurance industry is somehow manifested by the absence of regular consultations and dialogues between the regulator and the providers. “GIZ RFPI Asia is committed to sustaining the inclusive insurance efforts and discussions initiated by the UNDP. Together with the FRC and the insurance industry, we hope to boost interest in and commitment to inclusive insurance in Mongolia,” stated Senior Advisor Diana Almoro at the forum.
A number of inclusive insurance issues in Mongolia have been documented through the dialogue platforms facilitated by donor support. Distribution, particularly outside of Ulaanbaatar, is still limited. Expanding the channels require additional administrative costs for the insurance companies and more flexible regulatory provisions. The licensing of four banks to become agents is one positive sign for insurance distribution especially since banks have a wide presence throughout the country.
Consumer protection measures also need further understanding to inform concrete actions by both the regulator and the insurance companies. The country’s history and religious traditions are considered major factors in the public’s low trust in insurance companies – evidence of the prevailing low level of understanding of risk protection and insurance. Additionally, insurance company representatives themselves admit to the weakness of the sector in underwriting and product development.
One other urgent, but often underestimated, challenge is to continue the discussion of these issues until all relevant stakeholders internalize the importance of inclusive insurance and the opportunities it carves. RFPI Asia will strive to sustain the discussions by engaging more actors, linking them with the initial inclusive insurance work and strengthening a multi-stakeholder cooperation already initiated by the MoF, FRC and development organizations.