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**Livestock Insurance in Mongolia**

The existing livestock insurance is offered<sup>by Mongol DaatgalCompanyand one</sup> other state owned company. This parastatal<sup>insuranceisacarryoverfromtheprevious</sup> regime. The participation is quite low,<sup>evenin the caseof an area whereit wasrequired</sup> as a condition after getting special loans<sup>for restocking.Fewherdersreallyunderstand</sup> the current program and the overall uptake<sup>appearstobeaslowasafewpercentage</sup> points. For those herders who have considered<sup>thisinsurance,premium chargesare</sup> considered too high. A 6 percent premium<sup>rateischargedtoall herders,regardless of</sup> where they operate. The relative risk<sup>oflivestocklosses varies greatlybyregion. The</sup> payments for this general herd insurance<sup>are100%ofinsuredvalue less anyproceed</sup> from sale of skin and bones when the animal<sup>diesfrom weather related causes.Evidence</sup> of poor weather must be provided by the sum<sup>Meteorologicaloffice.</sup> Even if the existing insurance company<sup>hadalargeuptake,itishighly</sup> questionable that the program would<sup>besuccessful.Thereisnoreinsuranceforthe</sup> program and management of the program<sup>freelyadmittedseriousconcerns aboutthe</sup> viability of the program even to the point<sup>ofindicatingthat therewaslittle desiretoget</sup> more participation for fear of major<sup>loss.</sup> These fears are well founded given<sup>the</sup> covariate risks that are present in livestock<sup>losses.</sup> This principle will be further described and analyzed below. However, the estimate of the losses<sup>for2000</sup> demonstrates the point. The premium<sup>valuewas roughlyTg40million.Indemnities</sup> were about 4 times the premium value<sup>atroughly Tg160million.</sup> Given that the livestock herd in Mongolia is worth in<sup>excessof Tg1 trillion,a Tg 40 million premium is</sup> an extremely small fraction of the value (far<sup>lessthan evenone tenth of1%).</sup> Given recent livestock losses, it is not<sup>surprisingtolearnthatinterestamong</sup> herders about livestock insurance is growing.<sup>TheGobiInitiativedidinterview146</sup> master herders from Umngovi, Dundgovi,<sup>Uvurkhangal andGovi-Altai aimagsabout</sup> their interest in livestock insurance. Only 5% of these herders had any<sup>previous</sup> experience with buying livestock insurance. When ask about their interest in such insurance: 49% said they were interested;<sup>32%wouldprobablybuy;and17%said they</sup> were not interested. However, the willingness<sup>topaywasrelativelylowwithpremium</sup> rates at around 3% of value insured. For<sup>the questionaboutwhatshould bea reasonable</sup> cost of insurance for those who said<sup>theywere interestedtheresponseswere:11%</sup> checked less than 1%; 51% checked<sup>1%to3%;25%checked4%to7%;and12%</sup> checked 10%.

While these results are interesting, it is<sup>importantnotto make too muchof them.</sup> First, this is not a random sample. These are the master herders who were<sup>seeking</sup> information by attending a conference.<sup>If there isa biasitis likelythat theinterestand</sup> willingness to pay are biased upward above<sup>the generalpopulationof herders. Second,it</sup> is not surprising to see large uptakes in<sup>agricultural insurance immediatelyfollowinga</sup> disaster. Several references are made in a number<sup>ofreportsabout herders being</sup> complacent about natural disaster after<sup>experiencingseveralyearswithnoproblems.</sup> This is also quite common with agricultural<sup>insurance.Thisalsospeaks totheneedto</sup> design an insurance alternative that will<sup>makerelatively frequent paymentsifpossible.</sup> Having some level of payments frequently<sup>willhelp assurethatherderscontinueto</sup>