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**Livestock Insurance in Mongolia**

community investment funds might be used by<sup>sumsto purchase thesecontracts.The</sup> important issue for the community is what are the<sup>relativecostsofpurchasing these</sup> contracts versus holding some fiscal reserves for these<sup>typeof livestock disasters?</sup> Given the design of these contracts, there is every<sup>reasonto allowany entitythat</sup> has an insurable risk to purchase a mortality index<sup>contract.This wouldnot createan</sup> underwriting problem and it cannot create extra losses<sup>sinceit is an index.The banks and</sup> input supplies may be interested in directly<sup>purchasingthiscontract.</sup> Both have a portfolio of risk that is directly tied to the well<sup>beingof the herders.Many others in the</sup> community may also have their income and well-being<sup>directly tiedtothewell-beingof</sup> the herders.

# _Alternative Roles for Government_

What is presented here are some basic ideas. There<sup>aremanypossibleroles for</sup> government. Until there is more interaction with<sup>policy makers andothersaboutthe</sup> desired course of action, it is premature to develop<sup>this muchbeyond somebasicideas.</sup> Work performed for the government of Argentina<sup>couldbeusedasabasicmodel for</sup> government role. The key aspect of whatever<sup>rolethegovernmentplaysisthatitbe</sup> limited and that it be structured to spur private<sup>insurance marketswithoutgivingthe</sup> insurance markets too much opportunity for<sup>rent seeking.</sup> A number of alternative roles for government are<sup>possible.Atoneendofthe</sup> spectrum, the only involvement may be to continue<sup>tosupportdevelopmentoftheloss</sup> data and the census coupled with the appropriate<sup>regulatoryframeworkthat allows these</sup> index contracts to be developed and sold by the<sup>privatesector.Atthe otherendof the</sup> spectrum, a relatively basic (and low value) index<sup>contractcouldbe soldandreinsured</sup> directly by the government in such a fashion<sup>thatwould facilitate some catastrophe</sup> protection for herders and at the same time<sup>spur privateinsurance companiestooffer</sup> additional insurance coverage. No matter what<sup>course is takenthegovernmentmust</sup> remain involved in developing the loss data<sup>andthecensus population.</sup> This infrastructure is key to the success of this concept.

If the government could afford to make this index<sup>insurance availabletoall</sup> herders at a pure premium rate, the total cost to<sup>the governmentmaybeaboutTg10</sup> billion. Under such conditions, the herder would<sup>payforabasicpolicywith premiums</sup> that just equal the expected payouts (indemnities).<sup>Thegovernment would payforthe</sup> reinsurance and the administrative cost. If such<sup>anapproachweretriedit wouldbe</sup> critical to offer insurance only at the expected<sup>valueoftheanimalsforthebasic</sup> government policy. Further, it would be important<sup>tocreateincentivesfor theprivate</sup> insurers to offer more insurance. For example<sup>theprivatecompaniescould beallowedto</sup> sell the government insurance only if they offered<sup>some additionalvalue.Otherwise,the</sup> basic policy would be available for herders who<sup>wantno more insurance coveragethan</sup> what is provided with the government policy.<sup>Otherdelivery channelsforthe basic</sup> policy may be considered.