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**Livestock Insurance in Mongolia**

purchase the insurance. Third, it is really difficult to gauge the true<sup>willingnessto payfor</sup> insurance until someone is provided the specific details about<sup>howtheinsurancewill</sup> work. That being said, a target premium rate in the 3% to 5% range<sup>isa reasonabletarget</sup> for herders who are short on cash. The current insurance is not<sup>aggressivelymarketed</sup> even though there are 27 branches of the Mongol Daatgal<sup>Company, withatleastone</sup> branch in every aimag. We were told that these agents currently<sup>concentrateonother</sup> lines of insurance. Their presence in each aimag is important<sup>nonethelessforanynew</sup> initiatives in livestock insurance.

The parliament recently rejected an expanded livestock<sup>insuranceprogramthat</sup> would make it mandatory for livestock herders to<sup>insuretheir breedingstock.Two</sup> reasons were given for this decision by parliament: 1) livestock<sup>are nowprivately owned</sup> and the government can't force owners to insure;<sup>and2)thegovernmentcan'tforce</sup> private companies to offer insurance that is too risky and<sup>willbankruptthem. One herder</sup> summed the concerns up best when he said, "maybe<sup>it isbetterforme tospendmy</sup> money on forage than insurance". Forage is a form of insurance and this herder's instincts are likely correct.

The livestock insurance legislation is currently being redrafted<sup>withinthe Ministry</sup> of Food and Agriculture (see Appendix A for an unofficial<sup>translationof thecurrentdraft</sup> legislation). As will be more fully developed below, mandatory<sup>insuranceishighly</sup> questionable given the likely problems with actually<sup>classifyingherderrisk.</sup> Some herders have a higher likelihood of loss than others,<sup>evenhigher thantheir neighborswho</sup> are herding in the same region. These higher risk herders<sup>aredifficulttoidentify.The</sup> current system makes no attempt to differentiate these<sup>risksand priceaccordingly.Thus,</sup> if all herders did purchase the current insurance policy,<sup>theherderswhoarebetter</sup> managers would be paying for the losses of those who<sup>arepoorer managers.Thecurrent</sup> draft of legislation would charge a flat 2% rate<sup>3</sup> . Given<sup>thedataonmortality,thisrateis</sup> highly questionable. The rate appears to be woefully inadequate for the risks<sup>thatare</sup> being insured. No private insurance company is likely<sup>towanttoengageinsellingthis</sup> insurance. Furthermore, it is highly unlikely than any<sup>reinsurerwouldbeinterestedin</sup> coming to Mongolia with these rates and this<sup>system.</sup> While the argument is that with full participation there<sup>wouldbe someeconomies</sup> of scale and an improved pooling of risk, neither of these<sup>benefitsislikelytobe realized</sup> with mandatory livestock insurance. The incremental costs<sup>of deliveringand monitoring</sup> an individual insurance program are likely to be similar<sup>regardlessofthenumberof</sup> herders insured. Further, while there are some gains<sup>to bemadeinpoolingtherisksof</sup> livestock losses across Mongolia, there is still a very<sup>largecovariantrisk thatwould</sup> create serious reinsurance problems for the current system.

3 There was some indication that the 2% value had been increased<sup>to 4%.However,thisisnot confirmed.</sup> Even 4% is unlikely adequate to support a totally private<sup>market policy withthe coverageoutlinedin</sup> Appendix A. Someone inside the Ministry has done some analysis<sup>onthis issue.However,wewere not</sup> able to locate them and learn about this analysis.