**Page 10**

**Livestock Insurance in Mongolia**

2. Recording and monitoring of offspring losses are more difficult compared<sup>tothatof</sup> adult animals. In Mongolia, statistics on animal numbers are based<sup>on thelivestock</sup> census data carried out in December each year. However, data on offspring,<sup>whichare</sup> delivered from February to June, are based on reporting during the<sup>year, whichare</sup> less reliable than the final livestock census data.

3. Inclusion of offspring loss rates makes the calculation of the<sup>lossratemore</sup> complicated. Calculation of the loss rate as a ratio of total losses incorporating<sup>losses</sup> of both adult animals and offspring to the number of animals at the beginning<sup>of year</sup> might be criticized mathematically. The number of offspring does<sup>nothavedirect</sup> relationships with the number of animals at the beginning of year. A<sup>separate index</sup> relating the ratio of offspring losses to the total number of offspring<sup>births mightbe</sup> possible but is well beyond the scope of any recommendation at the<sup>presenttime.</sup> All the data on animal numbers at the beginning of year and<sup>animallossesare</sup> collected from the Central Statistics Board of Mongolia. The process of collecting<sup>datais</sup> quite involved and has been in place for well over thirty years. Each<sup>sumhasrecordsof</sup> the herder household and animal numbers by species for each household.<sup>Sum and bag</sup> governors are responsible for administering the census and for maintaining<sup>these records</sup> in good order.

Individual herders are responsible for reporting losses to the bag officials.<sup>Losses</sup> include all animals that have died due to dzud or other natural disasters<sup>(flashflooding</sup> was mentioned as being a problem as well). Losses also include death<sup>ofanimalsdue to</sup> disease, theft of animals, and animals who have wondered off during<sup>stormsneverto</sup> retum. While there may be some initial concem about including all of these<sup>numbersin</sup> the insurance index, since this is an index and not individual insurance,<sup>thereshouldbe</sup> no real problem. The theft and lost animals values are a relatively small<sup>percentageof</sup> the total number of animals lost during a year. Professionals in the sum of<sup>Undurshireet</sup> estimate the value at about 10% of the total number of losses.

Theft is rightly considered an uninsurable risk in the current<sup>system.Noone</sup> wants to encourage herders to be careless in protecting their animals from<sup>theftsorin</sup> making certain that animals do not wonder off. Offering insurance based<sup>ontheaverage</sup> losses for the sum or bag will not encourage this behavior. The watchful<sup>herderhasthe</sup> same incentives to be diligent since they will be paid only based on the<sup>sum averageloss</sup> rate. By the same token, the negligent herder who allows large numbers<sup>of animalsto</sup> wonder off or be stolen will not be compensated beyond the sum average<sup>loss rate.Thus,</sup> the incentives for good management remain soundly in place. Furthermore,<sup>thetheft</sup> rates are likely relatively constant from year to year. Thus, their inclusion in the insurance index neither creates an incentive problem nor a rate making<sup>issue.One would</sup> not want theft variation to cause rates to increase since the index is being<sup>constructed</sup> primarily to compensate herders for losses due to natural disasters and disease.

It is extremely important that the data integrity be maintained. It<sup>isalsohighly</sup> significant that Mongolia does a complete census of all animals each<sup>year.Thisaffords</sup> the important opportunity to audit reported losses from one year<sup>tothenext.</sup> Bag