Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Mongolia Livestock Insurance Indemnity Pool
Document related concepts
Transcript
World Bank Catastrophe Risk Financing Seminar Washington DC October 27, 2005 World Bank Group Mongolia Livestock Insurance Indemnity Pool Olivier Mahul Senior Insurance Specialist Financial Sector Operations and Policy Department Country Agricultural Risk Management Agri-business segmentation Institutional capacity building Social vs commercial insurance Data management Regulatory/supervisory framework Information and education Technical expertise Agricultural Risk Financing Risk layering Insurance index Insurance pool Insurance and rural finance World Bank Group Country Agricultural Risk Management Traditional farming sector Emerging farming sector Commercial farming sector Agricultural risk assessment Probabilistic catastrophic risk model 2 National agricultural insurance pools may be a potential way forward Government Structured Relief International Donors Development Banks Government Capital Support World Bank Group Int’l capital and reinsurance markets Agricultural Insurance Pool Domestic Insurance Companies Rural Banks/MFIs Farmers/Herders 3 Action Plan World Bank Group Information and education Reduce widespread lack of insurance culture Enabling legal framework Provide incentives for selling and purchasing agriculture insurance Institutional structure Define the role of each stakeholder (farmers’ groups, government, domestic insurance industry, international reinsurance industry,, etc.) Data management Build an efficient data management system Technical expertise Contract design, rate making Financial capacity International markets, governments as reinsurers of last resort, etc. 4 Livestock Insurance in Mongolia 23 million heads (83% sheep and goat) About USD 1 billion of value Liv e stock losse s in M ongolia 20.00% 15.00% 10.00% 5.00% 2001 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 1979 1977 0.00% 1975 1973 The animal husbandry in Mongolia represents 87% of agricultural GDP and 30% of total GDP 11 million animals lost in 2001-2002 due to severe weather conditions (dzud) Livestock size in 2003: 1971 World Bank Group year % 2002 GDP % livestock value 5 Index Based Livestock Insurance Project Description World Bank Group Request from the Government of Mongolia The development of livestock sector is a priority Livestock exposure to catastrophic events (dzuds) Rationale for Bank involvement Global experience of innovative approaches to insurance for catastrophic events and index-based insurance Complements the ongoing Sustainable Livelihood Project Lending operation 3 year pilot program IDA Specific Investment Loan of US$7.75 million approved in May 2005 Contingent debt facility of US$5 million 6 Index Based Livestock Insurance Objectives Affordable and effective insurance Simple and stable structure for implementation in the short run that allows for flexibility in the future Ring fence livestock insurance business Provide affordable and effective livestock insurance to all herders on a voluntary basis Flexible institutional structure World Bank Group Insulate the domestic insurance industry from catastrophic livestock losses Ensure timely, full indemnity payments (no default risk) Foundation consistent with the new regulatory environment Limit government financial exposure 7 Insurance Index Selection Individual livestock insurance Impossible to know who owns which animals Moral hazard, adverse selection, high administrative costs Weather insurance World Bank Group Incomplete and unreliable historical weather data Complex relationship between weather events (dzuds) and livestock mortality Index-based mortality insurance Detailed annual animal census (by sums and species) Adult animal mortality data organized and audited every year 34 years of data 8 Livestock Risk Layering World Bank Group 100% mortality Disaster Response Product DRP : Social insurance 30% mortality BIP : Commercial insurance Base Insurance Product Retained by Herders and Banks 10% mortality Monetary compensation in case of extreme catastrophic events Herders pay small fee Funded by GoM and donors Voluntary participation Sold by approved commercial insurers Regulated by GoM Herders pay a commercial insurance premium Voluntary participation 9 Livestock Risk Financing Objectives of Financing structure World Bank Group Protection of insurance companies for too much exposure when selling BIP Protection of other lines of business Protection of herder premiums Assurance that all indemnity payment are paid in full Livestock Insurance Indemnity Pool Contractual arrangement between the participating insurance companies and the Government Pre-paid indemnity pool Compulsory unlimited reinsurance provided by the Government at fair price Incentives for insurers to collaborate 10 Livestock Insurance Indemnity Pool World Bank Group Loss frequency 3-5% Disaster Response Product Government reinsurance stop loss Base Insurance Product Livestock Insurance Indemnity Pool World Bank Contingent Debt Facility Reinsurance premiums Herders’ insurance premiums net of reins. prem. GIC 15-20% Herders’ selfretention 11 Livestock Insurance Indemnity Pool World Bank Group WB Credit or GoM Resources DRP & BIP DRP fees DRP Reserve DRP DRP Reinsurance premiums BIP BIP Reserve Reserve LIIP LIIP Risk -loaded premium paid into LIIP Risk -loaded Account Account Equal to Equal to BIP BIP premium 105% of 105% of risk - loaded risk - loaded BIP premium Insurers paid GIC Insurers’ GIC BIP premium Insurers’ GIC into LIIP March t April - June August July t+1 12 Livestock Insurance Indemnity Pool World Bank Group Small and medium collective insured losses Unlimited stop loss Insurers’ profit LIIP reserves Insured losses Large collective insured losses Unlimited stop loss LIIP reserves Insured losses 13 Pilot Aimags World Bank Group Key objectives Uvs Khenti Bayankhongor Bayankhongor Khentii Uvs # animals 1.2 mm 1.4 mm 1.5 mm Value at risk (US$) 33.5 mm 55.3 mm 43.8 mm Average AL (% VaR) 5.7% 4.7% 5.1% Std AL (% VaR) 7.1% 3.3% 3.3% Test the product design Learn if herders will buy the insurance Learn if insurance companies have an interest in selling and the capacity to manage this unique insurance 14 IBLI: Risk financing strategy World Bank Group LIIP net position Probability exceedance curve 100% 80% 60% BIP reserve - ne t positi on Probability exceedance curve 40% 100% 20% 95% 0% 0 50,000 Financing from the World Bank Contingent Credi t Facility 90% 150,000 200,000 250,000 Probabilit y Exceedance Curve 100,000 85% US$ 40% 80% 35% 75% 30% -220,000 25% -170,00020% -120,000 -70,000 70% -20,000 30,000 80,000 US$ 15% 10% 5% 0% 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 US$ 15 Long Run Transition World Bank Group Transition out of pilot phase is subject to pilot performance Greater market integration Move towards commercial reinsurance Increase responsibilities of insurance companies and government regulatory agency Integration with microfinance and NGO initiatives 16 Challenges for Long Term Sustainability World Bank Group Creating effective rules and regulations Strengthening insurance industry Strengthening insurance supervision Accessing the global reinsurance market Linking premium rates to stocking rates Improving the quality and verification of the official livestock statistics Educating stakeholders: herders, insurance companies, government Creating incentives for the insurance market to sell, service, and share risk in Mongolian livestock insurance 17 World Bank Group Thank you for your attention 18
