THE SOCIETY OF ACTUARIES OF MONGOLIA
The role of the Actuary in Microfinance
Ulan Bator, Mongolia
14-15 November 2011
Kirsten Armstrong
МОНГОЛЫН АКТУАРЧДЫН НИЙГЭМЛЭГ
THE SOCIETY OF ACTUARIES OF MONGOLIA
Agenda
• What is micro-finance?
• What is micro-insurance?
• What should actuaries do in the sector?
• A case study
• Specific challenges
THE SOCIETY OF ACTUARIES OF MONGOLIA
What is Microfinance?
• Basic financial services to poor & excluded• Innovating to meet needs:
Eg: Mobile phone banking for remote communities
• Savings, credit, money–transfer, insurance
• Target groups:– Micro Entrepreneurs
– Small and medium-sized enterprises
THE SOCIETY OF ACTUARIES OF MONGOLIA
Social Goals more important than profit
Mission: To contribute to the socio-economic development of the country while creating a fair value for its shareholders. This will be achieved by providing inclusive, value adding, and reliable financial services to all people and entities of Mongolia through establishing a leading financial institution that is equally concerned about Planet, People, and Profit.
XAC Bank
THE SOCIETY OF ACTUARIES OF MONGOLIA
Microfinance in Mongolia
Loans US$914.7 million
Borrowers 390,000
Deposits US$1.2 billion
Depositors 1.8 million
MFIs 6Hugjil badrakh, VFM, TFS, Khan Bank, Credit Mongol, XacBank
Regulator Bank of Mongolia Source: Mixmarket 2010
THE SOCIETY OF ACTUARIES OF MONGOLIA
What is Micro-insurance?
• Targetted protection for low-income people
• Simple
• Affordable
• Work best when supported with advice & innovation
* Microinsurance is still in development.*
THE SOCIETY OF ACTUARIES OF MONGOLIA
Product Groups
Crop Insurance
Health / disability insurance
Annuities / endowment
Property
Term life
Credit life
Complexity
THE SOCIETY OF ACTUARIES OF MONGOLIASlide 9
Case Study:Health insurance in India’s slums
62 million people live in India’s slums.300 million people in India live in poverty.
Health care is limited & basic.
THE SOCIETY OF ACTUARIES OF MONGOLIASlide 10
Micro health insurance
• Covers insured people in Pune’s slums
• Annual premium: 60 rupees ($2)
• Reimburses max 5,000 rupees hospital costs
• Other benefits• health camps, discounts, 24 hour hotline
• More than 60,000 members
• Scheme expanded to other slums
THE SOCIETY OF ACTUARIES OF MONGOLIASlide 11
Community-based decision-making helps manage risk.
Some benefits remain discretionary→ minimises solvency requirements.
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Local systems can be basic – simplicity essential
Performance monitoring at the community level
THE SOCIETY OF ACTUARIES OF MONGOLIASlide 13
What did I do?
• Supported product redesign
• Pricing model
• Performance monitoring tool
• Minimum Solvency requirements
• Reviewed accounting procedures
• Advised on data requirements…All in a three week visit….
•
THE SOCIETY OF ACTUARIES OF MONGOLIASlide 14
Other roles for actuaries
• Identifying needs, gaps and opportunities
• Risk Management
• Reserving / outstanding claims valuation
• Forecasting
THE SOCIETY OF ACTUARIES OF MONGOLIASlide 15
Original Benefit Structure
2007 2008
HMF Option 1 Option 2 Option 3 Option 4-
Contributed
Basis 60 100 150
Family 2+2 240 400 600
Child 60 100 150
Prem
ium
Individual 100 150 200
Max Benefit
5,000 15,000 45,000 35,000 50,000
Payable
80% of Health
Event Bills up to
80% of Health
Event Bills up to:
80% of Health Event Bills up to:
L1: 50% of Health
Event Bills up to:
L2: 80% of Health
Event Bills up to:
80% of Health
Event Bills up to:
Special 5,000 15,000 50,000 5,000 30,000 50,000
General 2,500 5,000 20,000 -5000RS deductible 5,000 15,000 20,000
Sub L
imits
One Day 1,000 1,000 3,000 3,000 5,000
Benefit
s
OPD Discounts
none 50% discount coupon on Consultations with local OPD provider
40,000 claim
5000 reimbursed
5000 claim
4000 reimbursed
THE SOCIETY OF ACTUARIES OF MONGOLIASlide 16
2008
Option 2 Option 3 Option 4-
Contributed
Basis 100 150
Family 2+2 400 600
Child 100 150
Prem
ium
Individual 150 200
Max Benefit
45,000 35,000 50,000
Payable 80% of Health
Event Bills up to:
L1: 50% of Health
Event Bills up to:
L2: 80% of Health
Event Bills up to:
80% of Health
Event Bills up to:
Special 50,000 5,000 30,000 50,000
General 20,000 -5000RS deductible 5,000 15,000 20,000
Sub L
imits
One Day 3,000 3,000 5,000
Benefit
s
OPD Discounts
50% discount coupon on Consultations with local OPD provider
Option 2
40,000 claim
28,000 reimbursed
5000 claim
nil reimbursed
THE SOCIETY OF ACTUARIES OF MONGOLIASlide 17
2008
Option 3 Option 4-
Contributed
Basis 100 150
Family 2+2 400 600
Child 100 150
Prem
ium
Individual 150 200
Max Benefit
35,000 50,000
Payable
L1: 50% of Health
Event Bills up to:
L2: 80% of Health
Event Bills up to:
80% of Health Event
Bills up to:
Special 5,000 30,000 50,000
General 5,000 15,000 20,000
Sub L
imits
One Day 3,000 5,000
Benefit
s
OPD Discounts
50% discount coupon on Consultations with local OPD
provider
Option 3
40,000 claim
29,000 reimbursed
5000 claim
2500 reimbursed
THE SOCIETY OF ACTUARIES OF MONGOLIA
Unique aspects for Actuaries
• Poor data: how to price? How to manage uncertainty?
• Keep costs down : offer simple tools
• Short tail products; focus on
– Pricing
– Good monitoring systems
– Outstanding claims valuations are less important
• Design products with risk management levers
– Don’t want to end up needing big solvency reserves
THE SOCIETY OF ACTUARIES OF MONGOLIA
Unique aspects for Actuaries
• Always ask: Is this meeting social needs?• Measure social outcomes as well as financial
outcomes• Do you understand the customer? • Data collection: What do they need for pricing and
evaluation?• Offer ideas from the industry – innovate!
THE SOCIETY OF ACTUARIES OF MONGOLIA
Further Information…
Consultative Group Assisting the Poor
www.cgap.org
Microfinance Information Exchange
www.themix.org
www.microinsuranceacademy.org/
www.ilo.org/public/english/employment/mifacility/