THE SOCIETY OF ACTUARIES OF MONGOLIA The role of the Actuary in Microfinance Ulan Bator, Mongolia 14-15 November 2011 Kirsten Armstrong МОНГОЛЫН АКТУАРЧДЫН

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


Agenda

• What is micro-finance?

• What is micro-insurance?

• What should actuaries do in the sector?

• A case study

• Specific challenges


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


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


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


What is Micro-insurance?

• Targetted protection for low-income people

• Simple

• Affordable

• Work best when supported with advice & innovation

* Microinsurance is still in development.*


Product Groups

Crop Insurance

Health / disability insurance

Annuities / endowment

Property

Term life

Credit life

Complexity


Micro-insurance in Mongolia

• To be updated!

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.


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


Community-based decision-making helps manage risk.

Some benefits remain discretionary→ minimises solvency requirements.


Local systems can be basic – simplicity essential

Performance monitoring at the community level


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….

•


Other roles for actuaries

• Identifying needs, gaps and opportunities

• Risk Management

• Reserving / outstanding claims valuation

• Forecasting


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


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


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


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


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!


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/


The role of the Actuary in Microfinance

Ulan Bator, Mongolia

14-15 November 2011

Kirsten Armstrong

МОНГОЛЫН АКТУАРЧДЫН НИЙГЭМЛЭГ

Documents

THE SOCIETY OF ACTUARIES OF MONGOLIA The role of the Actuary in Microfinance Ulan Bator, Mongolia 14-15 November 2011 Kirsten Armstrong МОНГОЛЫН АКТУАРЧДЫН