On the docket: A number of upcoming changes are expected to spur expansion

While modifying regulations involving insurance have not yet achieved prominence in Mongolia’s current parliamentary calendar, once they do rise to the top of the agenda key issues to be debated include mandating motor and professional liability insurance; allowing firms more control over how they deploy their investment account; and increasing the minimum capital requirement, currently MNT1bn ($780,000).

DRIVE CAREFULLY: As of late-2011 there were an estimated 300,000 vehicles in the country, just 10% of which were covered, according to data collected by Mongol Daatgal, the country’s largest insurance company. Estimating potential revenue from the recently introduced motor coverage requirement is difficult, as the government has not yet allowed them to set their own rates. Mongolian law requires that any insurance product deemed mandatory must have a tariff set by the government instead of the private sector. While the Financial Regulatory Commission, which oversees the sector, has not yet weighed in on the issue of potential rates, Mongol Daatgal expects MNT15bn ($11.7m) in premiums added to the overall market. Other forecasts are as low as MNT7bn-8bn ($5.5m-6.2m). According to Ts. Battsogt, the chairman of Soyombo Daatgal, another local insurer, under a mandatory plan the average driver would pay about MNT60,000 ($46.80), with liabilities capped at MNT55m ($42,900).

DEVELOPMENTS: Mandating professional liability insurance would affect doctors and lawyers, a far smaller customer group than drivers. Liability insurance in all forms currently comprises just 20% of non-life policies. About 70% of the market segment is property insurance, with 10% for health and other categories.

The life insurance segment, while still in its infancy and with no specific law relating to it, is set to expand quickly in the coming years. The National Life Insurance Company (NLIC), currently the only insurer offering life insurance products began operations in 2007 and for the first few years saw little business. However, in 2010 the NLIC saw its business expand 10-fold, partly due to focusing on citizens with middle to high incomes. Further reform to regulations and laws, increased education about life insurance products and the introduction of competitors should rapidly expand this industry.

The expected increase in minimum capital will require either MNT2bn ($1.6m) or MNT3bn ($2.3m) in paid-up funds by 2013. A boost from MNT500 ($390,000) to MNT1bn ($780,000) was required at the end of 2010. The guiding principle in both cases is to shrink the number of insurance companies.

PLAYERS: Mongol Daatgal currently controls around 30% of the market, and the top eight companies as a whole have 95% of market share. The other nine firms in the sector are small and remain somewhat undercapitalised. While an industry with many small insurers that are light on capital is a problem in any setting, in Mongolia there is extra incentive for consolidation because of the upcoming demand in the mining sector, which is expected to expand rapidly in the coming decades. Customers will require large and well-capitalised insurers, even as junior partners in risk-sharing.

None of the existing insurers trade on the Mongolian Stock Exchange, so stock placements are not a likely method for raising capital. The last increase in minimum capital requirements resulted in two mergers, and the upcoming round is expected to bring about additional consolidation. According to P. Ganzorig, the president of the Mongolian Insurers Association, the market could handle eight insurers. He told OBG that he supports the upcoming potential capital increase, because the last one was not enough to deter applications for new licences. “This tells us that our minimum requirement is still too low,’’ he said.

In addition to the bureaucratic challenges inherent in carrying out a merger, any newly enlarged companies will need to explain to the public and policyholders why insurers are merging, as general awareness of how insurance works is lacking in the country, and news of companies combining or acquiring each other could spook existing policyholders, hindering development.