Mongolia: Index Based Livestock Insurance Project
September 24, 2009
The Government of Mongolia requested assistance from the World Bank to improve rural herder vulnerability to frequent and high livestock mortality rates. Large-scale goat, sheep, cattle, yak, horse and camel deaths, as a result of Mongolia’s harsh and unforgiving climate, were devastating the rural poor and Mongolia’s economy. The Mongolian rural economy is based on livestock reared by semi-nomadic herders who make up 30 percent of the population. Agriculture contributes around 20 per cent of the country’s gross domestic product (GDP) and herding accounts for more than 80 per cent of this. Livestock provide sustenance, income and wealth to nearly half the residents of Mongolia. Dzud events (the Mongolian term for a particularly bad winter), which occur approximately once every five years, result in the death of millions of the country’s livestock.
An index-based insurance program based on livestock mortality rates by species and soum (county) was recommended by the Bank. In 2005 the Government entered into a credit agreement with the World Bank to implement the Index-Based Livestock Insurance Program (IBLIP). The approach is a combination of self-insurance, market based insurance and a social safety net. Herders bear the cost of small losses that do not affect the viability of their business, larger losses are transferred to the private insurance industry and only the final layer of catastrophic loss is borne by the Government of Mongolia. Insurance is provided through partnering with local private insurance companies. The pilot project began in 2006 and was implemented into three of Mongolia’s 21 provinces (aimags). One further aimag was added in 2009. Following the pilot program’s success, IBLIP has received funding to eventually expand to reach herders in all of Mongolia’s 21 aimags by 2012.
Since the project’s inception, insurance policies in the four initially targeted aimags have continued to become more and more popular among herders. Every year, the number of policies being bought increases. So far, over 14,000 insurance policies have been sold. Local insurance firms remain committed to selling the product and in 2009, indemnity payments were made to all 2,117 herders who were eligible following livestock losses. This winter’s dzud (December 2009, January and February 2010) reinforces the importance of supporting rural herders with initiatives such as this, as many herding families suffered huge livestock losses.
The total IDA contribution is USD $17.75 million. This figure includes the recent additional financing for IBLIP’s scale up which was approved by the Board in February 2010.
IBLIP is currently co-financed by the Japanese Government and the Swiss Agency for Development and Cooperation. A grant from the Korean Government is pending.
Following the Bank’s February 2010 approval of a US $10 million scale up, this highly successful insurance project will be rolled out to additional aimags, with the intention to reach all of Mongolia’s 21 aimags by 2012. The Project Implementation Unit has prepared a detailed action plan to support the scale up and has completed the recruitment process for aimag coordinators. The ongoing World Bank support for IBLIP places this project on a sustainable path for the future, and serves both the Government of Mongolia and herders in providing a valuable tool to manage climatic risks.
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