Managing Agricultural Risk at the Country Level: The Case of Index-based Livestock Insurance in Mongolia

This paper describes the index-based livestock insurance program in Mongolia designed in the context of a World Bank lending operation to the Government of Mongolia.

The insurance program was implemented on a pilot basis in 2005. It involves a combination of self-insurance by herders, market-based insurance and social insurance. Program features include:

• Herders retain small losses;
• Larger losses are transferred to the private insurance industry;
• Catastrophic losses are transferred to the government using a public safety net program;
• Syndicate pooling arrangement protects participating insurance companies against excessive insured losses;
• Fiscal exposure of Government of Mongolia to the most extreme losses is protected with a contingent credit facility;
• Program relies on a mortality rate index that provides herders with strong incentives to reduce major livestock mortality events;
• Individual herders receive an insurance payout based on local mortality, irrespective of their individual losses.

This project indicates the way forward for the development of financially sustainable agriculture insurance programs offering affordable and effective insurance coverage while limiting the governments fiscal exposure.