Corruption risk in insurance

1. Risk, Legal, Ethics WG joint meeting
2017-01-17
Zaya Bolorbold, Chief Underwriter
Mandal Insurance

2. Insurance industry at a glance
• Regulator: Financial Regulatory
Commission /FRC/
• % of Gross written premium (GWP) within
GDP: 0.52%
• Industry premium increased 10 times
compared to 10 years ago - $57 mil as of
2015
• GWP per capita: $19
• Total assets of insurance companies
increased by 80% in last 5 years: $79 mil
• Insurance: less than 1% of Mongolian
financial sector compared to banking’s
96%, NBFI’s 2%, Securities & Broker’s 0.6%
58.2
77.3 76.2 80.8 86.8
78.8
2011 2012 2013 2014 2015 2016Q2
Total asset Equity
Total asset and owners equity, in
million USD
34.0
56.7 56.6 57.6 57.1
30.4
25.9
40.8 39.9 38.4 34.9
20.5
0
10
20
30
40
50
60
70
2011 2012 2013 2014 2015 2016Q2
GWP Net premium
Total gross written premium and net premium,
in million USD

3. Insurance industry at a glance
• The insurance products available are
almost entirely short-term non-life
products
• Life insurance development is lagging.
/99% of premium from non-life/
• The main 6 insurance products compose
92% of the total GWP
• Market is largely concentrated on auto
coverage following the introduction of
mandatory driver’s liability coverage in
2012, which grew the insurance industry
by 65%
• Mongolian insurers do underwriting and
brokering at the same time.
Top 5 insurers collect 85% of the total
premium
28%
26%12%
10%
9%
8%
7%
Bodi insurance
Mongol insurance
MIG insurance
Mandal general
insurance
Practical insurance
Tenger insurance
Structure of total gross written premium/2016Q2/

4. Insurance legal environment at a glance
In 2012, the FRC set the obligatory minimum capital
• 5 billion MNT /2.5 million USD/ for non-life insurance
companies
• 6 billion MNT /3 million USD/ for life insurance companies
Currently, only 2 companies /one of them Mandal/ meets the
criteria
• Insurance activities in Mongolia are
regulated by the “Insurance Law of
Mongolia” approved in 1997 /amended
in 2004 /
• The Law prohibits an individual or a
legal entity residing in Mongolia from
allowing its property and interests
located within the territory of Mongolia
to be insured directly by a foreign
reinsurance company without mediating
through a local insurance company.

5. Insurance intermediary
• According to the “Law on Insurance Intermediary”,
insurance brokers, insurance agents and insurance
loss adjusters are considered intermediaries in
Mongolia.
• Insurance brokerage commission in 2015: $1.7 mil
(48% earned by 8 commercial banks with brokerage
license and 52% by other insurance brokers)
• Banks’ insurance broking activity composes 9.5% of
the banking sector revenue.
• Motor insurance brokerage commission range
between 10-30%, while mandatory driver’s liability
insurance commission is 20-30% of insurance
premium.
• Some insurers have been known to offer similar
commissions on large corporate insurance
placement.
• In terms of corporate insurance, brokers
acquire a set of corporate customers through
relationship building and when placing their
client’s risk, brokers select insurance
companies based on commission level offered
and close relationship with insurance
companies.
• Brokers’ clients barely receive any value-added
services on par with international insurance
brokers.
Corporate insurance accounts for 75%
of the total insurance industry GWP
or $45 million

6. State involved insurance
• It is common practice that the insurance
commission is shared with the decision makers as
kickback when allocating publicly-funded
insurance expenditure.
• State procurement regulations require tendering
process of government expenditure, many
instances of insurance procurement are made
without public announcement, with no tenders,
or vital information circulated only within close
group of participants.
• In June 2015, FRC started requiring insurance
companies to report whom it paid any
commission when writing insurance of state
agencies, state-owned company, publicly listed
company, foreign-invested company, .
Government expenditure for 2016
was $3.5 million, 2017 insurance
budget is set at $3.8M
or 0.5% of the total budget
• Aside from the budget above, on average
8% of the insurance industry’ annual gross
written premium is composed by premiums
from state-owned entities such as
Mongolian Airlines, Civil Aviation Authority
etc

7. • Established in 2011
• In less than 6 years, included in top 3
insurers’ rank by premium, assets, reserve
funds and reputation
• Gross written premium amount increased
15 times, which accounts for 200% annual
growth rate
• Reserve fund has increased on average by
92% in last 3 years, which is a leading
indicator in insurance industry
7,271
8,823 9,375 9,797
13,560
2012 2013 2014 2015 2016Q2
Total Assets in million MNT
2,960
7,298
8,035
9,184
5,043
2012 2013 2014 2015 2016Q2
Gross Written Premium in million
MNT

8. Major milestone
The first risk
management
forum
Bankassurance in
partnership with
Khan Bank
The opening
of Darkhan
branch
Incorporated with
Golomt Bank and
became 100%
Mongolian owned
Mandal General
Insurance was
founded
Audited by
PWC
The opening of Tsogt
Tsetsii branch
Launched
customer service
department
Launched call
center

9. Stance on ethical practice
• Audited by a globally recognized firm
PwC
• No cash kickback policy
• Instead, Mandal offers:
• Risk assessments
• Risk seminars, educational events
• Loss reduction tools
• No claim bonus
• Loyalty program
• Credit earning system for premiums paid
• Employees: Tries to recruit non-
insurance background sales force /
clean slate sales practice
• The Mission Statement of Mandal makes our
employees to think, to act and to execute
differently from those at other insurers:
“WE, close-knit members of the Mandal family,
take mutual responsibility for each other’s
happiness in our journey to become a
NOURISHING GROUND, by being the industry
LEADER who introduces client-centered
products and services while providing solutions
for our insureds to secure their RHYTHM of LIFE,
allowing all to contribute to the PROGRESSIVE
DEVELOPMENT as a society.

10. Recognition for innovation

11. Reinvention of Insurance
• Implementing a strategy termed as “Reinvention of Insurance” in Mongolia
• Majority of the players in the industry has “re-seller” mentality, not investing in R&D
and selling traditional products from reinsurers’ off-the-shelf policies.
• Mandal, on the other hand, believes that there is vast opportunity, if insurance
companies truly understood clients’ needs, delivered services through a complete
journey of customer’s expectation, and localized international know-how and practices,
which at the end all translate to VALUE creation for clients.
• Mandal has held “value creator” approach in business, with a dedicated in-house R&D
function within its Business Development Department.
• Affordable and flexible payment term pricing – the leading company offering
flexible payment term allowing clients to pay premiums in monthly
installments.
• International standard practices – learning from proven international
practices and carefully localizing them to the needs of the local market is an
important aspect of Mandal’s product development.

12. Reinvention of Insurance
example: “Jargalan” Health Insurance
Mandal launched Jargalan Health insurance
on the following notion:
• Insufficiency and poor quality of state
health insurance scheme
• Absence of a global standards and
affordable health insurance in the market.
Key product features are:
• Coverage that is relevant to the client
• Affordability
• Service infrastructure - Created network
of hospitals for the first time in Mongolia
enabling direct-billing from Hospitals to
Mandal.
• Monthly premium installment available
• has its own Health Insurance
Department that consists of
professionals who are medical doctors.

13. JARGALAN HEALTH INSURANCE GOLD PACKAGE
- Up to 50’000’000 MNT per year
- Full electivity
- Co-Insurance
- Serious health conditions (Organ
transplantation)
- IP + OP + PREG + PRIV
- Monthly payment ≈ 40’000MNT
- Network hospitals + All public
Hospitals
- Up to 50’000’000 MNT + 250’000$ per year
- Full electivity
- Co-Insurance
- Mongolia + China (Mainland) + Thailand
- Serious health conditions (Organ transplantation)
- IP + OP + PREG + PRIV + Traveler's PA
- IP cash benefit + Accompanying member cash allowance
- Monthly payment ≈ 76’000MNT
- Mongolian+ Asian Network Hospitals + All public Hospitals
JARGALAN HEALTH INSURANCE PLATINUM PACKAGE
Innovation by localizing

14. Efforts to improve – Not just complain
“Insurance procurement seminar for government agencies” – Organized by
Mandal with support from Ministry of Finance, Mongolian Insurers’ Association in November 2016

15. Vision
• To build the Mongolian brand of a
Financial corporation competing on a
global stage.
“Transparent & Ethical business practice
workshop” – participated actively and gave comments
from Insurance industry perspective in November 2016
As Mandal strives to realize its mission, it shall be
a benchmark insurance company that would
“nudge” its peers in the industry to be ethical and
creative in order to be competitive, resulting in
faster development of the insurance sector and at
broader scale where clients and society benefit
from various options and quality of insurance
services.
Efforts to improve – Not just complain

16. Thank you!
For insurance industry related inquiries,
you may contact: zaya@mandal.mn