Today there are currently 17 insurance companies in Mongolian insurance industry, and their total premiums from policy holders sum up to $55 million US dollars annually. Although it doesn’t contribute much in the financial industry, it’s an amount which has increased 15 times than 10 years ago. In other words, the arrival of the new millennium was the moment for Mongolian insurance industry to take its first step. How long would it take for Mongolian insurance industry to go through growth and maturity?
Mongolian insurance industry holds only 0.5% of its GDP which is 4 times lower than the average market share of developing countries’ insurance industries. Let’s take a glimpse on the developed countries’ insurance industries. The insurance industries are usually divided into two main sectors which are the life and health, and the property and casualty sectors. According to Mongolian insurance laws and regulations, which are adopted in 2004, insurance companies have to operate under long-term, or general insurance sectors. Here comes the big question: Why the insurance industry needed to be separated into two main sectors all around the world?
General insurance is insurance that protects against property losses to policyholder’s real estate, equipment, or assets. On the other hand, long-term insurance intends to insure policy holder’s life and health from financial burdens that may result from illness, or death. In 2014, global insurance market size estimated to be $4.3 trillion USD, and the long-term insurance sector leaded the industry with $2.97 trillion USD and general insurance sector held $1.33 trillion USD.
Standard property policies generally cover a wide range of potential disasters and legal liability that may result from injury or damage to the property of others. There’s a better chance of avoiding from these risks.
From the opposite side, life insurance provides financial support to the policyholder, policyholder’s family, or beneficiary when the policyholder retires, gets sick, or dies. And so, as time passes, our probability of facing potential risks goes us, as we all get old and die. Thus, life insurance intend to reduce financial losses that are caused by aforementioned risks.
The main difference between long-term and general insurances is the premium-rate. In other words, insurance companies are responsible for evaluating risk assessment, and determining the premium-rates. From the day we were born, we go through adolescence, school, work, and retirement transitions. The life insurance applies a systematic process of evaluating the potential risks that may be occurred in our lifetime. The long-term and general insurances use different methods to evaluate risk assessments, and the main terminology for the methods is known as actuarial science. There are currently 15 professional actuaries who shape the industry’s future in Mongolia.
General insurance uses external environment causing losses, and factors that increase risk assessment to determine premiums, to charge for insurance. The general insurance policies are usually written for 1 year; therefore, necessary changes could be made at anytime.
Rate making for life insurance is based on lifestyle, age, health condition, sex, and other factors that have a significant effect in the long-term. For instance, If 30 years old guy make a long-term contract with a life insurance company, an actuary has to estimate long-term risks that may encounter him because the insurance covers him for the rest of his life.
The primary reason for a life insurance contract has to be made for a long-term is to prevent from a rapid rise in premium rates and coverage cancellation due to a critical illness condition or on the death of the policyholder.
The implementation of the Ipotek Mortgage Loan program with 8% interest rate have influenced borrowers to choose life insurance. There are currently 60,000 borrowers who have involved in the program, and the average mortgage loan term is 15 years. A general insurance company provides a life insurance for only one year, and it pays out benefit payments only if policyholder’s death is caused by accident or dismemberment. A life insurance company is authorized to issue long-term life insurance policies, and it covers policyholder’s death which is caused by not only accident or dismemberment but also disease or natural causes. If the life insurance policyholder, who borrowed from mortgage loan program, dies from any of the above conditions, the life insurance company pays out entire loan amount that’s left on the policyholder’s account. Thus, the life insurance company is a smart option to invest when it comes to considering life insurance as an investment.
The first step to develop a life insurance industry is to educate people about life insurance. To be aware of differences between life insurance and general insurance, and what insurance company to choose is an individual’s first investment to make for his/her future. By choosing life insurance, an individual builds financial resistance that could protect him/her from unexpected financial losses. To receive comprehensive insurance services, an individual should contact with a general insurance company or life insurance company if his/her intention is to protect their property and assets or health and life respectively.