Learning Journey

Tenger Insurance (formerly Prime General Daatgal Insurance LLC (PGI))

Providing self-employed people in Ulaanbaatar with microinsurance product

Contents

Project Basics ............................................................................................................................................. 1 About the project ............................................................................................................................................ 1

Project Updates ......................................................................................................................................... 2 Key Indicators .................................................................................................................................................. 2 What is happening? ........................................................................................................................................ 2

Project Lessons .......................................................................................................................................... 6 On the effectiveness of bundling products/services for various segments of population ...................... 6 On designing need-driven products and services ....................................................................................... 6 On partnership formation and management ............................................................................................... 7 On project management ................................................................................................................................ 8 On appropriate staff training ........................................................................................................................ 8 On operational processes and supporting infrastructure .......................................................................... 9 On actuarial support ...................................................................................................................................... 9 On customer communication and customer care ...................................................................................... 9 On monitoring experience and systems ..................................................................................................... 10

Next Actions ............................................................................................................................................ 11

Learning Journey: September 2011 1

Project Basics

About the project

TENGER INSURANCE (‘Tenger’), formerly known as Prime Daatgal insurance and established in 2001, is owned by Tenger Group. Tenger is one of the largest insurance companies in the country. Since 2006 it has pioneered microinsurance to serve low-income families by leveraging its commercial insurance expertise.

Tenger plans to expand its services to low-income herders and microentrepreneurs who are underserved by mainstream financial institutions throughout the country. The project aims to widen the availability and scope of health and accident microinsurance products for this population. The target population comprise of approximately 12,000 urban and rural low-income households, herders and self-employed people dispersed throughout the country who suffer from financial difficulty due to a variety of factors such as lack of education or extreme weather conditions. The project will start with clients living in densely populated areas and then extend to herders in the countryside.

The first phase of pilot project will operate only in Ulaanbaatar, the capital of Mongolia, where about half of the population lives. Although banking and other financial services have become more affordable and accessible for low-income people, appropriate insurance services remain scarce.

Tenger will start by conducting market research to understand the underserved markets. Based on the research results, and with the help of technical advisors from ILO, Tenger will design demand-driven products and build in-house capacity. Tenger will train XB's customer officers to effectively market and distribute microinsurance products. A professional institute will conduct an objective project evaluation after the project has been launched.

Project Summary

Project Name: Providing self-employed people in Ulaanbaatar with microinsurance product? Project Start Date: November 2009 (product launched in December 2010) Duration: 20 months Country: Mongolia Product: Health and Personal Accident

Learn more about the product description

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Learning Journey: September 2011 2

Project Updates

Key Indicators The pilot was launched in December 2010. Key indicators will be available in mid-2011.

What is happening?

As of January 2010

Project team: Project planning took place during this period. Team members faced challenges initiating the project, communicating with its distribution partner XB, and reporting to the administration.

Tenger Administration: Lack of support and dedication from Tenger Administration for the Microinsurance project (MI project) caused human resource allocation problems. Only two members were expected to run the MI project in its entirety.

Partnership: Tenger and XB initially had an informal and preliminary agreement to partner on this project. Lack of expertise for the project (this was the first project granted by an international organization) and the need to adhere to western standards of insurance practice caused the unclear situation between XB and the Tenger MI project team. The unclear situation was fueled by a damaged relationship caused by previous Tenger staff, which were responsible for liaising with XB on other products.

As of February 2010

Project: The MI project team now consisted of a project team leader, dedicated project manager, an actuarial student and a representative from the distribution partner organization, as well as an external actuarial consultant (Gerege Partners). The team initiated market research to design the personal accident and health microinsurance product. They developed questionnaires and selected a research organization. Gerege Partners (GP) started gathering data from major hospitals in Ulaanbaatar. The Tenger MI fellow began introducing standards of insurance to the company through oral presentations.

Tenger Administration: Lack of support from administration continued. Team leader, project manager and the Tenger MI fellow presented the MI project and existing problems that could adversely affect the project. The Tenger administration agreed to support with human resources and allocated an actuarial student to the project team office.

Partnership: The champion in XB and her senior staff started to demonstrate disbelief in the MI project. XB’s previous experience in project implementation caused different expectation from the project team. Explaining the MI project, its scope and activity did not have much effect on their point of view on the project. The partner organization demanded the progress result, while the project team continued to engage with XB stakeholders through regular meeting with managers.

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Learning Journey: September 2011 3

As of March 2010

Project: External actuarial consulting company “GeReGe-Partners” LLC collected supply side information and identified four main risk factors (Age, Gender, Occupation and Residence). Current data wasn’t sufficient to analyze the risks concerning occupation and residence. Tenger decided to include Age and Gender as risk factors in their pricing model (with 10 risk classes: male, female with 18-25, 26-35, 36-45, 46-59, over 60 age groups). “GeReGe-Partners” developed a preliminary Personal Accident product pricing model. An external market research firm “New Power” NGO has been contracted with Tenger project team to survey 11 marketplaces in Ulaanbaatar. Tenger prepared for the focus group discussions (FGD) with representatives from those marketplaces. A guideline for the FGD was prepared and, although it was difficult to find a researcher, an experienced researcher for the FGDs was hired. An incentive system for team members was needed with the high workload.

Tenger Administration: Though there were some positive sign of having knowledge and information about project, the expectation of a fast outcome at a low expense with few human resources for the MI project still existed.

Partnership: Project handlers of XB were participating in training sessions organized by the MI fellow.

As of April 2010

Project: Tenger carried out a quantitative market survey of 501 families (1897 people). Tenger organized 5 FGDs with representatives from the marketplace (33 people). The importance of planning and organizing logistics of FGD was realized as there were challenges in choosing participants and gathering information from them. It was important to have a discussant with a similar background and intelligence level. Scarce human resource allocation due to planning errors and inexperience resulted in a high workload for team members. Only two members (actuary and project manager) worked full time on the project while other members spent half or less time on the project causing further delays. Lack of experience and communication errors from New Power NGO delayed the result of the survey several times and the outcome could not meet the requirements. The Tenger MI team analyzed the quantitative and qualitative market research data. The data verification and clean-up process delayed the next tasks by almost two months.

Tenger Administration: To gain buy-in from Tenger management the project team decided to report to management every two weeks. Expectations of a fast outcome still existed. The MI fellow held a training session for the staff of Tenger. At this point the administration team started to react to the MI project with more understanding.

As of May 2010

Project: Based on the market research data and international microinsurance research experience, the Tenger MI team agreed on a bundled product instead of standalone health and accident insurance products. The bundled product includes accidental death and hospitalization cash benefits. Traditionally, the product development process has been different in Mongolia than the standard practice. Rather than basing products on market and demand research they have been based on opportunity without adequate risk analysis.

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Partnership: Senior management of both Tenger and XB committed to collaboration, but no formal MoU was foreseen. An unofficial meeting was held with XB where the mid-level management’s understanding of microinsurance was seen as very limited. At this point it became clear that a lot more communication was needed. The Tenger MI team started to collect health data and GeReGe-Partners updated the pricing model. Tenger got XB’s loan client data and country hospital data from the state health statistical office to analyze the target market proportion, family composition, and sales assumptions.

As of Jun 2010

Project: The project team started the definition process and prepared the enrollment and claim forms. Knowledge sharing helped build internal and partner capacity.

Partnership: The MI project team, Tenger staff members, management and XB management agreed upon product design. XB senior staff agreed officially on cooperation of XB, regular meetings with XB assigned managers to the project, and maintaining supportive relationship.

Tenger Administration: Presentations by actuaries on business models, and constant reports had an influencing effect on the administration`s support and its expectation.

As of Jul 2010

Project: Hospital staff survey was started. Marketing planning was started.

As of Jul 2011 Staffing: There has been considerable staff turnover. The entire project team has changed including the project manager and CEO. The microinsurance correspondents at XB have also changed, although the project manager remains as the one that came on board in late 2010. Therefore there is a lack of knowledge in the current staff about the product development process, the monitoring required, and the assumptions that should be reviewed going forward. There is considerable risk that without this background, and without achieving any technological efficiencies (since the processing is largely manual), Tenger will proceed with expansion plans that are unsustainable. The team also needs to monitor claims experience, but may not be sufficiently trained to do this; therefore, there is a risk of mispricing going forward. Project: All three options for the product have been sold, with the cheapest option being most popular. Over 400 policies have been sold with a total premium written of over 18.2million MNT. Eighteen claims have been paid with total claims paid of around 5million MNT. The product is being sold through four branches of XB and there are plans of expanding it to three more branches. Summary sales and claims information as of June 2011 is provided in Appendix A. Plans: XB plans to introduce new financial transaction tools (such as mobile banking) for which they are looking for grants or investment. On the risk carrier side, Tenger Insurance is considering attracting strategic investors to help in enhancing new innovative technology for distribution, such as the use of mobile phones for selling insurance and collecting premium and paying claims. However, at this time, due to regulations, it is not possible to sell insurance without the involvement of an agent.

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Tenger Insurance is also considering leveraging Petrovis (petrol stations) outlets as another distribution channel for the product. Implementation of such an alternative payment option could expand Tenger’s microinsurance outreach.

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Learning Journey: September 2011 6

Project Lessons

On the effectiveness of bundling products/services for various segments of population

Though the target population could be divided into three income segments it was decided to not fine-tune the product because the target population was not sufficiently large. Results from the market survey showed the self-employed entrepreneurs falling into three income segments: 108000 – 300000MNT, 300001-500000MNT, and 500 001-1000 000 MNT monthly incomes. Each segment has different expectations of a microinsurance product and varying willingness to pay. For now, the project will not explore finer segmentation since the target population is not sufficiently large (barely 10,000).

Target population for microinsurance varies by region. Roughly 40 per cent of people in Mongolia are in the “low income” category; but while microinsurance customers are “low income” people, there is no commonly accepted and strictly formulated definition for “low income”. The definition of “low income” varies by region within the country e.g. people who are not considered to be “low income” in rural Mongolia may be considered to be in the “low income” category in urban Mongolia because of the differences in cost of living, demand for goods and services etc. Hence, the microinsurance product needs to take into account the needs, demand and cultural aspect of the specific “low income” group in the target region.

On designing need-driven products and services

Quantitative and qualitative market survey results revealed a preference for a bundled health and accident insurance product. Tenger designed a bundled product that includes accidental death and hospital cash benefits.

Based on the market survey and research, the microinsurance team developed a complementary and non-conflicting product to the national health system. Tenger conducted an exploration and hospital staff survey at five large state hospitals and five large district hospitals. The survey found that an informal system of paying for healthcare services exists in Ulaanbaatar hospitals. Due to a complicated national health system (government monitoring and control system is inefficient) and limited knowledge of its clients, the informal and illegal payment system (under-the-table payments are very common throughout the country) continues to exist in national hospitals. This condition makes cooperation with national hospitals more complicated. The solution was to pay hospital cash benefits directly to patients. Secondly, national health system does not cover many of the health services such as indoor treatment, daily bed fee etc.

Care should be taken to ensure that the final product design is correctly implemented. Contrary to the product design, the microinsurance product has not been implemented as a mandatory product for XB microfinance customers. Hence, only about 70 per cent of customers are currently taking up the product. This percentage of take-up has remained reasonably stable over January-June 2011. It is important that the product is sold as a mandatory product with microfinance loans as it was priced on this basis and a voluntary product could attract anti-selection, rendering the current pricing inappropriate. Tenger and XB needs to agree upon, document and implement consistent rules to be

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Learning Journey: September 2011 7

applied for selling the product and for exemptions. They also need to ensure that these rules are adhered to, especially as the business expands to more branches.

Premium levels (and cover) may need to vary by region and an alternative premium collection approach can increase uptake. Feedback from XB branch managers suggests that the premium may have been quite high. The cheapest option of the product was the most popular. Coverage and price may need to be revised, possibly offering an even cheaper option for rural areas. This is particularly important because of the socioeconomic differences between urban and rural populations in Mongolia. The product has been made more flexible by giving customers the choice to either pay the premium upfront in cash or to deduct the premium from the loan.

It is important to use different types of distribution channels to reach a scattered population. Management realizes the importance of having effective distribution channels, as well as to not rely on only one channel. They want to explore other alternative channels such as Petrovis outlets, which may be especially useful to reach rural populations that conduct the rare financial transaction when filling up at petrol stations.

On partnership formation and management

Sufficient effort should go into aligning the objectives of the partners, gaining buy-in from all levels of the partner organization, and formalizing the partnership. Tenger and its distribution partner XB initially had a formal agreement to work together on all products and services, but no formal addendum was signed to specifically address this project. However, a lack of understanding of microinsurance led to unrealistic expectations. The management teams of both partners expected that a product could be developed with minimal market research and rolled out within a matter of weeks to all of its branches. The lack of a formal document setting out the partnership led to reduced commitment from the middle management of XB midway through the project. The implementation of a MoU that documents the nature of the partnership and the roles and responsibilities of each party would help align objectives and support communication. A partnership is a relationship that needs to be managed. Educating the partner on microinsurance can promote mutual understanding and pave the way for future collaboration.

Maintaining effective communications with partners can help leverage the positive influence they can have on the project. Because some key members of senior management had been XB employees, they found it easy to work with this distribution partner. They were eventually able to maintain effective communications with XB and they feel that XB has now developed a good understanding of the microinsurance product. XB has also positively influenced the project. For example, XB suggested that the product be launched in only two pilot branches initially in order to ease the burden of manual administration procedures until processes were clearly in place.

Many key functions can be pushed down to distribution channels and key ideas on product design and operation procedures may come from the distribution channels. XB’s participation in the project has been key to developing and implementing the microinsurance product. For example, XB’s new project manager has been supportive of and proactive on the project. She provided useful inputs to the premium collection process. XB facilitated the pilot branches’ managers and loan officers to set up the administration interface between XB and Tenger so that information flows were smooth. XB has also carried out a survey on insurance literacy, designed by Tenger, and its client data analysis was used in

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the product development stage. XB is responsible for marketing the product, sales, supporting the application process, premium collection and helping to submit claim forms.

On project management

Sufficient effort should go into gaining buy-in from stakeholders and manage their expectations about the project. When the project is conceived, the project champion should take the effort to gain the buy-in from management, partners, consultants and project team members. This may involve educating stakeholders on the nature of the project, benefits to the stakeholders and resources required by the project. It is also important to manage the stakeholders’ expectations. Because insufficient effort was spent on gaining the stakeholders’ buy-in, Tenger’s MI project was not given priority by the team members and management. The management and external partners’ lack of understanding of microinsurance and their unrealistic expectations as to the ease of product development and implementation of the project jeopardized the stability of the project.

The project should identify capacity building needs of the team members from the outset. The lack of understanding and experience with microinsurance by the Tenger project team members paralyzed progress very early on. It was not until a Microinsurance Fellow arrived to train, coach and mentor the team members that the project was kicked off. Capacity building and training of team members so that they understand the product and feel empowered to make decisions is the key to improved outcomes.

The project plan should be based on realistic timelines and should factor the team’s existing responsibilities. The project repeatedly experienced delays in task completion because the original project plan under-estimated time required from team members to accomplish tasks. In planning the project, Tenger’s team members underestimated workload demands from other projects to which they were assigned – they had assumed that they would be able to allocate at least 50% of their time to the MI project. This was not possible because existing responsibilities were not re-assigned, and in fact, additional responsibilities were added to team members. A presentation of current issues and risks was made to Tenger’s Executive Committee, as a result of which they agreed to commit the resources and staff required to implement the project. With a realistic view of the necessary resources to carry out the project and the support of management, the project should be able to obtain the required resources.

On appropriate staff training Innovative methods for training staff can be very effective. For example, as part of XB engagement and marketing, the pilot branch loan officers were provided with complementary policies during the product launch (they were given single policies at the lowest coverage level, with an option to purchase higher levels of coverage). In addition to getting buy-in, it was an effective training tool: they needed to fill in the enrolment forms and policies; understand the different levels of benefits and what the policies actually covered, as well as how to make claims. This approach to staff training was very well received and cost effective. It is a useful way to educate branch staff on the value of the product, as well as train them on the application and claims process. Staff should be retained for sufficient amount of time for the training to be cascaded. For example, key staff members were trained in project management and were able manage the microinsurance project very well. However, a lot of them subsequently left the company, leaving a gap in the management of the microinsurance project. Similarly, a lot of project history, technical actuarial and data analysis

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Learning Journey: September 2011 9

knowledge has been lost because of staff turnover. Continuity of project and technical knowledge is required for the project to be successful.

On operational processes and supporting infrastructure

Existing infrastructure needs to be reviewed and may have to be improved to handle microinsurance processes. Tenger’s existing system for its mainstream commercial insurance product lines is not conducive to properly service a large volume of small insurance policies. Tenger’s MIS is undergoing evaluation and improvement. Tenger will obtain technical assistance to improve and adapt its existing system and procedures to better handle microinsurance. The development of an efficient enrolment process, claims management process with control mechanisms and provider network management procedures – especially important for health product – will allow Tenger to identify the minimum documentation and data requirements, minimize adverse selection and fraud, and adjudicate claims in a transparent manner. A supporting MIS will also allow Tenger to produce financial reports for purposes of monitoring and evaluation, continuous improvement, better pricing/reserving and taking management decisions. To improve claims service as well as claims control, an adjustment to the process was made, whereby clients were requested to inform Tenger (or XB) as soon as they are hospitalized, rather than waiting until after they are released. This allows for speedy validation of the hospitalization at the time, which would improve claims control as well as improve the speed at which claims are paid.

On actuarial support

Collecting experience data once the pilot product is rolled out can help fill data gaps. Although the data available in Mongolia was more than one might usually find in a developing country, the project team needed to be trained on the type of data required so that data sources can be identified. Distinguishing between informative and essential data can help set priorities. It was difficult to estimate Tenger’s internal expenses allocation to the MI product, because there was no expense analysis for separate products and Tenger does not have a cost accounting system that allows data separation. Collecting data through enrolment and claims forms as soon as a product is rolled out will provide additional information to validate or adjust areas including pricing, reserve analysis, finance, expense analysis and performance measurement.

On customer communication and customer care

Different communication methods need to be tried out to educate customers, especially where selling insurance encounters cultural issues. Tenger faces a cultural challenge in Mongolia as people generally do not want to talk about risks and the chances of accidents or illness occurring. Hence, the marketing strategy needs to take this into account. The only marketing method tested by Tenger has been putting up posters and keeping brochures of the product at bank branches. Tenger may monitor the take-up of brochures at bank branches as a way to assess the effectiveness of their communication method. In terms of plans for the future, the insurer hopes to launch a media ad campaign and periodic video showings of the product at bank branches. Tenger is also considering producing short video ads, which could be gifted to bank customers using flash drives.

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On monitoring experience and systems

Closely monitor the experience of various correctly calculated metrics to make troubleshooting possible. Tenger developed an MS Access database to capture policy and coverage data. This database was tested in the days immediately following the launch using the initial policies. Subsequently, a small claims database was created to supplement the initial MS Access database, but as of August 2011, the database is not being regularly used. Tenger’s finance department created appropriate separate accounts to capture microinsurance transactions, and they are also identified as microinsurance transactions in XB’s system. Financial transactions are reconciled on a regular basis between Tenger and XB. Before using a particular set of data, it is important to reconcile information from the MIS with financial accounts to ensure information accuracy.

Reconciliation of data between XB and Tenger is done manually because they have separate management information systems that do not talk to each other. XB’s system is used to record premium payments from policyholders, which is paid directly into a bank account that Tenger holds with XB. The project team designed reporting forms for the XB branches to fill out and inform of the policies that are issued each week. These reports, and the paper policy forms and applications, are used to reconcile the cash transactions reported in the accounts and the policies sold.

Tenger is monitoring the Loss Ratio. However, Key Performance Indicators such as the Loss Ratio and Management Information should be calculated correctly. For example, Tenger was calculating Loss Ratio as Paid Claims to Written Premium (instead of Incurred Claims to Earned Premium). Incorrect calculation of key information can lead to wrong conclusions being drawn and badly informed decisions being made. However, this is a start and the monitoring and reporting is looking promising. As of the end of March 2011, the incurred loss ratio was 168% (118% if a large claim from anti-selection was not paid).

Business planning allows the project team to analyze possible outcomes. A MS Excel based business model was developed and the project team was provided with additional training material on preparing and validating a business plan. The team learned that a business plan should be draw up for any new product development so as to analyze possible outcomes of the product performance. This plan could also educate the team, management and partners on the tradeoff between benefits and premiums.

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Next Actions

The microinsurance team is planning to develop an incentive system. Improved marketing and customer education planning is in progress. Process refinement is being discussed with XB.

As of April 2011, the microinsurance project has expanded from the two pilot branches to four branches. Tenger is planning to expand the pilot to a 5th branch in Darkhan, the second biggest city in Mongolia in the near future. In addition to these 5 branches, Tenger is also planning to expand the pilot to three more rural branches. They are planning to recruit new university graduates, who would spend some of their time working on the microinsurance project.