Friday, March 18, 2011


Ub Post
March 18, 2011

The most countries require by law that citizens have proper insurances of life, house, vehicle, property etc against natural calamities.

Not public but private firms are responsible for property insurance and small insurance companies purchase an insurance from another big company as a means of risk management. Reinsurance companies are mostly big and transcontinental financial corporations.

In Mongolia, in order to get a housing credit or buy movable and immovable properties on leasing, it is a requirement that the property is insured against risks such as fire, flooding, quake and other calamities.

Basically, the only mean to protect private or public properties from all risks that might happen due to natural calamity is insurance.

17% of all properties damaged and destroyed by 9.0-magnitude earthquake that spawned a deadly tsunami into northeast coast of Japan had earthquake insurance and American AIR Worldwide experts estimate that the amount of loss to be paid by insurance companies is approximately US$35 billion.

As earthquake insurance premium rate is very high in this regularly-shaking nation, not everyone affords to get insurance coverage. Though this type of service is not common for this reason, almost one sixth of its population had earthquake insurance.

The Japanese earthquake is the second costliest natural catastrophe for insurance companies after Hurricane Katrina (US$100 billion).

It means $35 billion of the total loss will be paid not by the Japanese government but by international insurance companies altogether.

Share price of insurance companies is dropping in big stock exchanges. Share price of insurance and reinsurance companies such as Munich Re, Allianz, Swiss Re, Hanover Re, Admiral, RSA and Prudential went down to 1.1- 5 percent on the quake day.

International insurance and reinsurance system has already suffered the loss of US$10 billion due to recent earthquake in New Zealand and US$8.0 billion from unrest in Mid-East and Arab.

Anyway, almost every nation has insurance system under, which any loss caused to property due to an incident or calamity is compensated if it has insurance coverage and some countries even has a law which rules the deadline to complete insurance compensation or states that in case of becoming homeless, the cost spent to reside in another place must be compensated.

Insurance is a capital that makes up the largest portion of financial market. The insurance accumulation in developed countries serves as a bearing column for capital market and a leverage to stimulate securities trading. At the end, shares of big insurance companies are placed in relatively stable and long-term investment funds. In any country, social, health, pension and risk insurance funds serve not only as a core of capital market but also a reliable source of risk management.

Then, where Mongolia’s insurance capital is accumulated and how much it has been growing? This question has been put many times by Mongolians, especially NGOs headed by Ganbaatar from Trade Unions, but the authorities seem like not willing to give certain answer.

There is no warranty that a natural calamity would hit Mongolia. Does anyone know how much real estate is in Mongolia and how much of them have insurance?

In order to have an estate insured, first it needs to be registered. Then, how much of all real estate has registrations? It is already the time to register the property of citizens, bring them into economic circulation and protect them from risks through insurance.

It was reminded two years ago by well-known economist Hernando de Soto during the 2010 Mongolia Economic Forum and a whole sub-session was dedicated to risk management during this year’s Economic Forum.

Time has come to Mongolia to develop risk management institutions, including insurance system, immediately and ensure its proper function as to market principles, before getting into mining mania. A natural calamity is never predicted.

In a democratic system, under which the government is replaced as result of elections, an extraordinary duty of the government is to establish and develop a reliable insurance system, which is a crucial tool to protect the society from risks.

PS: I extend my deepest sympathy over terrible tragedy the Japanese people suffer.

I would like to note here that the patience, mental strength and unity of Japanese people made me wonder, respect and prideful.

Translated by P.Shinebayar

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