Mongolia's GDP per capita is expected to rise from $2,300 in 2011 to $8,000 by 2016. As Mongolians become more affluent, there is naturally an increasing demand for insurance, particularly health, car, home and life insurance. Ms. Davaajav Chinbaatar, CEO of Practical Insurance, speaks about the growth of the insurance industry in Mongolia, her company's position at the forefront and what sets it apart from other insurance companies
First of all we would like to know more about the person behind the success of this company. Can you tell us about your professional background and how you became CEO of Practical Insurance?
I was born and grew up in Ulaanbaatar city. I got my bachelor degree in law after graduating from high school. After that, I worked as a translator for United Apparel of the Crystal Group, a foreign invested company, as I had learnt Chinese in high school. While working there, I was also responsible for human resources and the salary accounting and gave legal advice to the company.
Later, one of my teachers asked me to teach in her private school and got my master’s degree in Public Administration from the Academy of Management. While studying for my master’s degree, I used to give lectures to law students. Then, after my graduation, I worked for a local government entity in the Bayanzurkh District being responsible for local governors.
Then, in 2005, I entered into the insurance sector and in June of that year I was employed as a specialist at Tenger Insurance, which was previously Prime Insurance. Then our Deputy Director moved into this company as the Director and offered me to work with him.
In 2008, our company group decided to establish a non-banking institution: Ochyr Undraa OMZ. In order to establish it, I was asked to work as the Director for the institution. During this time, one of the main operations of the insurance business was to invest in assets. In 2009, the contract of the director who came to this company with me expired and it was decided by the investors not to extend the contract and I was offered to work back at Practical Insurance as the Director.
As GDP per capita rises from $2,300 in 2011 to the forecasted $8,000 by 2016 there will inevitably be an increasing demand in insurance coverage in the areas of education, health and pensions. How do you see the future of the insurance sector in the upcoming years? What are the major challenges that is currently facing?
Generally, in the last years, growth in the insurance sector has been realized. But, the growth is not seen in daily life. It is seen as an artificial growth. The economy grew in high digits. The insurance sector is the same as this. It is also partly because local insurance companies are cooperating with reinsurance companies.
Additional foreign capital will be crucial for the market capitalization of local firms in order to be able to meet the increasing consumers demand. Where do you expect this capital to come from?
First of all, insurance companies must have a solid foundation, especially, in the period of development. Even though Mongolia has 80 years of experience, internationally qualified services have just started being provided. We must have a solid ground. Then, as a company, we focus on profitability, and we are one of the most profitable companies in an insurance sector.
Last year we started increasing our asset base and focused on low risk products such as asset insurance. Secondly, we have to diversify some of our risk, as a result, we have been actively working on re-insurance since 2007 and now we are cooperating with insurance companies and brokers. We have proposed our package to Hannover Re Group and we have been cooperating with the Spain’s Mapfre since 2006 and also with Marsh Broker and GD Broker.
In order to fulfil obligations to our customers, we cooperate with re-insurance companies based on thorough research. Even though we receive some affordable offers, we prefer to cooperate with reliable partners.
Insurance penetration remains the lowest of the East Asian economies, despite the steady growth of the sector. How is Practical Insurance creating awareness among Mongolian citizens about the importance of acquiring an insurance policy?
Currently, the government is focusing on other matters. Generally, when there is a flood, the victims reach out to the government to ask for help. Supposedly, without making such expenses, the government should invest or encourage the insurance sector, so that the government can free itself from such care.
Citizens’ education regarding insurance policy is an important matter.
It is also a difficult matter. At this moment, 17 insurance companies are dealing with the matter through their representatives. Banks and tourism companies have become a big support for us lately. As for me, it is quite expensive to advertise and educate citizens. It is not easy for around 10 companies to communicate to more than 2 million people, as they don’t have a basic insurance education. From my point of view, it might be significant if we communicate with the citizens through nongovernmental organizations and local entities.
Practical Insurance offers many kinds of insurance policies, including important ones like: house, livestock and financial insurance. Your motto is: “We are committed to building peace of mind for people”.How is Practical Insurance contributing to the social wellbeing of Mongolia’s citizens?
Our Company is one of the companies acting on livestock insurance. Livestock is our national resource. It is under government protection and the protection comes as a type of insurance. So, at the moment, we are doing livestock insurance in 21 provinces. And in the first years, herders used to be compensated a lot and they were satisfied with the insurance. Lately, the compensation amount has been reduced to a certain level and actually livestock insurance shall further be maintained. When the day of actual disaster comes, the government can’t bear all the risks. It is being considered to establish a national re-insurance company along with other insurance companies. In any way, the development of live stock insurance shall be maintained.
Can Practical Insurance be considered the best company to choose for livestock insurance?
Even though we entered into the market very late, we covered a significant market. In the future, we have a number of plans to exceed our competitors. Our philosophy is “step by step”. Generally, when we conducted training in local areas, we realized the name of Practical Insurance was well known. In the first years, it seems our company couldn’t be recognized, as our name was difficult. We have our representatives in every soum (Mongolian district), a total of 555 representatives in the 364 soums of the 21 provinces.
Can you tell us about the different kinds of insurance policies that you are providing?
We offer asset insurance for legal entities, which is based on our asset risk evaluation. This policy is one of our important policies. For example, we have specific insurance policies for mining and electricity companies. Our group company has exposure to mining, electricity and other heavy industries. So, their specialists give us advice when necessary.
Regarding products targeting retail markets, brokers and banks are eager to recommend our services. We conclude that we provide quality services through banks, which includes driver responsibility insurance. We have a policy to cover the damage without any delay, in 3 working days. We value and compensate our employees based on KPI, how they solved the matter, how clients complained.
The products of other insurance companies are similar but our service is better quality compared to others and is considered to be flexible. For example, at the insurance companies’ meeting at the Children’s Center regarding the insurance for horse racing children, a contract of Practical Insurance is considered to protect the insurer the most. I hear such things a lot. We don't put any limitation, such as to claim the damage in 72 hours. We also try to cover all types of damage, not limiting the damages to, for example fire, in order to avoid dispute.
Speaking about your strategy, how are you going to keep Practical Insurance as one of the top players in the market?
Previously, we used to focus on the corporate market. Now, we are aiming at the private sector and developing retail services. Related to that, expense and risk will go up. Now we have around 6 percent market share and in case we pursue the right strategy, it can be increased to no less than 30 percent.
What makes Practical Insurance different from other insurance companies in Mongolia?
There are a number of things. First of all, we give the highest priority to our customers by implementing ISO standards with the motto: “Love the People”. We are also working to introduce online insurance that both insurance service and damage recovery can be done through the Internet. In 2006, we initiated our website for online insurance but at that time, the website capacity was not high enough and insurance practice was barely in existence among citizens.
Second, we are focusing on strengthening our human resources with foreign practices. The developed insurance market has already gone through this and probably holds the next 10 years of experience for us. We also try to provide a policy for employees to come to work with a smile.
Thirdly, we have modern management practices and a strong financial foundation. When I was in Holland studying and working, I learned that mostly 95% of the customers of the bank and insurance get their service through the Internet.
Practical Insurance works according international standards providing best quality health security services. Please share with us from where comes the knowhow of practical insurance?
We learn and cooperate by taking responsibility in certain parts or split the damage to be covered. We have learnt from our own experience and our partners abroad. For example, we can be responsible for damages up to 200 thousand dollars and exceeding amount will be under the responsibility of a reinsurer or a reinsurer will cover 80% of the damage and our company on all damages covers the remaining 20%. No one has this type of capacity in the market and its something that we have because of the international training and because of the research that we have been conducting in different cases all over the globe.
You were speaking about the importance of being covered by international partnerships and also learning from others. What kind of relation do you have now with United States companies and in which ways would you like to increase the cooperation?
There is a big market, such as airplanes and mining resource insurance, which is not developing hard in Mongolia, also construction insurance will become mandatory for all construction companies. For such products, there is a big market if we cooperate with foreign re-insurers and brokers and introduce these services to Mongolia.
As you well known United States reinsurance firms are seriously thinking in investing and reinsurance the Mongolian market such as ALLIED WORLD ASSURANCE, HANNOVER OR BLUE CAPITAL (actually some of them are working with insurance firms here in Mongolia). How are you targeting United States founds, investors and reinsurance company to could meet the increasing demand and give best quality services to the Mongolian citizens?
Practical Insurance can be a reliable advisor in risk management. Not only solving problem when they happen, but we can also advise our customers before any risk occurs. We do our best to execute risk assessments and give advice in a professional way.