Leapfrog Investments: The World’s First Microinsurance Fund -
Pursuing Profit with Purpose

Microinsurance is one of the most unexplored markets and yet one of the greatest needs of the 21st century. In wealthy and poor countries alike, millions of uninsured people lie awake at night worrying about what will happen to their families or businesses in the event of an unanticipated shock such as a flood or family illness. While many of these households are both willing and able to pay for a basic safety net, most do not have access to affordable and quality insurance services. In developing countries alone, it is estimated that 1 billion people are currently seeking and willing to pay for life and health insurance products. Yet, only 3 percent of this market has been reached, despite its potential rewards for both businesses and local communities.

What would it take to unlock this vast opportunity? One firm is already answering this question with action at an unprecedented level: LeapFrog Investments. At the Clinton Global Initiative’s 2008 Annual Meeting, LeapFrog announced its commitment to invest $100 million over the next 10 years in businesses and operations providing microinsurance to 25 million low-income and excluded people across Africa and Asia. “Microinsurance has proven to be socially beneficial and commercially scalable in multiple countries,” says Andrew Kuper, president and founder of LeapFrog.

For villagers such as Mary in Malawi, who is self-employed and supports a family of five, having access to microinsurance has had a life-changing effect. She knows that if anything happens to her, her family’s income and savings will be secure. As a result, she feels comfortable with seizing opportunities such as expanding her small business and investing in her children’s education – raising the family’s income and capabilities. Mary and her children now have a sustainable path out of poverty. Their story could be replicated for millions of others in need through LeapFrog’s efforts.

LeapFrog can be seen as the epitome of creative capitalism, blending for-profit drive with the ability to promote social good on a massive scale. Its innovative business model has attracted acclaim from the likes of the Wall Street Journal and Private Equity International, as well as President Clinton.

CGI recently had the chance to interview Kuper, to learn more about this initiative.

Q. What are some of the unique characteristics of your commitment?

A. LeapFrog is the world’s first investment fund to focus on the microinsurance market. It will grow and support businesses that provide affordable, quality, and relevant insurance products to poor communities, as well those who are excluded from conventional insurance services such as people with disabilities or HIV/AIDS. Our initial targets are households in India, Pakistan, South Africa, Ghana, Uganda and Kenya, where demand for microinsurance products is high. 

LeapFrog is able to provide capital plus unparalleled expertise to its investee companies. I am privileged to have among my partners several of the world’s leading microinsurance experts and former CEOs of the insurance industry, with decades of experience in emerging markets. This allows us to provide investee companies with support in business planning, product design, regulatory and risk management, and development of efficient high-volume distribution channels.

Q. Can you give us examples of microinsurance products?

A. Microinsurance products are insurance policies sold in high volumes at low prices to low-income people. These products vary according to the type of cover and country. For instance, in India, simple life microinsurance currently costs as low as $1.25 a year; however, the associated benefit is quite small, averaging around $150 (still a significant sum for a poor family). In countries like Kenya and South Africa, there are more complex life insurance products that cost $4 to $7 per month, and offer significant payouts of say $750 to $1,500 to individuals and their spouses. We tend to prefer these products that give greater coverage.

Q. What inspired you and your partners to engage in this effort?

A. Each of us was convinced that there is no need to choose between being innovators in business and change-makers in society. My inspiration came partly as a managing director at Ashoka, where I was fortunate to work with Muhammad Yunus and Fazle Abed, two great social entrepreneurs who have lifted tens of millions out of poverty. I recognized the opportunity to start a for-profit fund that supports such innovative enterprises. The idea of focusing the fund on microinsurance came from an old friend of mine, Dr. Jim Roth, who became one of LeapFrog’s first partners. Jim and Dominic Liber, the pioneering actuary in low-income and HIV insurance (and now a LeapFrog partner), had just led the largest study on the supply and demand of microinsurance, covering 100 countries. We were soon joined by Gary Herbert, co-founder of Africa’s largest investment multi-manager who had also run a leading social services agency, and Doug Lacey, a 30-year veteran CEO of the African insurance market, who had managed one of Africa largest and most profitable microinsurance plans.

Q. Can you explain how your commitment is different from other microfinance projects?

A. People are poor not just because they cannot accumulate assets, but in many cases because they lose their steadily accumulated assets to misfortune, or because they can’t take worthwhile risks. In order to eradicate poverty, we need to support the instruments that help generate income such as microcredit, as well as the instruments that help preserve and accumulate assets over time – microinsurance. The rise and spread of insurance has played a central role in the development and prosperity of developing countries.

Q. Microfinance has continued to boom in emerging economies. How has today’s economic crisis affected its momentum?

A. Some poor households may have less income or refrain from spending it during this crisis; on the other hand, people with less income may be concerned losing the assets they do have. Hence, the demand for microinsurance products may increase. In any case, given the size of this market and the intensity of demand, the microinsurance sector is well-positioned to endure financial storms. Microinsurance can protect and enable the poor while offering non-market-tracking returns to those who invest in this exciting new alternative asset class.

To learn more, visit www.leapfroginvest.com/news.php or write to andykuper@leapfroginvest.com. To watch President Clinton announce the LeapFrog commitment at the 2008 Annual Meeting, click here.

Video:Andrew Kuper Introduces Leapfrog Investments (BigThink.com)

Video: Andrew Kuper on the Clinton Global Initiative (BigThink.com)