As managing director of Ashoka, Andrew Kuper witnessed the tragedy of poor people starting businesses with microloans, only to be wiped out by a fire, a family member’s death, or even a short illness. But one day in a coffee house, staring down at a blank piece of paper, he devised a way for poor people to sustain and even grow their businesses: He would start a private equity firm, LeapFrog Investments, that would invest in microinsurance companies and thereby help bring insurance to more of the world’s poor.
LeapFrog launched in October, but only after Kuper and co-founder Staph Bakali, an entrepreneur specializing in emerging markets, had assembled a senior management team plucked from the nascent microinsurance industry, and an advisory board comprising such global finance heavyweights as Felipe Medina, regional director for Latin America Private Wealth Management at Goldman Sachs, and Futhi Mtoba, chair of Deloitte South Africa. “LeapFrog is a big, bold, and new idea—so we wanted to have a huge amount of substance behind us,” Kuper says.
Only about 2 percent of low income people in the world’s poorest 100 countries are currently insured, according to a study conducted by microinsurance expert and LeapFrog partner Jim Roth. LeapFrog will not target the poorest of the poor—those at the bottom of the pyramid making $2 or less per day—but will instead focus its efforts on those with more assets.
The firm plans to invest $100 million over the next 10 years in microinsurance firms—$6 million to $8 million per venture—and will initially work in India, Pakistan, South Africa, Kenya, and Ghana, Kuper says. To entice LeapFrog to invest, ventures must be existing microinsurers poised for high growth and strong returns, large microfinance institutions (MFIs) with tens of thousands of clients who could collaborate in selling insurance alongside their loans and other financial products, or successful insurance companies currently serving the middle class who want to co-invest with LeapFrog in businesses that serve poor people.
Besides its financial support, LeapFrog will offer firms its business expertise. In the case of MFIs and established insurers, that will mean helping to price policies so that they’re truly affordable to someone making $15 per day—say, $4 to $10 per month—while still proving profitable to the insurers. And because “insurance is sold, not bought,” as the old saying goes, LeapFrog will also help with marketing. This could involve working through a high-volume distributor such as a church group. “The bishop will stand up and explain the insurance, and there will be tables outside where people can sign up,” Kuper says.
LeapFrog will also help firms create policies that are easy to understand and that cover what poor people really need. “There are horror stories,” Kuper says. “Broken bones policies with osteoporosis exclusion, women’s health insurance with no reproductive services.” Good policies, he says, will instead insure such common situations as property loss for slum dwellers living around open flames, the cost of a ruined crop, and the rebuilding of the one-room homes that often double as factories.
Microinsurance will enable entrepreneurs to invest in simple yet lucrative technologies like drip irrigation. Poor people often dismiss such investments as too risky, Kuper says, because one mistake means their children will starve, and 90 percent of new businesses purportedly fail by the fifth year. “Insurance empowers people to embark on new ventures or innovate so that they can grow an existing business,” he says. “Otherwise they’re wise to be risk averse.”
Meanwhile, LeapFrog Labs, the firm’s research and development arm, will work to develop commercially viable health insurance for the poor—the most demanded, yet hardest product to offer, given the lack of health care infrastructure in poor countries. The lab will also create insurance products for those at the bottom of the pyramid. “That’s tremendously exciting,” Kuper says. “You can push the frontier and reach ever poorer people with ever better products.”
Kuper also relishes having created a business that melds money and meaning. “So many people end up making a huge sacrifice financially in order to do good for the world. Or they just make money. I think LeapFrog unifies those two aspects of a person that society keeps apart.”
Read more stories by Jennifer Roberts.