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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

The business of microinsurance got a large boost earlier this month when LeapFrog Investments announced that its investment fund had a final close of $137 million for use on projects in Africa and Asia. That figure amounts to a record and makes the microinsurance investment fund the biggest in the world.

Some would say that garnering such a pot of cash in the economic environment of the past year is an impressive feat. At least that is what LeapFrog said.

"Our team reached this mountaintop against the headwinds of the global financial crisis, driven by a clear vision and value proposition. We don't believe you have to choose between money and meaning," said Andrew Kuper, president and founder of LeapFrog, in a statement.

As for money and meaning, you hear that same thing from Flagstone Re on why it is involved in the microinsurance deal. Bermuda-based Flagstone largely provides property and catastrophe coverage, so microinsurance is one way for it to diversify, explained Brenton Slade, chief marketing officer. (Briefly stated, microinsurance is designed to serve low-income populations in developing nations around the world, for whom standard insurance products do not fly.)

Another business benefit is that it provides a window into new markets. With microinsurance, there is a "focus on growing and developing regions that need insurance, and so this is a way for us to get an early foothold in growing regions as well as fulfilling our corporate responsibility goals," Slade told Risk & Insurance®. Yes, money and meaning.

For microinsurance overall, the LeapFrog news should provide a boost.

"What they do with all this money is show the world really that there is a lot behind microinsurance and that there's a lot of support from the big players, donors and commercial players," said Michael McCord, president of the Appleton, Wisc.-based MicroInsurance Centre LLC.

"And that's been very important in terms of promoting microinsurance in a positive frame," he said.

It's not so much the amount of money but the list of "almost eye-popping" participants in the LeapFrog deal that impresses Brandon Mathews, head of the General Insurance Global Specialties Microinsurance Practice for Zurich Financial Services.

"At looking at who is interested, it's not a cottage industry anymore is what that list starts to say to me," Mathews said, adding that there's a sense of professionalism, of "coming of age." Microinsurance has moved beyond just hype.

"The industry is saying, 'Hey, something is possible,' " Mathews said.

Of course, microinsurance has been around for years before LeapFrog's May 2010 announcement, McCord said. He first explored microinsurance in the 90s while working in microfinance in Uganda, and he eventually teamed with AIG on a successful group personal accident policy. By the turn of the century, AIG was covering 10 percent of Uganda with the product. Other global carriers have also joined into the market, including Zurich, Allianz, Swiss Re, Munich Re, Partner Re and ACE, to name but a few. The better part of this decade, some of the work done at McCord's MicroInsurance Centre has been to educate these global carriers about how to successfully do microinsurance. (It's not a matter of just reducing the price for traditional products.)

Zurich, for instance, is currently working on a pilot project in Jordan for a cash-based hospital product, another for cattle insurance in Indonesia and a "menu" of four insurance products in Brazil, according to Mathews.

Getting back to LeapFrog and its money, it's now a matter of what it does with the fund. It currently has invested in one program, a South African life insurer called AllLife. According to LeapFrog, the organization will continue to identify, advise and invest in insurers, distributors and other microfinance organizations in countries like India, Ghana, South Africa and the Philippines. The primary focus at first will be life and health products, but the fund will also explore homeowner's, weather and property/casualty products.

To get a sense of the possibilities for the microinsurance market, consider that up to 4 billion people in the world are without the insurance protection they need, and they control $5 trillion in income, according to figures from the International Finance Corporation, the private-sector arm of the World Bank.

May 25, 2010

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