LeapFrog looking to invest as much as $40 mn for India entry

Mumbai: LeapFrog Investments, a $135 million (Rs 607.5 crore) fund focused on microinsurance, is looking to deploy as much as $40 million in India.

“India presents an opportunity as the level of penetration of insurance is very low,” co-founder and partner Jim Roth said. In other markets, insurance is for the wealthy, whereas in India there is insurance that focuses on the mass market, he said.

LeapFrog will invest between $5 million and $20 million in a company, Roth said. Microinsurance denotes a low premium and coverage designed for the poor and businesses that are not covered by conventional insurers. The Washington-based fund received initial commitments from rich individuals such as George Soros and Pierre Omidyar, and development finance institutions such as the Netherlands-based FMO, Germany’s KfW Entwicklungsbank, and International Finance Corp., the private investment arm of the World Bank.

“The aim was to set up a fund that would tap private capital and would have a social impact,” Roth said.

Insurance penetration in India was 2.32% in 2000, when the sector was opened up to private firms. It increased to 5.2% in 2009, according to the Insurance Regulatory and Development Authority of India.

LeapFrog has roped in Bangalore-based advisory firm Unitus Capital to help them scout for deals in India. “Apart from investing in microinsurance companies, we are also looking for opportunities where LeapFrog could invest in microinsurance products being designed by larger companies,” Unitus director Abhijit Ray said.

Since the microfinance model worked in India, many firms are looking to establish microinsurance companies, Ray said. However, a big drawback of this business is that it has a long gestation period, he said.

The microinsurance market will ride on the back of the microfinance business, said Abizer Diwanji, head of financial services, KPMG India Pvt. Ltd. “The MFI business can cross-sell these products.”

While inclusive insurance is a big market globally, in India LeapFrog can find opportunities in the brokerage or distribution businesses of these products, he said, adding that getting the economics right is difficult as “you need to have a large volume base, otherwise the cost will be more than the revenue”.

LeapFrog has made two investments—$7 million in AllLife in South Africa, which provides life cover to people with Aids, and $14 million in Apollo Investment Ltd, a microinsurance company, in Kenya.

Explaining the kind of investments they are looking to make in India, Roth provided an example of a company in Gujarat that sells weather index insurance to people against the type of crop and the weather conditions they are growing it in. He declined to name the company.

shraddha.n@livemint.com