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‘Micro-insurance has great potential’…………Deepshikha Sikarwar
Leapfrog Investments, a fund that claims to be world’s first micro insurance fund, sees a huge business opportunity in India. The fund has managedJim Roth
to raise over $110 million from an array of high-profile investors including Soros Economic Development Fund, International Finance Corp, KfW, Flagstone and European Investment Bank. Much of that investment is targeted at India, which generated $850 million in non-life micro insurance premium in 2009. ET caught up Jim Roth , principal at LeapFrog. Excerpts: India seems to be a big focus country for you. How much of the total fund size is dedicated to India?
Indian economy is on a strong footing. It has emerged stronger from the crisis and is more macro-economically stable than any other country. There is immense opportunity in the micro insurance sector, as only five million people have access to micro insurance. And, India has the manpower with the right skill sets to ensure further growth of this sector.
Micro insurance is also a well-regulated sector in the country. All these reasons make India an attractive market. We have decided to keep close to 30% for India which is about Rs 138 crore of the total fund size of about Rs 506 crore. We are hoping to make our first investment within ayear after the fund closing in May.
What is the profile of the target companies that you are looking at?
We are interested in investing in insurance companies. There is a 26% foreign stake that’s available potentially for foreign investors. Picking up stake in an existing insurance company where there isn’t any foreign investor and partnering with an Indian company for a greenfield insurance venture or a third-party administrator are the other options.
We are also interested in groups that distribute insurance and help them grow their business such as cellphone firms, banks, micro finance institutions, third-party administrators and risk carriers directly.
We would be interested in a greenfield venture. Our definition of micro insurance is very wide. We invest in insurance for financially-excluded people and low-income groups. Our first investment is in an African firm called AllLife that provides micro insurance to diabetic patients and those infected with HIV. So, we would be interested in India in such insurers that provide such specific products. We are in discussion for an investment into a risk carrier.
What is the size of investments that you are looking at?Jim Roth
If we invest in a risk carrier, it would be the maximum amount we can do, which is $15 million. We can also bring our investors in our fund as co-investors, so we can invest a lot more than $15 million if there’s a good opportunity. If it is a distributor, investment size is likely to be much smaller, probably $5 million. We provide patient capital; we want a seat on board. We want our partner to provide quality, relevant and affordable products. So, we compel all the entities where we invest to submit data to us on a quarterly basis that tells us about what clients they are reaching.
What would be your exit strategy?
We are a private equity fund. We have a 10-year horizon. We look to invest in the first five years and then look at exits after that. Exit would be most likely to be trade sales here, particularly due to attractiveness of Indian assets. We could also exit through IPOs. There may be other funds that may be interested. But, trade sales are the most likely exit avenue.
India is a big but fragmented market, and reach is still an issue…
We’ve modelled a range of opportunities with distributors as well as risk carriers. Also attractive for us is the fact that insurance market in the developed world is clearly saturated, so there is interest in global insurers to expand into the developing world, such as India, China and Brazil. We believe that building a micro insurance distributor or risk-carrying business or investing in an insurer that has a big micro insurance component would be deeply attractive in future as you’ll have a large number of clients. India is essentially the centre of innovation in micro insurance. And India has a high growth rate and, so, today’s low income client is tomorrow’s middle-income client. So, economics are good. India is an ideal market for us.
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