There are over one billion people worldwide seeking, and frustrated by the lack of, financial services to
help them rise to the middle class. Although microcredit and microsavings have been holding the limelight as financial tools to help the poor, LeapFrog, a leading impact investment fund, argues that it’s time for microinsurance to join the stage.
In a small dinner with the London based Women Advancing Microfinance UK network, Niclas Thelander the global head of Leapfrog Labs explained why microinsurance has the power to change lives worldwide. Leapfrog labs is the sister non profit grant making organisation of Leapfrog Investments, a profit with purpose emerging markets private equity fund that has reached 15 million people since inception in 2007. The two entities work together to invest and enable game
changers to improve the lives of low income populations and have garnered the support of leading impact investors, entrepreneurs and global financial institutions. Their backers read as a who’s who list of development innovation
and financial clout: Pierre Omidyar,
George Sorros, the IFC, JP
Morgan, Triodos, Calvert Investments, to name a few.
The tool for change that Leapfrog focuses on is microinsurance. For the global population living at “the bottom of the pyramid” (BOP) – the world’s poorest citizens forming an invisible and largely unserved segment – a lack of access to financial services has been a long acknowledged problem. Crudely defined as those living on between $2-2.50 a day on average, they're a major part of the 50% of the global population who do not have a bank account and usually live in developing countries with weak institutions and infrastructure.
However, even in these BOP societies, a lack
of access to savings and credit is not necessarily the reason why people stay locked in cycles in poverty; but the lack of buffer which makes them vulnerable to life’s financial shocks. Leapfrog argues that insurance for the poorest and
most vulnerable, is a sorely lacking financial tool preventing low income citizens from improving their living standards. The poor can save, but just one adverse scenario could wipe out their savings and mire them into debt rendering their savings efforts futile. Leapfrog also found that microinsurance fosters
positive behavioural change: for example, a mother with health insurance may
choose to send her child to school instead of encouraging him or her to work to earn
money to save.
Microinsurance is an instrument to protect the financially excluded against risk; as a concept it is the
same as regular insurance but it focuses on low income people. Usually microinsurance offers
protection against common risks, such as accident, illness, death and natural disasters:
shocks that disrupt any individual’s life, but can prove to be devastating with
lasting generational effects for the poor. The pricing of microinsurance
premiums must also be tailored to the needs, income, cash flow and level of
risk of the individuals. The product must strike a delicate balance between
providing protection, ensuring sustainability for the insurer and not financially
overburdening clients.
