After years debating its effectiveness and sustainability, microinsurance may soon be as attainable as microcredit to low-income people in developing countries. LeapFrog Investments, the world’s first microinsurance private-equity fund, just announced it has raised nearly $140 million to invest in microfinance and insurance companies in Africa and Asia. Their goal is to provide small-scale insurance to as many as 25 million poor people. LeapFrog surprised microinsurance skeptics when it surpassed its original investment goal of $100 million within just 18 months. It is now the largest microinsurance fund in the world.
Not entirely unlike insurance policies in the US and other industrialized nations, the aim of microinsurance is to protect the assets of low-income businesses, individuals and families from economic shocks brought on by illness/death, accidents, natural disasters, poor crop yields, etc. As an effective risk management policy, microinsurance allows poor people the ability to make productive investments such as in small businesses, education, or healthcare, with the peace of mind that they won’t lose everything due to a death in the family or a devastating flood. Unfortunately, penurious people in the developing world are more prone to health issues, unsafe work environments and natural disasters, exacerbated by global warming.
This all sounds quite ideal, but will it work?