We’re really excited to see the conversation about microinsurance further through such initiatives. As research developments and practioner insights are discussed and better understood, companies like ours can better target the base of the pyramid and increase their impact.

Check out the blog here:

http://www.cgap.org/blog/series/microinsurance-key-managing-risk

Fast Food in the Philippines

Health insurance is particularly important in the Philippines, my focus market, where preventable diseases are the major cause of illness and mortality. Heart disease and diabetes account for approximately 25% of all mortalities. One in five Filipinos has diabetes, and one in three has high cholesterol. The Philippines government and the World Health Organisation have recognised many cases of these “lifestyle-related diseases” are preventable or controllable through better nutrition and exercise. There appears to be some connection with the Filipino diet which, while delicious, is rich in fats, oils, sugar and salt. I have never seen such a preponderance of fast-food outlets as in Manila. Unfortunately, the weight of this problem is felt disproportionally by the poor who have higher incidence of preventable disease and lower capacity to pay for proper care.

Public health expenditure in the Philippines amounted to around US$3.3 billion in 2005, around 3.3% of GDP, which is low by world standards. The bed provision rate of 0.9 per thousand people is one of the lowest rates in the world, similar to India and Mexico. While the public safety net is strong it cannot solve the problem alone. In June 2010, newly elected president President Aquino said he wants every citizen have access to healthcare by 2013. In July 2010, Health Secretary Ona said an additional US$195 million would be needed to widen health insurance coverage to all Filipinos by 2013, on top of an existing annual budget of US$630 million.

In this context, the private sector represents an important provider of affordable primary, secondary and tertiary healthcare to many Filipinos. There is considerable room to grow: private health insurance penetration is extremely low, around 10% of the eligible population, and out-of-pocket expenditure still accounts for approximately 80% of total private spending. Private health insurers are well adapted to serve the poor, products can be provided for free by employers, large employers provide a relatively inexpensive distribution channel, and products can be coupled with discount cards to cover specific conditions, additional family members, or particularly dangerous occupations. Helping the Philippines health insurance sector to grow, and improving the quality and affordability of its products, is a critical enabler to improving the quality of life of large numbers of people in the Philippines.

A couple of weeks ago, I was pleased to see the Economist run a special report about Africa as its front-page story. (I was also delighted to see a long-necked giraffe on the front cover, the giraffe being by far my favourite animal, but that’s not the point.)

Me, and a friendly giraffe

The piece, titled ‘A hopeful continent’, is just what it sounds- optimistic, anticipative, and powerful in changing long-held perceptions of the region. It charts the writer, Oliver August, as he makes an auspicious trip South from Dakar through the West African coast, up through the slightly hairy Sahel region towards Cairo and back down through East and Central Africa, ending up in Cape Town. Putting aside my overwhelming jealousy, it makes for very compelling reading. It also reminded me of my own experiences living and travelling in Zambia, South Africa and through Kenya, Uganda and Tanzania, and resonated, I feel, with much of LeapFrog’s model and market opportunity.

The author describes the rise of the emerging consumer in Africa and its growing middle class, pointing to the rapid urbanisation of cities, increasing secondary-school enrollment (48% between 2000 and 2008), declining rates of malaria and HIV infections, and the telling statistic that over the past ten years, real income per person has increased by more than 30%. Nigeria, where LeapFrog recently invested in insurer CrystaLife, produces more movies than America. In Kenya, where our portfolio company Apollo has its headquarters (the firm works across much of East Africa), one in two people now uses the internet. Google, Intel, Microsoft, Nokia, Vodafone and IBM are big investors in the country.

One of my favourite photos: a mobile money agent I once met in Chirundu, Zambia, and her daughter

The Economist article by no means ignores the continuing plight of many of Africa’s citizens in its less developed regions. However the author’s impressions are predominantly optimistic: less violence, better governance, the rise of technology, and in large part, the ascendance of the continent’s emerging consumer. Similarly, the image of Africa which I found during my time there was one clearly at odds with the descriptions often found in the Western media. For instance, there are the overwhelming economic benefits brought about by the continent’s mobile revolution- I was not surprised to read that Africa now has three mobile phones for every four people. One of my first shocks on arriving in Lusaka was noticing the overwhelming presence of smartphones. Many people have more than one, or several sim cards, to take advantage of the reduced rates offered by different mobile network operators for intra-network calls.

LeapFrog’s most recent investment, Bima, is emblematic of the vast power of cell phones- the distributor of mobile insurance reaches 4 million people in six markets across Africa and Asia after just 18 months of operations. Moving on to governance, August, the author of the Economist piece, mentions that he was never once asked for a bribe during his trip: I undertook several road trips on the continent and neither was I, although I did once nearly run over a crocodile basking on some warm tarmac. August also describes the signs of lively democracy evident in countries like Senegal and Guinea: something I noticed myself, in the spirited political debates I would heard in Lusaka, and the fun people poked fun at their cities and governments on the site DearZambia. (‘Write about your experiences with services in Zambia’).

Old meets new: Stone Town, Zanzibar

My experience, and the images presented by August’s article, tie in extremely well with much of LeapFrog’s market opportunity and investment thesis. Our focus is the emerging consumer: the Ugandan driver who is looking to insure the boda-boda he uses to pick up clients, the mobile money agent who is looking to save so she can open up a new kiosk, or the millions of people who own mobile phones but no bank accounts– people who are willing and able to pay for products that they value, but which they are not currently offered. Justine Greening from DFID spoke about this opportunity in a recent speech at the London Stock Exchange.

Hustle, bustle: Kitwe, Zambia

A subsidiary of Wal-Mart now has 300 shops in 14 African countries. More than a third of Kenya’s GDP now flows through M-Pesa. August talks about fishermen out at sea at Mombasa using their mobiles to check prices for their catch before deciding where to land their boats. There is a unique opportunity to serve these emerging consumers and these striving, working low-income people sustainably and at scale: these examples and my experiences have shown me that it’s not impossible to make profits and a difference at the same time, with the ultimate aim of achievable sustainable social impact. I’m lucky that I will be visiting West, East and South Africa again next month to meet some employees and beneficiaries of our portfolio companies, and I’m enormously looking forward to witnessing our investees’ profit-with-purpose business models and the social impact they make first hand. More to come.

The USSD platform based product will play an integral role in helping to introduce the insurance concept to the mass market in Kenya, where insurance penetration is only at 3%.  According Gibson Muthamia, APA’s head of microinsurance, “Kopa Bima will be able to reach a market that has historically had no other form of accessing insurance under the normal distribution channels.”

Kopa Bima is affordable for the majority of Kenya’s mass market and is an annual cover that can be obtained for as little as a single payment KES 600 (approx. USD$ 7.00).  Airtel subscribers can choose to pay in three or six monthly installments, and Safaricom subscribers must adhere to the single installment. 

Key benefits of the product are listed below:

      —  Death                                      KES 100,000   (USD$ 1,176)

      —  Permanent Disability         KES 100,000   (USD$ 1,176)

      —  Hospitalisation                     KES   20,000   (USD$ 235)

      —  Funeral Expense                  KES   20,000   (USD$ 235)

Due to uncertainties surrounding the recent presidential elections in Kenya, the team decided to postpone the official product launch to early April.  In the meantime, bulk SMS’s have been sent to Safaricom and Airtel subscribers to market the product.  These messages have not gone unnoticed, as over 700 people have registered in a fortnight.  The product team worked to make Kopa Bima as straightforward as possible by moving away from the technical insurance jargon that often intimidates consumers and streamlining the product through reduced registration time.  The registration takes less than three minutes!

The complete marketing strategy for Kopa Bima is ready for execution, and we anticipate that it will be instrumental in reaching Kenya’s insurance industry’s untapped mass market. 

For more up-to-date information on the strides that APA Insurance is making in Kenya’s insurance market, follow ‘APA Insurance’ on Twitter and Facebook at https://www.facebook.com/APAInsuranceLtd.

Through my work at LeapFrog I’ve come face to face with these factors in a very real way.  I’ve actually been quite enthused by the prospect of navigating these challenges through a cross-sectoral, collaborative, and localized approach, and learning from and building on our team’s specialist expertise in exactly these areas.  But the challenges outlined in this report are very real.  And I’d like to touch on a few in more detail:

Building trust.  The simple fact about insurance is that it requires you to pay upfront for something that may or may not happen in the future, so trust that the provider is “good for” their obligation becomes such a critical component of demand.  The report outlines a few angles from which insurers can build trust with low income consumers, including: product tangibility, specific training of agents, and affiliations with community based organizations.  At LeapFrog we have worked to leverage our expertise in all of these areas, and more.  At a very high level, it is our ethos and objective to invest in and partner with local companies, because we fundamentally believe that it’s their local knowledge and cultural understanding that is vital in continuing long-term, trust-based—and therefore sustainable—distribution relationships.  In working with our local partner companies on the ground, we have also leveraged our understanding of the micro consumer to assist with creating tangibility in product design; through LeapFrog Labs we have helped train middle level management to ensure messaging is tailored to low income customers when communicating product specifics; and in many countries we meet frequently with large, religious and non-religious organizations that aggregate significant numbers of members—to assist our current and future partners to tailor meaningful products that these trust-based organizations can wholeheartedly recommend.

Liquidity constraints.  A critical part of understanding the low-income consumer is appreciating their weekly, and daily, pattern of cash flow.  This is integral to product design, and often translates into weekly or monthly premiums, instead of payments made on an annual basis.  As this report notes, such frequent collections can increase the cost of administering a policy and increase premiums, so we must think in innovative ways about collection.  In practise, these regular collections can be streamlined in a cost effective way by bundling in with other regular payments, such as those for utilities bills, purchases of seed by farmers, loan repayments, religious contributions, or mobile phone top ups (as proven by our partner company BIMA).  In market, it is these alternate collection avenues that we work with our partner companies explore.

Building the client value proposition.  Low-income consumers form a vast market and, as alluded to above, have specific consumption preferences that necessitate tailoring of a unique value proposition.  Like any other market segment, building a credible value proposition must be based in a thorough understanding of their needs.  This exact ethos is at the core of LeapFrog’s profit with purpose vision, and the very same vision of each of our local partner companies.  In Kenya, for example, our partner company Apollo has in its team an agriculture specialist that has designed products specifically catered to pastoralists in the northern region of Marsabit.  Recognizing the biggest risk these pastoralists face is weather related, the product enables pastoralists to insure their cattle, sheep, goats and camels against drought through a weather index method based on weather satellite readings in defined regions.  If satellite readings indicate reduced rainfall or forage, each pastoralist is entitled to a defined payout to compensate.  It’s pretty amazing, and you should read more about it here.

While there is no understating these challenges, I really think it’s their very existence that makes what we do at LeapFrog so special.  In this regard, I think it is critical to make explicit the major implicit finding of this report: the purchaser of microinsurance is a discerning customer indeed.  This is a hugely positive takeaway.  Not only does it provide anecdotes that point to the size of the opportunity for the local insurers that “get it right”; but it also drives home the point that only with the discipline of a commercially viable model are we truly forced to conduct with integrity our “market research,” and to fully understand the low income consumer.  Giving away products on a non-commercial basis does nothing to drive understanding of the customer and does nothing to drive constant improvement, refinement and tailoring on the side of the provider.  It is only when the customer pays for the product and voluntarily renews their policy do we get the feedback we need that we are (or are not, as the case may be) truly serving their needs.  This is exactly why profit and purpose go hand in hand, and this is exactly why the discerning low income consumer is who we at LeapFrog choose to serve.

LeapFrog’s President and Founder, Andy Kuper (winner of numerous entrepreneurial awards including the 2012 Ernst & Young Entrepreneur of the Year National Award), is fond of calling LeapFrog a ‘flotilla of speedboats’. He is referring directly to the impressively consistent direction that the firm is embarking upon, while each one of us drives our own business in the most responsive way possible. Unlike a larger single boat, we’re able to be truly agile and progressive with how we approach our goals.

At LeapFrog Labs, where we focus on arranging operational improvement initiatives and measuring our social impact, we are running several innovative projects across our entire portfolio, from designing new products to finding new ways to increase rural customer awareness to pushing thought leadership on impact measurement. While all of these projects are in line with the general direction of LeapFrog, it is up to us to navigate each initiative along new, uncharted waters. Being able to collaborate with like-minded individuals to achieve better results together has been a pleasure.

Having personally taken an independently entrepreneurial path before, it has been a new and very rewarding experience to feel the familiarity of pushing projects forward, while being generally guided and supported by an overarching, collaborative direction. For people out there with the same kind of entrepreneurial inclination, I encourage you to seek out a similar ‘flotilla of speedboats’ that fosters creative, innovative thought and initiative, while being supported by a common goal.

At Express in Ghana – one of our portfolio companies – we’ve seen how important coordination amongst these stakeholders is. On the regulatory side, we’ve seen that the National Insurance Commissioner (NIC) in Ghana, using research from the German International Cooperation (GIZ), has tried to adapt its policies to reflect the realities of rolling out new, and often experimental, microinsurance products. Recently, the NIC simplified its approval procedures for microinsurance products in order to promote the growth of these products for low income people. Express has benefited from close communication and collaboration with the regulator – products are more easily able to pass through the regulatory process when the regulator has a better understanding of the product and its potential benefits to underserved people.

Input from academic work on microinsurance and social metric development along with the experiences of NGOs and development organizations are necessary as well. LeapFrog has benefited from this research in putting together our social impact framework so that companies like Express can measure their impact and set measurable targets. And as data flows back to the NIC and GIZ will promote further product development and inform regulatory practices, and will propel growth and customer reach.

While I’ve received a glimpse into the potential value of coordination through my work with Express Life in Ghana, these observations hold promise for the Financial Inclusion 2020 initiative and the new attempt to foster a virtuous cycle. I’m looking forward to seeing the progress of the initiative!

Almost all counterparts I have met with passionately believe in the ability of insurance to uplift the livelihood of mass market consumers. Pawn shops are an important distribution channel we have been considering, as they perform an important role as ‘bankers to the poor’ in many South East Asian markets. Cebuana L’Huillier is the largest network of pawn shops in the Philippines, developing microinsurance products through Cebuana L’Huillier Insurance Solutions (CLIS), their insurance division, and distributing over their network of over 1500 retail outlets.  CLIS has a program called ‘Search for the Happiest Pinoy’ (a ‘Pinoy’ is Tagalog slang for a Filipino person). This is a nationwide campaign aiming to “rekindle values of optimism, resilience and hope in Filipinos amidst the global economic crisis” and highlight “the positive things that come with obtaining quality and affordable insurance security, peace of mind and ultimately, happiness”. Counterparts like CLIS are strongly aligned with LeapFrog’s vision for social impact.

There is a common perception that the Philippines can be a challenging market for getting deals done and I’ve experienced this first hand. Most of the insurance companies we focus on are controlled by founding families. Understandably they are attached to continuing their heritage, and their appetite for growth can be limited by the size and needs of the family. This can make the case for an outside investment difficult. However, the interest of foreign investors in the Philippines insurance and financial services sector is increasing, and successful exits are proving their value-adding potential. It’s exciting to be involved at a tipping point in the opening of a market sector to professional investment!

Me and my Barong in the Philippines

I’ve found our Filipino partners to be extremely generous, warm and welcoming. From connecting with the CEO of a large regional bank by practicing my rudimentary grasp of Tagalog phrases, to being treated to a hand-made ‘Barong’ shirt to wear in meetings by our Advisory Committee member Luigi Bernas, I have been struck by the hospitality and openness of the people I have met and am always excited to return to see our friends there.

Onward and upward to another exciting year in the Philippines!

I have been at LeapFrog nearly 8 months now, and my time has been pretty cool. I started at LeapFrog after graduating from a Masters in International Relations at Johns Hopkins SAIS, where I focused on International Development. And with my previous background in banking at Goldman Sachs, this role has been a perfect combination of these two “worlds.” Since I left Goldman in 2009 I have been quite committed to finding some way to combine my skills…and this seemed to come together in the investing for impact space. Indeed, I have become quite passionate about combining profit with purpose, and money with meaning! There are so many different facets to the work LeapFrog does, but I thought in this introductory post, I’d outline a few that I have found really interesting so far:

A different approach to scale…

Prior to joining LeapFrog, I had worked mostly, on the development side, with small-scale entrepreneurs. In Peru, I managed a microcredit program for around 60 micro borrowers, where we loaned people amounts from $20 for 3 or so months. In Honduras and India, I worked with Technoserve and the Grassroots Business Fund on different approaches to sustainably enabling and financing SMEs. I loved these roles, and they were so fulfilling because I could see the way credit and business opportunities could transform small-scale businesses and empower the entrepreneurs. However, there was always that question in my mind of scale: how many of the micro market stalls we financed could realistically “make it” given the competition they faced? How many jobs could we enable through the SMEs we financed given the time it took to diligence one investment? At LeapFrog, we are tackling the issue of scale with a different mindset. In a way, we are seeing bigger, more established businesses as very efficient, cost-effective providers of services, and that simply by looking at the low income market as a “market” instead of as a pool of beneficiaries, these businesses can provide quality and affordable services to millions of low income people just as they do to others. LeapFrog partners with and invests in local businesses that are already at scale. These local partners provide valuable and affordable services for low income people, and also create jobs for thousands of people in-market.

The special thing about insurance….

I was also attracted to LeapFrog because, as it relates to social impact and scale, insurance is a really exciting product. By definition, insurance only works if you insure, literally, thousands or millions of people. So scale is ingrained in the way insurance works. And on the social side, allowing people to mitigate the huge risks they face is just so valuable. One of the principle reasons why low income people are often unable to “climb” their way to higher incomes is because of one-off shocks like health, weather, theft (e.g. of a vehicle that takes people to income-generating areas) or otherwise. In Peru we were tackling this problem with housing loans so people could improve the security and structure of their house to mitigate against theft and break-ins. However, if we had have had microinsurance as a component of the microcredit program I have no doubt it would have been extremely valuable to our micro-clients.

“Investing for impact” with both social and financial returns…

LeapFrog is a fully commercial fund and operates just like a private equity fund, with a management fee to cover our cost of making investments. In the investing for impact space there is a continuum of funds that range from fully commercial to fully grant funded, and many innovative mixes in between serving different needs, different investment sizes, and different niches. The exciting thing about the way LeapFrog operates for me, is the fact that our approach to achieving scale is fully financially sustainable not only from a returns perspective, but also from a fund perspective. This is driven largely by the size of our investments ($5-20M), and the fact that this makes the cost of doing due diligence affordable relative to the investment size. From a return perspective, we’re simply providing a much needed product to low income consumers of emerging markets. If the product we provide is right and is valued and demanded by low income people, this can not only lead to a hugely social outcome, but this also leads to a sizeable commercial opportunity aligned with these social goals. In my view, this last point all comes about by simply treating low-income people as people. Put simply, just like you and me low income people pay for services they value. I learned very quickly in Peru that the microentrepreneurs I was working with didn’t need “saving.” In fact the reverse – they were much more financially sophisticated than I was (not hard to understand if you have to survive on less money), and only wanted the opportunity to have access to the same services higher-income families do, at reasonable prices. We believe this can be done, and our local partners do too.

So from a very high level, it wasn’t hard for me to get excited about the work we at LeapFrog do. It has also been a really interesting experience on the ground day-to-day, which I will elaborate more on in a future post. As a quick preview…

Riding an ojek to meetings in Jakarta

All this said, our work is certainly not without its challenges, and as a relatively young organization, we are learning as we go and bringing on fantastic people to only continue to innovate as we go forward. Like many other businesses that target the low-income market, challenges include the distribution of insurance—i.e. actually getting products in front of clients in a way that they understand and need, and pricing these products appropriately. This requires us to think creatively about ways to reach lower income consumers that might otherwise be “off the grid” or harder to reach (e.g. Indonesia is still a very rural, dispersed, and agricultural population). For insurance in particular, trust and understanding on the part of the purchaser is a major part of making any initiative successful – after all, unlike microcredit, insurance requires lower-income families to contribute some cash upfront for an event that may or may not happen in the future. They therefore need to trust that that hard-earned dollar of premium they pay will actually result in a financial benefit to them at the time they need it most. These challenges certainly exist. However, our local partners are proving, everyday, that microinsurance works. Our companies have already insured nearly 8 million lives, and over 10 million risks. That to me is pretty amazing. And at a very high-level, good proof that achieving financial returns and social impact isn’t a question of one or the other, in fact they can go hand in hand.

Could probably get used to living here.

My previous experiences have, to some extent, led me to LeapFrog’s unique model of profit-with-purpose. My first job was as a marketer with Google, following which I served as a Fellow with non-profit Kiva, working within MFI partner organisations in Zambia and South Africa. What struck me most during my application process was the way that LeapFrog’s thesis manages to combine the sustainability and profitability of private organisations with the social impact that most people associate with traditional non-profits. As someone with a passion for development and also a belief in the strength of the private sector and market-based solutions to poverty, LeapFrog’s business model struck me as particularly brilliant, and I haven’t been disappointed: now that I’ve been here a little while, I’m becoming an evangelist for the mutually reinforcing nature of profit and purpose.

In addition, I’ve been particularly impressed by the strength of the working culture at LeapFrog. While we are spread across offices in South Africa, the UK, the US and Australia, there is a remarkable sense of cohesion within the group, much of which is down to various teams’ willingness to wake up at unsociable hours of the morning in order to participate in conference calls. (I am, without doubt, not a morning person, so I’m extremely appreciative of the UK’s willingness to participate in 7am calls, sometimes with video. That’s courage.)

LeapFrog’s Australia team.

LeapFrog hires real superstars from around the globe, yet my colleagues are consistently extremely humble when pressed about their achievements, and the atmosphere is noticeably collegiate and supportive. These are team members who’ve lived and worked all over the world at top-tier organisations, and who have a variety of different, unusual interests- among the Fellows alone, there are surfers, taekwondo experts, entrepreneurs and I believe, one woodworker. LeapFrog’s President imaginatively describes us a ‘flotilla of speedboats’, benefiting from a flat management structure where each person is ‘in training to be a captain or co-captain of a speedboat’.  Having previously worked in a variety of structures, one very large international enterprise and following that, a smaller one where I was the sole team representative at my location, I’ve found the size of the office to be a very effective balance: we are seven in the Sydney office, among a total group of around 25.

For me, it’s easy to feel passionate about going to work in an environment like this, even after just a few weeks. Oh, and on top of everything else, there are Tim Tams in the office fridge.