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Kenya : steady growth for micro insurance market

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Kenya’s low income earners now have a wider chance of buying affordable insurance services following an investment by a private equity fund into a local insurer with the money expected to be used for research and develop of new micro insurance products.

LeapFrog Investments, a private equity fund formed in 2008 announced Thursday that it has invested 14 million U.S. dollars in Apollo Investment Ltd (AIL), an East African insurance group.

The money will exclusively be dedicated to developing insurance products for low income earners as per the investment policy of LeapFrog.

Kenya’s low income earners are unable to afford insurance services because of their high cost, despite the fact that they face challenges in financing their health, coping with life after death of the breadwinner or recovering financially in case of a disaster like fire burning their businesses or houses.

As a result, penetration of insurance in Kenya has remained low, estimated at 2.86 of the entries 40 million population based on statistics from the Association of Kenya Insurers (AKI).

“The new money will be of great help in helping us to finance development of new micro insurance products to meet their rising demand.

“We are now taking the next leap,” said Ashok Shah, a member of the board of directors of AIL and CEO of its affiliate APA Insurance.

“The company already offers weather – indexed micro insurance products for crops and also livestock.

“Investments in micro insurance have diverse returns that evolve over time: reputational gains in the short term, knowledge and innovation in the medium term, and strong growth and profitability in the long term.

“If we view insurance as a sector in which knowledge and innovation is decisive resources, then micro insurance can be viewed as a key driver of company success and economic growth.”

LeapFrog will bring in expertise and money and will get undisclosed shareholding in the company.

It has already invested in All Life, an insurance company in South Africa that lends only to people who are HIV-positive.

The private equity fund announced it is looking for opportunities in Asian countries.

Daniel Ndonye, the Apollo Group Board Chairman said the new investment will add value to the company because of the Fund’s “extensive capital and expertise in micro insurance.”

He said both companies are driven by innovation and market penetration as key business drivers.

“In addition to capital, LeapFrog brings expertise in micro insurance to build on AIL’s current micro insurance activities.

“Beyond its diverse current insurance activities, Apollo is now targeting the potential market of 7.9 million people who are self-employed in the informal sector. “

Doug Lacey, the LeapFrog partner who led the investment in Apollo said the choice of Apollo is based on its capacity to tap the vast market of lower-income clients.”

According to a report by Lloyd’s 360 Risk Insight on insurance in developing countries, most markets in the world remain untapped by insurers.

Some 1.5 to 3 billion people are willing and able to buy insurance policies – a vast and a rapidly growing market.

The report further adds that business growth of over 10 percent annually has been observed in developing countries recently and some analysts believe that a seven fold increase is possible over 10 years.

Swiss Re’s recent global report estimates micro insurance to be 40 billion dollars market.

“Success for AIL and LeapFrog will mean a major increase in affordable insurance cover for the people of Kenya and the greater East Africa region,” said Lacey.

LeapFrog is a 135 million dollar private equity fund focusing on providing low income insurance and some of its investors are the International Finance Cooperation, Soros Funds Management, Flagstone Reinsurance, sovereign fund KfW of Germany, FMO of Netherlands, Triodos Bank, Proparco and European Investment Bank among others.

Source : Coast Week