The unit of the Shriram group where LeapFrog Investment has picked up a small stake is in the business of insuring the poor.
Jim Roth, co-founder of LeapFrog, has recently given interviews to different segment of the media, where in he has consistently stated that if there business requires to be profitable else it will not be sustainable.
Roth was quoted by The Wall Street Journal as, "It's very difficult for societies to develop without the ability to transfer risk." He further added that it is not about huge margins rather it is about high volumes.
He has also said that only 2% of the population is insured which leaves a huge number to be insured and hence there is a great opportunity in the market.
The emphasize on financial inclusion of the marginal, i.e. the poor, had started when the concept of micro-finance became a craze, and every company wanted to start a micro-finance arm.
Recently after a slew of micro-finance companies faced near bankruptcy situation in Andhra Pradesh, the Reserve Bank of India has started working on procedure to bring them under regulation. Since then, there has been a slowdown if not a halt in the micro-finance aims of companies.
Micro-insurance covers the poor with standard insurance on smaller and lower premium charges. Where as micro-finance offers small-quantities of organized mechanism to poor people which they can invest in small-scale businesses.
VIEW: Although there is no announcement on the cost of insurance but media reports placed it at Rs 1,000 a month which will add up to Rs 12,000 per annum. The cheapest low-cost no-frill term-insurance available in the market costs Rs 5,800 per annum, offered by Met Life India Insurance. There are two other term-insurance plans for Rs 5,900. These are from ICICI Prudential Life Insurance and Aegon Religare Life Insurance.
Looking at this the business should make sense, because not Shriram will not only provide for loan for truck but can sell insurance along with it to its customers.
If the media reports are correct on the cost and structure of these insurance products, then they are not the cheapest. Also the product does not cater to the same group who were being helped with micro-finance.