Fail Better

Farrukh H Khan, the Author

First microinsurance agency proves the point of 'failure'

"Try again. Fail again. Fail better." Samuel Beckett's words could almost have been written about social innovation. In a new series on failure, Farrukh Khan, director of Acumen Pakistan says failing is crucial if we are to solve the most intractable social problems, particularly in developing countries where social investing can be a tricky business.

In the start-up world of Silicon Valley, failure is a badge of honor that entrepreneurs and investors wear proudly on their sleeve. In the social sector, however, failure is often swept under the rug or treated as a one-off exception. Over the past 12 years at Acumen, we’ve seen that a key part of successfully supporting emerging social enterprises is the ability to take a risk on an untested idea, and have the patience to test, fail, and re-test the idea until the model is proven. The mindset and ability to learn from failure is a critical success factor. 

In 2005, the Aga Khan Agency for Microfinance (AKAM) launched a new company, First Microinsurance Agency (FMiA), with the help of a $5.4M grant from the Bill & Melinda Gates Foundation to test new micro-insurance products for the poor in Pakistan. Acumen invested $384,000 in equity capital. In addition, to help the company grow, Acumen and AKAM provided a $1.8M stop loss facility that would bear 90 percent of the company’s cumulative underwriting losses (i.e., the shortfall of premium income over claims payments) in order to encourage a mainstream commercial insurer to underwrite FMiA’s policies. The business plan envisaged that the firm would grow rapidly and break even within three years. 

At the time there were no successful precedents for commercially viable health micro-insurance products for the poor; the company was as much an experiment as it was a business model, but one whose social impact had the potential to revolutionize the way poor communities access healthcare. FMiA’s approach was to leverage existing micro-finance networks to sell their micro-insurance products, and gradually increase their customer base until they could become financially sustainable. Their initial products focused on mitigating two commonly faced risks: death of a family breadwinner and hospitalization due to severe illness or maternity complications. View Full Story