INSUBCONTINENT EXCLUSIVE:
Laka, a London-based insurtech startup that offers what it calls “crowd insurance” to rival traditional premiums and is initially
targeting high-end bicycle owners, has raised $1.5 million in seed funding
The round is led by publicly-listed Tune Protect Group, with participation from Silicon Valley’s 500 Startups — money that will be used
to enter new insurance categories and for international expansion, including South East Asia.Founded in 2017, Laka has developed what it
claims is a unique insurance model that sees customers only pay for the true cost of cover
At the end of each month, the cost of any claims is split fairly between customers, with the individual’s maximum premium capped at the
If there is no claim, the premium that month is zero
To date, the startup says it has saved customers more than 80 percent compared to market prices.What’s interesting about this model is
that it is potentially much-better aligned with customers, meaning that fewer claims mean lower costs for the entire Laka customer base
Laka itself only makes money when a claim is made — it adds 25 percent on top of each claim to cover costs and create some margin
As long as it stays on top of fraudulent claims, customers stand to benefit with a more cost-effective and fairer insurance
product.“Customers join without paying any upfront premiums
When there is a claim, we settle it with working capital we borrow from our insurance partner in exchange for a fee,” explains Laka
“At the end of the month, we total up all claims we have settled, add our fee on top, and split the bill on a pro-rata basis
Thus, we pay out first and then ask customers to pay us back the expenses incurred”.In contrast, the more a traditional insurer pays out
in claims, the less profit it makes
“It’s a great business model from the insurer’s point of view as they happily take customer’s money and maybe settle a claim down
In the meantime they can reinvest the available capital
This proposition is clearly not as attractive from the customer’s’ point of view,” says Hartwig.To change this, Laka’s model moves
away from “underwriting risk” to credit risk — that is, ensuring customers can pay the required, albeit capped premium when the
startup does have to pay out, which Hartwig reckons is an easily manageable risk with credit cards and modern payment providers such as
Stripe.The cap — where the monthly premium has a maximum so that Laka’s customers never face bill shock — is being provided by Zurich
in the form of a stop-loss agreement for which Laka pays a small fixed fee per policy, per month
Any exposure above the cap is absorbed by Zurich, acting like a reinsurer.Hartwig says that in months with a lot of claims, this is where
the stop-loss kicks in, capping each customer’s exposure at a clearly communicated level
The promise is that you will never be charged more than competitors, but — crucially — if everyone takes better care, you will pay much
less.“We effectively offer a profit share to our customers, encouraging improved behaviour as they benefit from taking better care
By changing the way we earn money in the business model, we fixed the conflict of interest between customer and insurer,” adds the Laka
