Laka, the community-driven insurance technology company, has successfully raised $4.7 million equity funding. The round was led by early-stage venture capital firms LocalGlobe and Creandum. The round closed on 30th January 2019. Following on from Laka’s pre-seed round in June 2018, this round brings the total amount raised to date to $6.4 million.
The funding will be used to fuel Laka’s upcoming launch in the Netherlands in H1 2020, which it will use as a springboard to roll out its product across Europe and beyond. Laka will be using the funds to further develop its product set, which will include personal accident cover tailored to the cycling community. This will be focused on health, recovery and wellness, allowing cyclists that have experienced injury or accident to quickly find the medical support that they need.
Headquartered in London, and launched in January 2018, Laka has pioneered a community-driven approach to insurance. It is initially focused on the cycling market, and its first product insures bicycles and cycling equipment against theft or damage. Laka has grown quickly, with a 10-fold increase in insured value over the course of 2019. Its products are now used by over 5,000 cyclists across the UK.
Unlike the traditional actuarial model of insurance, which incentivises the insurer to maximise profit by settling as few claims as possible, Laka customers work together as a community and share the cost of claims. Laka handles all claims, divides the cost fairly and limits each customer’s maximum monthly spend with a cap based on the value of the equipment insured by each individual member. Laka members fully benefit from lower costs but are also protected if there are a high volume of claims in any given month.
Because 80% of what each Laka customer pays goes to help fellow members who have damaged or lost their bike, with just 20% to cover Laka’s operational costs, members saved around 25% when compared to the market.
Laka is entirely transparent, meaning customers can see exactly where their premiums have been used and, perhaps most crucially, this business model means that Laka is fully aligned with the interests of its customers. Unlike traditional insurers, which are incentivised to fight every claim to maintain margins, Laka is incentivised to settle any claims quickly and promptly. This far superior claims experience has resulted in a 99% customer satisfaction rating on Google.
All of Laka’s insurance policies are backed by Zurich, and all of its claims team, most of which are ex-cycling mechanics, are based in-house.
Tobi Taupitz, CEO of Laka, commented: “Cyclists should be able to completely trust their insurance providers – through our community-based approach, we are bringing our customers, many of whom have previously been ill-served by legacy players, a product that ensures fair treatment, trustability and transparency. We’ve seen a fantastic response from the British cycling community, who have become our greatest advocates, and we’re looking forward to launching Laka across Europe and beyond.
“The applicability of this model is really exciting. Ideally suited to high frequency and low severity forms of insurance, our ultimate ambition is to roll out Laka insurance products for a range of different purposes. From covering the equipment of the 138 million outdoor sports enthusiasts across Europe, to personal accident cover and beyond, our mission to create a community driven, transparent approach to insurance has only just begun.”
Insurance Edge Comment;
By making every policyholder a kind of Lloyd’s syndicate member, Laka has tapped into that rich vein of woke idealism which underpins so many of the social enterprise businesses in London ansd many other cities. Of course every urban hipster wants their chunky tyred Enhance electric machine, or uber-cool Bianchi 10-speed covered – and replaced – if Londonista thieves strike with their white VW hi-Top. Nobody wants an argument about the value of a bicycle when their daily transport has vanished.
But the trouble with high-minded ideals is that they cost money, due to the failings inherent within human nature. People lie, they get greedy, some are in cahoots with thieves and act as spotters, others are willing to make a fake claim for quick cash. Spotting those individuals within the Laka community will not be easy, if you blithely assume that everyone has Glasto-like good intentions.
Insuring high risk activities like sportives and road races will bring in some big claims, it is inevitable due to the nature of racing. Then there’s the tricky question of personal injury claims, loss of earnings, PTSD, CT scans, impairment of muscle or limb function long term etc. Big money, right there, in every claim – who pays that bill?
It will very interesting to see how Laka roll out their business model across Europe this year and IE may well be proved wrong when it comes to the cost, and frequency, of claims for very expensive machines. If you look at Ireland, where a system of automatically believing claimants, and failing to prosecute those who blatantly attempt to cheat insurance companies, has resulted in 4K insurance quotes for small business, you can see the dangers of being too easygoing when it comes to claims. There has to be a system of checking the validity of a claim, as annoying as that may be.