Laka is a ‘digital mutual’ that charges customers retrospectively according to the previous months’ claims experience.
The company began trading in January 2018 after rebranding from ‘Insure A Thing’ to Laka – the Hawaiian goddess of prosperity and hula dancing. Its initial product was insurance for high value bikes in the UK. This has allowed the firm to test its hypothesis – that people will take better care of their possessions if they can see a direct link to their insurance premium.
Customers are billed monthly in arrears. The bill explains how many claims were paid in the previous month and sets the premium accordingly. This will increasingly differentiate between groups, for example bike clubs initially but larger groups such as solicitors longer term. Customers benefit from a monthly cap, which Laka claims is at the level of a regular, competitive bike insurance policy.
Laka buys insurance from Zurich UK to cover the risk of claims exceeding the cap (they haven’t yet). Laka also pays Zurich a fee to provide it with working capital. It is therefore the case, that Laka’s greatest financial risk is credit risk (i.e. the risk that customers do not pay at the end of the month – also not happened yet) rather than underwriting risk.
The company makes money by charging a fee on top of claims it pays.
Laka raised £1.1m in seed funding in June 2018 and used this money to double the size of its team to 15, refine its product and most significantly find the most effective ways to reach customers. It is now preparing for a new round and aims to launch four new products next year.
Laka is also gearing up to launch in Malaysia. CEO Tobias Taupitz (a former banker) says he expects to gain regulatory approval in Q1 2019. He has confirmed an underwriting partnership and a distribution deal with AirAsia. A coincidental benefit of Laka’s proposition is that it complies with Takaful (Islamic insurance), which makes countries with significant Muslim populations an appealing area of expansion.
THE OXBOW PARTNERS VIEW
We like Laka’s proposition despite not generally being fans of peer-to-peermodels.
We found many P2P models too complex to engage the mass market (now-defunct Guevara was a good example), or considered the growth model implausible (how often do you pitch insurance to your friends at a dinner party?). What we like about Laka is the simplicity of its proposition: “do you want to get a transparently-calculated discount of up to 100% on your insurance premium?”. What’s not to like, as they say?
We see many applications for Laka, whether as a stand-alone business (‘Distribution InsurTech’) or as a service provider to incumbents (‘Supplier InsurTech’). For example, an insurer could use Laka’s model to offer affinity groups (e.g. village halls or architects) a differentiated proposition. Laka could transform the affinity from being a marketing list to a pool of customers with aligned interests and, therefore, better loss experience.
And that’s quite apart from the huge Takaful opportunity – for which entry into Asia alongside one of the region’s most prominent businessmen is surely a huge result for an early stage business.
Note that Chris Sandilands was an early investor in Laka.