Laka disrupts the post-COVID-19 cyclist insurance market
Founded in 2018, Laka has quickly expanded to provide over 10,000 bikes at a value of £26m with insurance cover. This latest round brings the company’s overall capital raised to £4.9m.
Taking the investors’ receptiveness as an indication of evolving attitudes to personal mobility post-COVID-19, the company has been emboldened by the news.
Indeed, with a 215% increase in revenue for 2020 - in no small part because of the in bicycle sales this year - Laka appears to be riding the crest of a promising wave, as the personal mobility market is projected to reach £100bn in less than five years.
A new insurance philosophy
Far from simply capitalising on the unexpected boost brought about by the pandemic, Tobias Taupitz, Founder and CEO of Laka, emphasised that the company represents the pursuit of a brand new paradigm for modern insurance.
"The outdated traditional insurance model is based on insurers taking your money and profiting from not paying out claims. Not doing the very thing you pay them for is what makes them more money. It's insane. Insurance is the best business model in the world - just not for customers.
“That's why we've flipped insurance on its head and created a better, fairer way of doing insurance by sharing risk in a true collective. Our members share the cost of all claims and we only earn our share when settling claims for the collective.”
With consumer preference moving substantially away from public transport options and towards personal mobility options, Laka could be an insurtech well-placed to lead that change.
“The time of the bike has come and we are ready for it,” concluded Taupitz. “What's more, we have assembled a brilliant team of backers and cycle industry experts, who, together with our fast-growing collective, will ensure we maximise this amazing opportunity."
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.