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The traditional insurance industry is broken – here’s why.
It’s the best business in the world – but not for customers.
Insurers essentially make money from selling promises to pay out claims, and profit from not paying them out. So if you’re buying insurance, whether that’s for your car, house, life, anything, you’re not on the winning side.
Laka recognised this, so they turned the cycling insurance industry on its head with a unique collective model in which their members share the cost of all claims. They only earn their share when settling claims for the collective. It’s a new insurance model that’s built on transparency and mutuality to benefit the people – and they’ve built a show-stopping brand and cult following to validate it.
Recent proof of this is Laka’s first-ever crowdfunding round which reached it’s £1million target in under 21 hours. The Laka ‘collective’ is fully behind it, with over 800 joining to invest in a few short days.
We sat down with co-founder Tobias Taupitz to find out more.
What were you doing before you started Laka? Were you always in the Insurtech industry?
Before starting Laka, I was working in Corporate Finance at Barclays, and, prior to that, at KPMG. My focus was on mergers and acquisitions in the financial services sector. More specifically, I worked in the FinTech and Insurance verticals and had the chance to work on some great transactions, including London Stock Exchange Group’s acquisition of Russell and the (unfortunately) collapsed merger between LSEG and Deutsche Boerse.
Many moons ago, I was working in the insurance industry whilst studying insurance business and actuarial science, following an apprenticeship at an insurer. This experience gave me a good understanding of how insurers are run and some profound insights into the good, the bad and the ugly of the industry.
What challenges have you faced as an entrepreneur – either by starting Laka or in a previous life?
Many stars need to align to get a startup running and to keep it alive. One of the biggest challenges early on was to find co-founders with complimentary skills that would buy into my vision unconditionally. Four years in, Ben, Jens and I have never been more aligned than we are today.
Due to its regulated nature, the financial services sector comes with specific challenges. The start-up mantra “test, fail and iterate” only works so much if you can’t actually sell your product before obtaining a regulatory license. The FCA’s regulatory FinTech Sandbox has been a great help in getting us started.
I truly believe entrepreneurs are made, not born. As such, realising and recognising mistakes quickly and learning from them is so important. It’s been a brilliant journey so far and I’m sure there is much more to learn for me in the years to come.
What was the lightbulb moment behind starting this business? What problem were you looking to solve?
Whilst working on two transactions in the fintech and insurance spaces in parallel, I started asking myself some basic questions. Why does every fintech vertical focus on providing better customer service, yet insurance still runs on centuries-old principles? Is the actuarial business model the only way of conducting insurance business? If so, why? And who stands to benefit the most from it?
Traditional insurance charges customer premiums upfront based on estimated claims, plus expense, risk and profit margins. You’re asked to hand over money first, with the promise of getting your claim settled down the line. Of course, handing over money back to the customer means less in the pocket of the insurer. This makes smooth claims experiences a rare find! Customers always come second in the relationship. This just had to be changed and that’swhat Laka is all about.
Why did you choose to focus on cycling?
Early on in our journey, we knew we needed to test our proposition in a niche to get the regulator and (re)insurance partners comfortable. After all, we’re proposing no less than flipping insurance on its head. A basic framework suggested to focus on items that are of high emotional value, high actual value and come with a strong community element for word of mouth. If you have a flat tyre whilst on a ride out, fellow cyclists will stop and help. Don’t expect help from strangers when your mobile phone drops and the screen breaks. The bike was a perfect entry point for us.
How did you meet your co-founders? What’s your relationship with them?
In a way, it was like speed-dating. I met with plenty of people who were either qualified but we didn’t click, or vice versa. I met Jens when I visited the accelerator StartupBootcamp InsurTech, the very programme we participated in later in the year, where Jens was the COO. Jens has worked with dozens of startups and has seen first-hand what methods and tools work and which don’t. Jens focuses on all things product as our Chief Product Officer.
Ben was introduced to me by a mutual contact, and we hit it off from the beginning. What was so challenging for me was to determine if he had the “right” skillset, was still hands-on enough to write code himself and used modern programming languages. I got some pointers from experienced engineers on what to look out for, and he seemed to tick all the boxes. What really convinced me though, was Ben’s motivation. His wife was expecting their second child only a few weeks after him joining Laka. He was foregoing well-paid jobs in the industry for the experience of co-founding a business. Ben has over 20 years of experience and is our Chief Technology Officer.
How has your initial vision for Laka changed over the years, or has it stayed the same?
Interestingly, the core hypothesis has remained the same throughout: provider (us) and customers (you) are better off by turning things upside down and charging the Laka collective based on the actual cost of claims incurred rather than those that might. Of course, there’s been plenty of learnings along the way on how best to engage with partners, how to deal with the payment default risk, and how to explain to customers why we no longer want their money first.
How have the last nine months of the pandemic affected you as a business leader? Did you have to make any tough calls?
Treat your staff well and they will look after your customers even better. Covid19 has put many companies to a test, but as a fully digital company, the switch from office to working from home was easy. It was a much bigger challenge to keep pushing for social interaction and team-building exercises. Our Chief of Staff, Penny, has done a fantastic job organising breakfast Tuesdays, team lunch Wednesdays and pub quiz Thursdays in the early days of the lockdown – until Zoom fatigue set in. We’re trying to make working from home as effective as possible by giving our team home office chairs, screens and budget to improve their home working spaces (standing desks and noise-cancelling headphones are real winners).
Of course, budgets were trimmed and hiring plans reviewed but if anything, we have become more resilient and matured significantly as a company over the recent months. We have set a focus on mental wellbeing and had a really good exchange in the team throughout.
As more people bought bikes, how have you as a business leader handled this super growth?
It is fascinating to see the momentum in cycling. Hardly a day goes by without big headlines including that this would be the golden era of cycling (PM Johnson) or that London will be the largest car free city in the world (Mayor Khan).
This is rocket fuel for our business, and we learned quickly to deal with the increased interest. Laka is as much ‘insur’ as it is tech (“insurtech”) and we’re always looking for tech solutions first.
What’s next for Laka? You talk about it being a ‘companion brand’ in your messaging, does that mean new products are on the horizon? Can you tell us more?
We have a bold vision of building a lifestyle insurance brand. This sounds counterintuitive, but how many insurers spring to mind that you are excited to be associated with? The big opportunity is to build a brand that customers trust.
We plan to establish Laka as the leading partner for personal mobility in Europe and will offer products that keep you in the saddle longer. This might be on the insurance side as much as non-insurance. A good example is our recent brand collaboration with Rapha, where we offered a cycling kit of Rapha quality in the Laka design. Within days of launching this initiative, we were sold out. For those who missed out – stay tuned, a new round of kit will drop soon!
Laka’s campaign funded in just a couple of days, and they’ve already brought nearly 1,000 investors on board. To find out more and join the movement, visit the pitch now.