Insurance cycles: How Zurich and a classic ‘disrupter’ are innovating to build a better bike insurance model
Will passionate cyclists benefit from a model that challenges how we think about insurance?
London, September 2019: At Zurich, Arslan Hannani’s job includes looking for new and innovative ideas. He met Tobias Taupitz, Jens Hartwig and Ben Allen, the creative trio behind a fledging company with a brave new idea for insurance while attending a forum for young companies in London. At first, Zurich and the startup didn’t seem like an obvious match.
Based in London, Hannani is head of Market Management for Retail for Zurich UK. The startup, which he met in 2017 at the ‘Startupbootcamp InsurTech,’ was keen to set itself apart. But after getting into the highly selective accelerator program, it still had a long way to go to convince industry professionals that its approach was viable.
As Taupitz recalls, insurance industry executives were interested, but very cautious. “I had probably 20 to 30 insurers telling me, ‘that’s a brilliant idea, I would love to support you, but let someone else figure it out, first’,” he says.
With Zurich’s Hannani, however, Taupitz and his co-founders managed to find a willing listener. “I thought they had a great idea,” Hannani recalls. But he also understood that there was a lot of work to do to get the company from theory to where it could operate as a real commercial venture. That included doing “a lot of actuarial modeling,” Hannani recalls, “to understand if this new style of insurance was actually sustainable.”
Challenging the accepted premise
The accelerator program where Hannani met the Laka team bills itself as a force taking the insurance industry “into the next decade.” But better and more accurate might be to say that it is bringing the industry out of the eighteenth century and equipping it with modern-day technology and ideas.
While insurance has existed for hundreds of years, changes introduced by digital technology have forced the industry to re-examine its entire model, including how it interacts with customers.
Bike insurance “powered by you”
The new company, which Taupitz, Hartwig and Allen founded, planned to offer insurance to passionate groups of people – ‘engaged consumers.’ But who? The eureka moment came when they hit on the idea of insuring high-end bicycles. Cyclists are serious about their bikes (some might say obsessive) and thus, careful. They tend to be a fairly homogenous, like-minded bunch.
But that’s where insurance conventionality ended. The startup’s business model also called for no premiums to be paid unless there were claims. Policies could be renewed each month, unlike traditional policies, which tend to be renewed each year. Customers might love the approach, but how could a company deliver on these promises?
It helped that Taupitz had insurance in the blood. The son of an insurance broker, he apprenticed at an insurer and then graduated with a degree in insurance and actuarial science. After graduation he went into investment banking, but didn’t stray far, covering, as an M&A specialist, insurance and ‘fintech’ sectors.
Out of the sandbox
With Zurich’s encouragement, in 2017 the new company entered the UK regulator’s ‘sandbox,’ a first-level program to test concepts and ideas. It graduated to become a fully licensed insurance intermediary open for business in 2018. Named ‘Laka,’ today the company offers insurance to thousands of customers. The exact number is not published, but the growth rate of about 30 percent month-on-month testifies to its popularity. Laka has managed to achieve around GBP 1 million in ‘annual run-rate premium’ – a term measuring sales of insurance over 12 months. According to Taupitz, the retention rate even with monthly renewal is still a very respectable 99 percent.
To be clear, Zurich doesn’t own a stake in Laka, which has so far raised about GBP 1.35 million from private investors. Zurich provides the underwriting capacity in the form of a so-called claims float, and earns a fee on claims settled alongside Laka, if there are any. In months where there are no claims in a particular group, or ‘pack,’ customers don’t pay a premium. In months where there are claims, customers’ premiums are capped at a maximum, with Zurich making up the rest if claims exceed premiums.
Taupitz likes to describe it as a cycle-specific ecosystem. “Since we are living and breathing bikes, we have a really good understanding of the types of damages, what to do with them, where to send our customers,” he says. “We even have mechanics that come to your door.” And it has trade accounts with suppliers from which Laka can buy the parts directly.
Small claims … no problem!
Another thing that sets Laka apart is that there is no excess, or, what Americans call a “deductible.” Laka will even settle claims for minor repairs. “We don’t have an excess in our policy, because we believe that it is our job to settle the claim and learn,” Taupitz says. The record low for a claim settled so far was from a customer claiming for a GBP 4 bolt. Another claimed for a spoke worth GBP 16. “The customer feels satisfied, happy in the knowledge that we deliver,” Taupitz says.
Another thing setting Laka apart is the age of its 15 employees (five with insurance background), who tend to be in their early thirties, in contrast to the established insurance industry where the main worry is how to fill the ranks of professionals who are retiring.
With the UK market estimated at five million people owning high-end bikes, it’s possible that Laka’s model could, eventually, expand beyond the UK. In Europe, Taupitz estimates that there are 35 million cyclists “who live and breathe cycling.” The company could even expand into other areas with a dedicated group mindset, like skiing or surfing.
And meanwhile within Zurich, the doors are also opening wider to new concepts which Hannani hopes will resonate. “There is a little buzz about Zurich,” Hannani says, adding that “insurers need people and companies with new ideas.”
Recognizing its achievements, Laka won the 2019 Insurance Start-up at the Award British Insurance Awards. A good start, and possibly just the beginning of an exciting, disruptive future.
To see all the British Insurance Awards in 2019, including Laka’s, click here.