At the recent Singularity Summit in Cape Town, one of the game changers mentioned were fintechs with a digital first offering. Incumbents in the industry were warned that they could expect smart, tech-savvy startups posing serious competition to their well-established business models.   

A local and particularly relevant example of this is Naked, an artificial intelligence-driven car insurance provider.

The core of the Naked customer experience is its AI-driven business process and mobile app. With Naked, customers can go online and get a final car insurance quote in less than 90 seconds. As well, the bane of many a millennials existence – bureaucratic processes and paperwork – is obviated. The app further serves as a central point from which customers manage their policies and submit a claim after an accident.

The app includes functionality such as Naked CoverPause, which gives customers the ability to pause their accident cover if the car won’t be used for a day or more – instantly reducing the premium for that time. New app features include the ability to generate a confirmation of cover letter on the app in seconds.

Once the customer has generated and accepted a quote, they can get the proof of insurance by using Naked’s mobile app to scan the car’s licence disc. The company explained that this means that someone buying a vehicle on financing can get it insured in as little as five minutes total, from getting a final online quote to presenting the certificate to the dealer.

A digitally first audience

Naked’s offering has gained traction with tech-savvy young adults who want to be able to do everything online -- more than 80% of customers are aged under 40. It noted that its typical customer is a digital native who wants a quick and convenient digital experience, from getting a quote to signing up, to managing their policy and claiming.

Indeed, at a recent demo of Naked’s approach, we saw car insurance quotes being served up within minutes, and users able to buy an insurance policy from their smartphone without reams of paperwork and long delays.

Unlike the traditional approach to insurance, Naked takes a fixed portion of premiums to run the business, with the balance going into a pool to cover claims. Money left over in the claims pool goes to charities nominated by customers rather than towards company profits. Naked will be making the first such Naked Givebacks in the new financial year.

AI for the win

Leveraging AI certainly appears to be working for both the ccompany and its users. It was announced today that the company has grown its user base by an average of 20% a month since its launch one year ago – and without embarking on any large mass media advertising campaigns.

The company enthused that around 80% of its new business comes via word of mouth from existing customers, showing that it has established a viable customer acquisition model for the future. The power of word-of-mouth means Naked has lower advertising and customer acquisition costs than most insurance companies. This in turn, has enabled it to pass its cost savings on to customers in the form of lower premiums. The company elaborated that use of digital channels rather than call centres also helps it keep operating costs – and hence premiums – low.

Naked revealed that it has paid numerous claims over the past year, meeting its target of using 80% of premium income to pay claims. This compares favourably to the loss ratios of most international car insurance and insurtech startups in their early years. The ratio is expected to improve as Naked’s algorithms for fraud detection become ever more sophisticated.

Another result that should give insurance incumbents pause, is that the company has consistently beat its monthly and quarterly customer acquisition and retention goals since it was founded.

As well, it only appears to be building on this momentum, with Naked now looking to expand into new short-term insurance product categories, growing its car insurance customer base, and continuing to expand its team.

“When we opened our doors in April 2018, we knew we wanted to do a lot more than just add another option to the overcrowded insurance market. We believed we could use technology and an unconflicted business model to improve customer experience and value for money in insurance,” explained Alex Thomson, co-founder at Naked.

“What we are most of proud of is the fact that an independent research report found that over 80% of our customers refer at least one other person to Naked based on the online self-service experience, convenience and prices we offer. Customers are embracing what we do, and we have achieved a product-market fit that shows we have a sustainable business model,” he added.

In short, it is a win-win for both the company – which stressed that it is a tech business first and foremost, rather than an insurance company, and for its customers. It’s a less exciting development for the insurance companies out there though, who aren’t leveraging AI.

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