Naked Insurance raises R290 million in latest funding round

South African insurtech company Naked has announced it raised $17 million (about R290 million) in its latest funding round.

The World Bank Group’s International Finance Corporation (IFC) led the Series B funding round. It is the largest global development institution focused on the private sector in emerging markets.

Other funding contributors are the German Development Finance Institution (DEG) and Naked’s original investors, Yellowwoods and Hollard. 

Naked co-founder Alex Thomson said the company was excited to bring new investors on board to help accelerate its growth plans.

“This investment validates our position as a pioneer of fully digital insurance in South Africa, and will enable us to grow our team, continue to invest in technology that puts customers in control, and to expand into new markets,” Thomson said.

Thomson told MyBroadband the investment was the biggest ever in an insurtech company in South Africa, as far as Naked was aware.

The injection comes after a previous funding round in 2021 led by Naspers Foundry, another significant investor, through which Naked received R160 million.

Alex Thomson, Naked co-founder and spokesperson

Naked was founded in 2016 by Thomson, Sumarie Greybe, and Ernest North with the aim of making the insurance experience more accessible, convenient and transparent.

After developing its systems for over two years, the company officially launched its offering in 2018.

Thomson said Naked has been overwhelmed by customers’ enthusiasm for its services and has exceeded its growth targets every year.

The insurer’s mobile app and website are powered by artificial intelligence (AI) and machine learning to automate insurance sign-up and policy management.

It allows users to take up vehicle, home contents, building, or single-item insurance without speaking to a contact centre agent.

The entire sign-up process is handled through Naked’s chatbot, Rose, which asks users various questions that can be answered in less than two minutes.

MyBroadband previously compared the processes involved in getting a quote from Naked and other major insurers and found the insurtech offered the highest level of convenience.

Another innovation is allowing policyholders to pause and unpause accident cover for vehicles parked at a safe “sleeping” address for multiple days.

That is ideal for situations where a client might only be driving with another car for a prolonged period — like on a holiday or work trip.

The insurer then deducts a portion of the premium that covers accidents for as long as the policyholder keeps the cover paused.

Naked also lets clients cancel their products on the app with one tap, with no retentions department trying to convince you to backtrack.

Screenshots showing features of the Naked mobile app

Naked said its AI-based system offered unmatched customer convenience while also enabling cost savings, which it can pass on to customers in the form of lower premiums.

Aside from its deep technological focus, the company also uses an unconventional business model in the insurance industry.

“In contrast to the traditional model where insurers’ profits depend on how much they pay in claims, Naked charges a fixed percentage of customers’ premiums,” Naked said.

“In years when claims are lower than expected, the surplus goes to communities and good causes chosen by customers.”

The insurer has dubbed this approach the Naked Difference and said it removed the conflict of interest inherent in traditional insurance.

“Naked isn’t thinking about profits when it processes claims,” the company said. 

Bringing insurance to the masses

IFC and DEG are backing Naked as part of their investments in companies they believe can make a social impact, increase competition in financial services in Africa, and foster financial inclusion.

IFC country manager for South Africa, Adamou Labara, said that improving access to insurance products was a key driver of financial inclusion in South Africa because it could potentially preserve assets, increase incomes and reduce uncertainties.

“IFC’s investment in Naked will help increase the penetration of tech-driven insurance in the country and contribute to job creation and economic growth,” said Labara.

Ingo Schulz, Vice President at DEG InsurTech Global Markets vice president Ingo Shulz said that Naked was well positioned to drive digital transformation and inclusion in the South African insurance industry because of its unique technology and innovative business model.

“We recognize the enormous commercial potential in increasing access to insurance through the use of smart technology,” Schulz said.

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