South African insurtech Naked has secured R700 million ($38m) in a Series B2 funding round.
The round was led by global impact investor BlueOrchard, with increased contributions from existing backers Hollard, Yellowwoods, the International Finance Corporation (IFC), and Germany’s development finance institution, Deutsche Investitions- und Entwicklungsgesellschaft.
Naked, co-founded in 2018 by actuaries Alex Thomson, Sumarié Greybe, and Ernest North, has established itself as a disruptor in the insurance sector with a fully digital platform powered by artificial intelligence (AI) and automation. The company provides insurance for cars, homes, and contents, along with standalone cover for valuables such as phones, laptops, and sports equipment.
Naked’s latest funding round follows a R160m ($11m) investment in June 2023, led by Naspers Foundry.
Thomson said the R700m investment marks an exciting milestone as the insurtech continues to define a new category of insurance.
“It’s a strong vote of confidence from both our existing shareholders and our new investor, BlueOrchard,” said Thomson.
The latest funding will support Naked’s growth plans, including further investment in automation, AI, product development, and market expansion. The company also aims to enhance its advertising efforts to attract and grow its customer base.
Asked about the company’s current market share and growth since its establishment six years ago, North explained that specific numbers related to financial performance or market share are not disclosed.
“However, our financial performance has consistently met our business objectives, so we’re very happy with how the business is growing. We have pioneered a new category in insurance in South Africa – fully automated, 100% digital insurance – and aim to continue to lead in this space.”
North added that the business is designed to scale rapidly in the years ahead.
“Our latest funding round further strengthens our capital base, enabling us to further accelerate our growth by continued investment in technology, expanding our team of data scientists, developers, and operational staff, and extending our reach through mainstream advertising.”
When Naked first launched, it began with car insurance, which remains the largest part of its business. However, North noted significant growth in home contents and buildings insurance, which the company introduced about a year after its launch.
“Our standalone cover for valuable items – especially cellphones – has also proven to be incredibly popular and is clearly addressing a gap in the market,” he said.
Currently, the company is focused on expanding its existing product offerings and improving its claims processes. Regarding car insurance, North shared that they have seen particularly strong uptake among young drivers and individuals who have never had car insurance before.
With about 70% of vehicles on South African roads uninsured – mainly because of high costs – North said that making insurance more accessible is central to Naked’s vision. An example of this is their third-party-only cover, which costs about R70 a month for R10m in liability coverage.
“We believe every car owner should, at the minimum, consider purchasing a third-party-only product to protect themselves against potential financial risks,” North said.
In addition to driving growth, the funds raised will help meet regulatory capital requirements as Naked establishes a “cell captive” underwritten by Hollard Specialist Insurance (HSI). This setup requires a capital buffer to ensure the company can meet claims obligations, even in extreme loss scenarios.
Insurtech sector on the up and up
The R700m cash injection marks the largest insurtech investment in Africa to date followed by R400m secured by insurtech start-up Pineapple in a Series B funding round in November 2023.
South Africa’s insurtech sector has experienced notable growth, establishing the country as a leader in Africa’s insurance industry. According to FT Partners fintech industry research, South Africa accounts for the majority of insurance premiums on the continent, boasting an insurance penetration rate of 12.2%, higher than many advanced countries in the Europe, Middle East and Africa region.
Despite the global downturn in insurtech funding, Africa saw a slight increase in deal activity in 2023, with 17 deals recorded – a 13% year-over-year rise. Notably, South Africa was among the most active countries in 2023, securing three deals for Pineapple, Naked and Root Platform.
