South African digital insurance start-up Naked Insurance has raised US$17-million (R306-million at the time of writing) in a series-B funding round led by development finance institutions.

The company said on Wednesday that the International Finance Corporation, which forms part of the World Bank, and DEG (the German development finance institution) in “one of the largest-ever African insurtech funding rounds”.

TechCentral Show | How Naked got covered – Alex Thomson unpacks huge funding round

Original investors Yellowwoods and Hollard are also taking part in the funding round in Naked, which has developed an artificial intelligence (AI)-driven approach to insurance, including claims management.

“IFC and DEG are both backing Naked in line with their goals of investing in companies that can make a social impact, increase competition in financial services in Africa and foster financial inclusion,” Naked said in a statement.

“The funding round signals strong investor confidence in Naked’s management, technology and positioning, as well as in the significant opportunity to use AI and digital experiences to grow Africa’s insurance market in the years ahead.”

Fixed percentage

Naked was founded by actuaries Alex Thomson, Sumarie Greybe and Ernest North to create a “more accessible, convenient and transparent insurance experience”.

“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. In years when claims are lower than expected, the surplus goes to communities and good causes chosen by customers. It removes the conflict of interest at the heart of traditional insurance from Naked’s business model — it means Naked isn’t thinking about profits when it processes claims.”