Why Insurers Are Daring to Run at Even Bigger Risks
WHY YOU SHOULD CARE
Because they could keep you from going under water — financially, that is.
- Traditional insurers are running scared of climate crises, but a range of new age innovators are using smart tech to offer models that could reshape the industry.
- From Chicago to Israel, these new firms argue they understand climate change insurance in ways their older peers don’t get.
Cyber hacking, financial insolvency or terrorism. Those used to be the biggest worries for insurance companies. Now another fear has actuaries wringing their hands: climate change. But some are also spotting opportunity.
Respondents to a 2019 industry survey picked the changing climate as their top emerging risk. One analyst compared it to the mortgage meltdown before the 2008 financial crisis; another called it the “new 9/11” for insurers. In hurricane-prone Florida, insurers such as State Farm, Travelers and Nationwide shed some 87,000 policies in 2018 (another 90,000 were lost in October 2019 when Florida Specialty Insurance became insolvent and was forced to liquidate). In wildfire-ravaged California, the plans of nearly 350,000 homeowners were dropped by their insurers last summer.
Yet in their wake, a wave of mostly new challengers are choosing to fill the void, arguing that they know better than the insurance giants about the risks, and opportunities, of disaster zones. Many of them are using tech in ways traditional insurance firms simply haven’t.
In the last two months of 2019, Chicago-based insurtech company Kin added a Florida office. It announced a new policy covering mobile homes and an 18 percent discount special for Florida residents. Kin has plans to expand coverage in California.
I want to make it [insurance] for people who really need it. For whom it helps their lives.
Sean Harper, CEO, Kin
FloodFlash, another insurtech startup, has received more than $2 million in angel and seed funding for its bid to address the dearth of United Kingdom insurers remaining in flood zones. Florida-based Universal Property and Casualty insures many of these markets that older insurers won’t touch. American Strategic Insurance was bought by Progressive in 2014 for $875 million in part to shore up their offerings for riskier locales.
“Everything done in those businesses can be done on a computer. And ironically, some of these [traditional insurance] companies are using the worst tech in the world,” says Sean Harper, CEO of Kin.
Certainly, these new companies are the exception to the norm — after all, what kind of insurer runs toward a fire, not away from it? In a study of the world’s 80 largest insurance companies, the charity ShareAction found that only three in the U.S. (The Hartford, MetLife and Travelers) had made significant steps to either decarbonize their portfolios or create a plan to address climate-related financial risks. By comparison, some 20 European insurers had met at least that bare minimum (with many of them exceeding it by hiring executives and implementing plans dedicated to decreasing climate impact).
Yet despite the risks of going where others won’t, Harper points out there is huge opportunity in the $100 billion property insurance market. “The catastrophe-exposed part of that is about $40 billion a year,” he says.
And so insurtech companies are dipping their toes into the water. Deeper data points give them confidence, they argue. Simply raising a house a foot or two can push back the prospects of flooding a couple of decades; replacing 3-inch roof nails with a metal clip that encircles a wall can help a house withstand a hurricane. All of this increases the ability of homeowners to get affordable insurance as well.
“The demand from insurers for high-carbon companies and businesses is likely to retract if policymakers get serious about phasing out dangerous businesses out of the market,” says ShareAction researcher Peter Uhlenbruch. “I’m not surprised to see these small-scale startups showing innovation and running into these areas trying to take commercial advantage.”
Some of these companies aren’t simply shifting algorithms. In Florida, Kin launched an “Interinsurance Network” that essentially allows consumers to be shareholders of the product — benefiting when the company does well, as they did recently by receiving an 18 percent discount after a new state law cut costs. In the U.K., FloodFlash has made payouts transparent and quick: If a flood depth reaches the company’s sensors on your property, it immediately triggers a payment — often in the same day. Both Kin and FloodFlash also inform customers about ways they can lower their premium, from installing barriers to adding storm shutters.
The result is a group of insurers not just facing climate change, but fundamentally changing how people interact with their insurance company in the face of disaster. “We’re entrepreneurs,” says Harper, whose background was in fintech before starting Kin in 2016. “We don’t want to make insurance for people who already have an easy time getting insurance. I want to make it for people who really need it. For whom it helps their lives.”