Alpha Edison invests in industry disrupting startup Kin Insurance

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August 14, 2020

The concept of insurance or pooling capital to distribute risk is practically as old as human society itself and can be traced back to merchants in Babylon as early as 4000-3000 BCE. However, it wasn’t until the Great Fire of London in 1666, an event that destroyed roughly 13,000 homes and awoke people to the need to protect their home, that the modern concept of insurance and home insurance truly emerged.

Recognizing the market need and attractive potential of a highly recurring and durable revenue stream that was largely uncorrelated with economic cycles, entrepreneurs stepped in and created new insurance products that protected against catastrophic perils such as fires and formed the early incarnations of the modern property and casualty insurance industry. For example, in 1684 the Friendly Society of England formed the first mutual insurance company to cover fire losses and across the pond several decades later Benjamin Franklin formed the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire in 1752 a company that is still in operation today. These entrepreneurs created the foundation for a market that has now evolved into a multi-trillion dollar global business that has spawned some of the most valuable and long lasting companies in the world. In fact, 12 of the Fortune 100 companies in the US are insurance companies and their average age is over 125 years.

Since its early formation and maturation, homeowners insurance has proved to be a remarkably resilient business. Large balance sheets and high regulatory and product complexity have served as long lasting barriers to entry, insulating incumbents and allowing them to survive with relatively modest changes to their products, operations and distribution strategies. As a result, over the last fifty years, homeowners insurance has remained largely unchanged. Incumbent carriers have become inefficient, saddled with antiquated systems, and loathed by consumers. However, the barriers that historically fortified incumbents are beginning to erode and are creating points for new entrants to emerge and shift the basis of competition:

  • New enabling technologies and new sources data (e.g., cheap and accurate satellite imaging, consumer and IoT output) have reduced the need for humans to be involved in the data collection and underwriting process and introduced new datasets to more accurately assess risk
  • Emergence/maturation of the reinsurance market has removed the need to build a balance sheet and has dramatically weakened the incumbent’s capital moats
  • Consumers are increasingly accustomed to buying more complex financial products online (85% of consumer loans and 40% of auto insurance are sold directly) creating unmet needs for simple and direct solutions as today only 6% of home insurance policies are sold directly.

Sean Harper, Lucas Ward and Stephon Wooten founded Kin on the belief that there was an opportunity to rebuild an insurance company from scratch - one unencumbered by legacy processes, technology or distribution infrastructures. The company leverages its modern technology platform and novel use of over a thousand proprietary and public sources of data to sell and underwrite policies directly to consumers, eliminating traditional agents from the process while delivering a streamlined onboarding and claims process that consumers love (Kin has an industry leading NPS score of 84 compared to the industry average of 35). A more streamlined and improved consumer experience may alone provide the necessary underpinnings of a successful business, but the benefits of Kin’s proposition extend quite a bit further than that.

  • Direct consumer relationship. Agents typically collect 10-15% of premiums as commission every year a policy is active. Given the average duration of a homeowners policy is ~10 years this creates a substantial cost burden over the lifecycle of a policy for a service consumers largely don’t value. By selling directly to consumers, Kin can eliminate this recurring cost which leads to better economics for Kin and the ability to pass on savings to consumers.
  • Richer, more accurate data. In a traditional process, the burden of filling out the data used for underwriting falls on the agent and home buyer. This process typically involves filling out around 40 data points on the home which is not only cumbersome and time consuming for homeowners and agents but also problematic for underwriting. The commission structure for agents incentivises driving application approval which makes them biased sources of underwriting data. Instead of relying on biased and unreliable sources of data, Kin collects thousands of data points on the home and consumer instantly - increasing the accuracy of the typical parameters used in underwriting as well as introducing additional data fields of information that enable Kin to more accurately assess and price risk
  • Enabling behavior change. Kin’s direct relationship with consumers also puts them in a differentiated position to expand into additional products and services in the future such as home security monitoring, home warranty and discounted home repairs or improvements that increase the resilience of the home. These products will not only increase the revenue streams for the business but will also improve the actuarial risk of their policies which will enable Kin to pass on more value to consumers and offer home insurance at a reduced price point that it’s competitors won’t be able to profitably compete with. If Kin is successful at driving adoption of these additional products they will shift the basis of competition from a static assessment of risk to a more dynamic assessment that involves driving behavior change and shifting actuarial tables.

Since establishing itself as an insurance carrier in August last year, Kin has been increasing its footprint throughout the Florida home insurance market. Initially offering homeowners insurance, it now writes mobile home insurance, seasonal home insurance, and flood insurance throughout the state and has recently launched condo insurance.

Kin is focused on serving consumers most impacted by increasingly severe and frequent storms, wildfires, and natural disasters which is a market that incumbents have increasingly drawn away from and struggled to serve effectively. Kin recently launched in California and plans to expand to serve other states in the near future.

We had the opportunity to get to know Sean, Lucas, Stephon and the excellent management team at Kin almost a year before making our investment and have been consistently impressed with the depth and quality of thought that they bring to the business. As seasoned financial technology entrepreneurs, Sean, Lucas and Stephon, possess a number of attributes that we look for in entrepreneurs. They combine a rare balance of deep industry expertise and appreciation for the strengths of their competition with unique insight and vision for how to dramatically improve a staid industry and the grit and ability to translate that vision into strategy and tactical execution. Something that is evident not only in our first hand experience with the team but more importantly evident in the industry leading NPS and high customer affinity to the product.

We congratulate Kin on their success and are thrilled to have the opportunity to partner with Kin’s leaders and support their vision as they build an enduring company.

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