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July 19, 2021

Why QED invested in Kin

This past weekend most of my family went to a wedding in Mazama, Wa. I couldn’t attend, but I spent much of my Saturday refreshing my Google search to see whether the wedding would be engulfed by the wildfires that were just a few miles east of where my family gathered.  

Five years ago, a team of entrepreneurs recognized that homeowners in an ever-larger area of the country would be facing a much scarier version of my weekend experience as the severity and frequency of extreme weather events trends ever higher. At the same time, large national insurers were moving beyond just charging high prices for these risks but refusing to underwrite homeowners insurance in these areas altogether.

Today, Kin Insurance agreed to go public through a merger with Omnichannel Acquisition Corp.

At QED, we’re excited about the possibility that better data and better analysis can transform financial services, but we also know that not every pitch about “big data” is equally likely to succeed. Instead we believe that the promise of data and advanced analytics is likely to be realized when three criteria are met:

  1. Existing business decisions that are materially wrong today
  2. A source or sources of data that are not currently applied
  3. Analytical frameworks that can apply new data to improve those business decisions

I once got a pitch from a company that was able to turn legal documents into detailed quantitative analysis. But when I talked to prospective customers, they told me that a quantification of their legal rights, while interesting, would rarely affect their business decisions. Instead, they told me that they usually used the importance of a continued business relationship to get to amicable resolutions of contractual terms. From the customer’s perspective, the business decisions in the status quo weren’t wrong enough to justify paying a lot for the analysis.

When we met Kin Insurance, on the other hand, we realized that something big was happening at the intersection of home insurance and climate change.  

Most importantly, the cycle of extreme weather events was accelerating. At the same time, large national carriers had found themselves simply unable to understand or model the risk well — constantly falling behind the cycle of losses and insurance premium setting. The material result is that large national carriers were simply pulling out of these climate affected jurisdictions entirely.

At the same time, other digitally native insurance brands had demonstrated that people wanted to buy insurance online, direct from the carrier.  

Finally, vertical integration — meaning that actually being a regulated insurance carrier — was the best way to assure customers a positive experience with attractive unit economics. Many insurtechs have tried to become capital light businesses by managing only a small part of the value chain, but Kin went the other direction — controlling the entire lifecycle from marketing to in-house agents, to underwriting and claims. The combination of marketing and underwriting in particular allows Kin to target customers who are both likely to convert and will perform well from a risk perspective.  

Starting with data, Kin had built themselves from the ground up to examine and apply the most granular possible data in their risk analysis and pricing —  pricing at the level of a census block and the actual features of a home, rather than the county and the superficial demographics (like the age of the house). This meant that not only could Kin operate in areas where large carriers were afraid to even participate, but that they could do so with a material advantage in pricing and execution.  

Kin is actively selling home insurance to catastrophe-affected markets in Florida, Louisiana and California and is completing an acquisition that will give it licenses in 40 additional states. Unlike other direct-to-consumer brands, the median Kin customer is 55 years old. With this partnership, Kin will be doubling down on this strength —  taking an industry-leading customer lifetime value and extending it through some of the brand builders across industries.    

As a licensed carrier, Kin has taken the harder road to growth, but because of this choice, has built a stronger business. By controlling the full experience, Kin can do things that other carriers don’t — for example, Kin texts customers who might be in the eye of a storm to affirmatively ask them if they have claims. Kin’s net promoter score is 85 (almost twice the industry average). And even more importantly, boasts 92 percent customer retention, versus 87 percent for Hippo and only 81 percent for Lemonade — other public insurtech leaders.  

Moreover, this control also means that data runs through the company like oxygen in blood. Creating a virtuous cycle of targeted marketing, better underwriting, better customer service and industry leading unit economics.  It’s exactly the kind of business that is built to last and get stronger as it grows.  

We’re so happy to be on the journey with the Kin team and can’t wait to see what happens next.