Why Legacy Insurance Companies Aren’t Equipped to Handle Climate Change

Our world is changing fast – from technology and consumer preferences to our environment. As the threat of climate change escalates, property risk continues to rise with it. Of the $100B+ homeowners market, about half is significantly exposed to wildfires and/or hurricanes.

Those numbers will only keep growing. Extreme temperatures, wildfires, and tropical storms are becoming more frequent and severe, and many legacy insurers have responded by leaving at-risk regions, dropping policyholders, or both. 

Legacy Tech Is Slow & Difficult to Change

Legacy insurers are built on outdated and inflexible technology. The average personal lines insurer spends about five percent of premium on IT just to maintain those legacy systems.  

Meanwhile one of the biggest issues facing insurance companies is their inability to respond quickly to new information and external changes. Every person we have recruited from a legacy insurance company came to Kin in part because the technology at their previous companies made it hard to do cutting-edge work.

In ordinary times, that situation would be a problem, but it’s an even bigger problem in our current environment.

Addressing Climate Change Requires Better Data

Because of their cumbersome tech infrastructure, legacy carriers are behind in how they access data too. Insurtechs like Kin are ingesting thousands of property data points from objective sources, including government records, satellite and aerial images, weather models, and real estate data. We are also beginning to manufacture our own data and find signal in previously overlooked data sources. 

By contrast, legacy insurers are still largely receiving data from agent inputs. That’s a big problem for two reasons:

1. The data may be biased – there’s the potential it can be changed to fit a carrier’s appetite.
2. The data is limited to what the consumer or agent knows about the property.

Inaccurate data leads to an inaccurate assessment of a building’s ability to withstand extreme weather and losses for the carrier. In a low-volatility environment, pricing accuracy is not that important, but in today’s increasingly volatile world, it’s everything.  

When weather modeling is built into tech infrastructure, like it is at Kin, we get ultra-granular exposure measurement, enabling us to serve high-exposure markets like California, Florida, and Louisiana, and helping homeowners pay less for essential coverage.

Technology Is Essential for Catastrophe Claims Management

In a catastrophe situation, there are lots of claims at once, which can easily overwhelm a traditional claims organization that sends out physical adjusters for every claim. That results in inflated claims adjustment costs, long claims times, unhappy customers, and sometimes even lawsuits and other expensive disputes.  

At Kin, we’ve approached claims differently since the beginning. We built our first claims intake and triage system in 12 intense hours when we had been in business for just four months and got hit by Hurricane Irma. At the time, it was the largest hurricane ever recorded in the Atlantic.

Our technology proactively texts our customers when an event happens to check on their safety. That text has a 65 percent response rate, which allows us to immediately triage the damage and build files for customers who have a loss. As a result, we have low claims costs, super fast response times, and happy customers.

Legacy Distribution Force Is Not Prepared to Educate Customers about New Risks

Legacy insurance companies don’t have direct relationships with their customers. They outsource the customer relationship to independent, local companies. Launching new products and features through that channel is exceedingly difficult because those independent agents spend most of their time juggling 10 or more different carrier relationships and dealing with the overhead of running a small business. They don’t have time or an incentive to worry about educating customers on new products.

As a result, we have some huge protection gaps, notably for flood events, at a time when floods are becoming more frequent and severe.

Climate change won't wait for us to be ready for it. The insurance industry needs to be on the front lines to help our customers prepare for the worst and recover quickly when it happens.