One of the most notable – and noted – effects of climate change has been its impact on how other events in the environment – whether natural or man-made – unfold: forests burn harder and longer; floods occur more often and are more severe when they do occur; and so on, with climate change often cited as the main culprit in all disasters. Today, an insurance startup called Kettle that thinks they’ve built a better product – in particular, a reinsurance underwriting product to insure insurers – to account for catastrophic events like these, thanks to better science data, announces funding on the heels of (unfortunately) no longer need its services.
He closed a $ 25 million Series A, money he will use to develop tools and services for a specific set of disasters in a specific market: the California fires. Acrew Capital is leading the round, with Homebrew, True Ventures, Anthemis, Valor, DCVC and LowerCarbon Capital also participating.
Kettle’s longer-term plan is to expand to more disaster types and states in the coming years, but for now, the fires in California present a particularly acute set of problems.
Events such as the Caldor and Dixie fires have contributed to an overall increase in the rate and size of wildfires in California, Kettle said. 2020 saw more than 4% of the state burn down. On average, there are about 10,000 fires each year in California, but the disproportionate nature of some of the fires appears to be increasing, with 14 fires causing 98% of the forest fire damage in the state.
Nathaniel Manning, COO of Kettle who co-founded the company with Andrew Engler, said these forces have created a vacuum in the insurance market: in short, those who would like to insure their homes against these kinds of wildfires are either incapable, or end up having to pay exorbitant premiums.
Manning said this is mainly because insurance companies – although they were, ironically, the data science pioneers decades ago to determine the risk of unexpected events – don’t have not known how to use this technology to take into account recent developments like climate change, the catastrophic environmental consequences that ensue. events and their impact on things that are generally insured, such as property, life, automobiles, etc.
“The industry hasn’t updated,” he said. “This is the classic innovator’s dilemma. Typically, insurance companies use the same modeling they’ve always used to try to figure out what the new types of risk are, “but you can’t look at the last five years and figure out the next 10. years ”. Communication, and making it more precise and reflective of the current situation, is sort of a fixation for Manning: before Kettle, he had been CEO of Ushahidi, the participatory information startup.
Kettle markets itself primarily as a provider of reinsurance technology to insurance companies with direct contact with customers (it also currently resells insurance policies it underwrites through a channel, aimed at more expensive properties and their owners, at from over $ 3 million and up to $ 10 million).
This is a huge company, characterized by incumbent behemoths like Lloyd’s of London, which in theory mitigate the risks insurance companies face when they go wrong. Manning’s belief is that reinsurance companies are also not using enough data, and data science or technology that is precise enough overall, to do their job and match today’s circumstances.
Reinsurance is currently a $ 400 billion a year industry, but it is grappling with the cracks that are just starting to emerge. There has been, Kettle said, a 68% drop in return on equity because disasters and their unintended consequences have caused more than $ 1 billion in damage over the past 15 years. This is the opportunity to give a different vision of how to provide this service. Kettle’s approach is to identify specific situations – in this case California wildfires – to provide reinsurance specifically for policies or parts of policies that cover exactly that.
Using machine learning in which it combines weather data, satellite imagery, and other data sets, Kettle applies a lot of what has helped AI stand out from non-AI processes in other areas: ability for machines to simply do more calculations than any human or even group of humans can.
“Normally, an insurance company will run between 10,000 and 100,000 simulations to predict outcomes,” Manning said. “We manage more than 500 billion. This means that he can better account for contingencies to help create prices that meet them. Kettle claims to have been accurate in his predictions 89% of the time so far. In August, Kettle said some 26 insurance companies had been in contact with her to help them model their risk, and Manning told me the company expects three to four trade deals to be made. ‘by the end of this year.
There is often something a little weird about technology that is basically built around the idea that bad things happen and potentially profit from those things that go wrong. Insurance often falls into this category, not least because a lot of insurance has not really been designed to adapt to modern times, and often feels exploitative or arbitrary, or there by the grace of lobbyists who insure. that they are mandatory, more than any other real need. (And insurance fraud speaks the other side of that ineffectiveness piece.)
Manning accepts this, but also sees it very differently.
“I think the industry itself is very poorly managed,” he admitted. “The incentives aren’t going in the right direction, and creating a system where the customer and the company have different incentive structures isn’t great.
“But I think it’s important,” he continued. “As a homeowner, if my house burns down, I will get its value back. It can really change your life. “
For investors, the disruption Kettle brought is what attracted them, although in the longer term, you have to imagine that the big incumbents also can’t contemplate how to update their data models. And that could mean more business for Kettle, or an acquisition, or… a death, which maybe fits an insurtech. For now, however, there is still a lot of potential for this young startup.
“When you take a minute to think about it, it becomes very obvious why traditional reinsurers cannot accurately underwrite climate risk – their methodologies look to the past,” said Lauren Kolodny, partner at Acrew Capital, in a statement. “And our climate is changing in ways that cannot be predicted on the basis of historical data. Kettle solves a massive global problem. And we’re excited to be deepening our partnership with this amazing team.