LA fires put Stand in the spotlight as homeowners seek insurance

In mid-December, tech entrepreneur Dan Preston debuted his insurance startup Stand’s first product, focused on protecting property in wildfire areas. He should have had months to work with potential customers and market the offer before any catastrophic fire hit the US.

In California, the Stand State, the wildfire season typically runs from early summer to October or November. Stand, which Preston co-founded early last year, announced a $30 million funding round and the new product on Dec. 16, days before the official start of winter.

But it has been a winter like no other. Three weeks after Stand’s launch, wildfires ravaged parts of Los Angeles, killing more than two dozen people, burning nearly 41,000 acres due to extreme winds and destroying at least 12,300 structures.

“This is certainly not a time when you would normally see events like this,” Preston said in an interview this week. “It’s put an accelerator on the business in a pretty massive way. Once these things started happening, the demand for entry was about 5-10 times overnight.”

Preston has been trying to innovate within the typically boring and slow insurance industry for over a decade. In 2013, he became chief technology officer at auto insurance startup Metromile, and later took on the role of CEO, leading the company to go public in 2020 through a special purpose acquisition company (SPAC). Metromile hit a rough patch after its SPAC and sold it to tech-powered insurer Lemonade in 2022. Preston stayed at Lemonade for another year.

At Stand, Preston is aiming to go big in a market that legacy insurers are rapidly abandoning because it is seen as too risky. As of mid-2024, at least eight insurance carriers had left the country or limited their exposure. California’s FAIR plan, generally seen as an insurer of last resort, had seen a 137% increase since 2019, and that was long before the recent LA wildfires began. According to LendingTree, about 10% of Los Angeles homes are uninsured.

No wonder firms are leaving the state. Goldman Sachs estimates that insurers could face up to $30 billion in LA-related losses. fires.

Through a combination of technology and the re-imagining of home insurance, Preston wants to provide reasonably priced protection to homeowners in fire zones.

For property owners, the key is to recognize that they need to make changes to their homes and the surrounding land so that fires are less likely to spread out of control. This may include pruning trees, replacing wooden fences with steel or adding concrete barriers between houses. Stand uses artificial intelligence and what it calls “physics-driven insights tailored to each property” to make specific mitigation recommendations that can make a property insurable.

Preston said the company, which currently has 13 employees, has only secured a few properties so far, but is in talks with hundreds of potential customers. That number is increasing dramatically, he said, as property owners begin to realize the consequences of the LA wildfires.

“It’s going to be a lot harder for people to find insurance the next couple of years because of this event,” Preston said. “In a way, we have a responsibility to level our ambitions, bringing insurance back to the market.”

Bill Clerico, one of Stand’s co-founders and original investors, was expecting a busy January, but for very different reasons. He and his wife just had their second child. And on Jan. 7, Clerico’s fire technology-focused venture firm Convective Capital filed to raise $75 million for its second fund.

Clerico said he can’t talk about Convective’s fundraising right now, but he’s using the disaster to try to raise awareness about wildfire mitigation strategies and some of the tools and technologies that are available. In a post on X on Jan. 8, Clerico wrote that the four keys to dealing with wildfires are forest and fuel management, rapid detection using cameras and satellites, “hardening” homes and communities, and reducing wildfires. from municipal services.

“The bottlenecks are mostly around adoption and deployment — a lot of these technologies are not cutting-edge,” Clerico said in an interview. “Drones have been around for decades, satellites for decades. It’s cameras and software that have found their way into every aspect of society waiting for public safety.”

Before launching Convective three years ago, Clerico was co-founder and CEO of fintech startup WePay, which he sold to JPMorgan Chase in 2017. He then spent over three years as a managing director for the bank in the Bay Area,

Clerico lives in San Francisco and has a cabin in Anderson Valley, about 115 miles north of the city. He said a wildfire there in 2018 inspired him to volunteer with the local fire department and was one factor that led him to start investing in the space.

While VCs have moved into cleantech in recent years, they have largely avoided investing in companies focused on resilience and adaptability, largely because the buyers are “rather large, slow-moving institutions such as utilities, government and insurance,” he said. .

Clerico said what’s unique about Stand relative to other tech startups that have tried to crack insurance is that competition in its target market is diminishing rather than increasing.

“Incumbent insurers are not competing, they’re leaving,” Clerico said. “If you can have a better informed view of risk, it’s a much more favorable place for a startup to be.”

However, it is an extremely difficult market.

The stand is currently focused on homes valued at $2 million to $10 million, which Preston said covers properties facing a lot of “distress.” The company is working with a number of reinsurers and expects to be able to lower costs as it proves the model can work.

But making a meaningful contribution to the larger problem will require significant behavioral and structural change in neighborhoods that, like Pacific Palisades in LA, are suddenly at risk of disappearing almost overnight. The mission must go beyond protecting individual homes one by one.

“We may be able to play a much larger role in the state of safety if we can work with neighborhoods and ask homeowners and city officials to design neighborhoods to be more resilient,” Preston said.

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