By James Thaler

June 2 - (The Insurer) - The CEO of newly launched Stand, Dan Preston, said the E&S homeowners insurtech is betting on making cat-exposed homes more resilient, using an in-house applied science team to drive mitigation strategies to profitably underwrite the hardest risks.

Preston, the former CEO of personal auto insurtech Metromile that was acquired by Lemonade in 2022, outlined the vision for the new venture in an interview with The Insurer TV on the sidelines of last month’s Equal Ventures Insurance Capital Summit in New York City.

The initial strategy focuses on high-value homes worth between $2 million and $10 million in total insured value that fit outside California's FAIR Plan guidelines and that are currently struggling to secure coverage.

“The challenge for these homes is that the rates for insurance are going up really dramatically over time. But where these events are happening is starting to change, as well as the time of year they're starting to happen,” Preston said in the interview.

“Our fundamental view is that the only way to truly solve this problem is to partner with policyholders, help them make the structure resilient to one of these events and then that allows you to open up capacity and then insurance from there,” he explained.

SIMULATING EVENTS TO DETERMINE RESILIENCY’S IMPACT

Stand launched in California in December, with a particular focus on wildfire-exposed properties and a plan to work with homeowners to make their properties more resilient.

“That can mean changes to the parcel of land. It can mean some changes to the home, but the idea is it can be very customized,” Preston commented.

“We can actually simulate the events of a wildfire on that home and then help you figure out what it is that really needs to change, or if there's something you want to keep you can work around that,” he added, noting that Stand is offering a non-admitted product.

“There's a lot of really exciting stuff happening in this space. There are a lot of new entrants that I think are doing some really exciting work,” he said.

“Most of what I've seen so far has been focused on, how do you select the right risk? Where is it that we think wildfire might not be as intense as it could be, and then be able to underwrite in those different areas?”

Preston said Stand is more focused on providing coverage for homes likeliest to be impacted by wildfire and how to harden those properties against elevated risk.

“(Wildfire) by itself, is a really challenging problem. One of the biggest problems is that it's unclear how much mitigation helps and by what magnitude, and which things actually help most,” he explained.

Stand, he said, ultimately plans to expand into focusing on other major cat perils like hurricane and severe convective storm, but that wildfire is its initial focus.

“I think the challenges associated with these big, large events in places where you have high concentrations of homes and structures is only growing over time. And so, these are the solutions, ultimately, at a fundamental level, that are necessary,” he commented.

The insurtech simulates wildfire events impacting insured structures to create “a digital twin of the property,” which involves using computational fluid dynamics, to determine what would physically happen if a wildfire were to reach that property.

“Everything is modeled down to a very granular level. We understand the different dynamics of trees and siding and all the components your home is made out of and all the types of fuel that exist,” Preston explained. “Because we can understand it at a deep level, it allows us to create customized solutions for homeowners that then can still be resilient, but actually protect a lot of the character of the property."

HELPING TO 'BEND THE RISK CURVE DOWN’

Preston said that all of Stand’s modeling has been built in-house, but that the insurtech does rely on vendors for such tasks like determining the likelihood of a wildfire reaching a particular location.

“We work with (vendors) for what is the industry view of that risk? Because one of the things really critical for providing this type of insurance is you have to work with partners, reinsurers and others,” he explained.

“So, it's important to always incorporate that view of risk into how you're modeling it. You can't go independently,” Preston added.

"Our view is, ‘let's model the risk as the industry looks at it’, and hopefully have the leading edge of that, but then actually bend the risk curve down by actually working with our customers and reducing the risk,” he continued.

Fronting company Concert provides Stand with paper, which is in turn backed by a panel of reinsurers, along with venture backing from Inspired Capital, Lowercarbon, Equal Ventures and Convective Capital.

“The thing that's resonated really well is we have a forward-looking view," said Preston adding that Stand can model what the outcome will be "based on a physical understanding of the world, and a physics simulation, not just a CGI simulation."

He said that Stand’s modeling means that the insurtech’s capacity backers and equity investors aren’t just being asked “to take a big leap of faith.”

LA WILDFIRES BRING MITIGATION INTO FOCUS

Preston said it remains “a little early” to fully grasp the market response to January’s Los Angeles area wildfires, but that he expects a range of responses.

“There are some who I think have their own sophisticated view of what it looks like, and they're leaning in, and others who may also have a sophisticated view but are just leaning out of the market,” he said.

With some carriers pulling back, he said there are many brokers, agents, and insureds who will be looking for solutions.

“The biggest change, which I think has been pretty remarkable, is a recognition that mitigation is necessary, and that's from the homeowners themselves,” he explained.

Preston highlighted that conditions on the ground were one of the biggest contributors to how the Palisades Fire unfolded.

“And so, it's necessary for communities and homeowners alike to actually change the layout of these areas, whether that's change in vegetation or change in siding, et cetera, so we can reduce the likelihood of these happening,” he added.

To that end, Preston believes that in the aftermath of the January fires there is “the intrinsic desire to lower the risk has grown substantially.”

“Because I think there's a recognition of what the risk is now, more so than it was before. And that, ultimately, in concert with innovative insurers, I think will bring more insurance capacity online over the long run, but I think it'll take some time,” he explained.

Preston said that in the coming quarters and years, Stand will expand into geographies that might have similar challenges to California, like Colorado, Nevada or Montana.

“Beyond that, we'll likely start to expand into other types of perils as well, and that's where you have other types of resiliency challenges, but the methods that you apply there will be different,” he said.

“But I think it's critical, ultimately, over the long run, to embody the resilience methodology within all of the policies that we underwrite."

Watch the full interview with insurtech Stand’s CEO and co-founder Dan Preston to hear more on:

• How Stand is targeting the toughest California wildfire risks by adding mitigation to the equation

• The insurtech’s plans to use conventional industry modeling “to bend the risk curve down”

• How in the Los Angeles wildfire aftermath “the intrinsic desire to lower risk has grown substantially”

• Stand’s plans to expand geographically beyond California high-value homeowners

• And more…