“At the core, every insurance company actually is a software company. What determines how successful you are is how quickly you're able to react to what happens in the world.”

Sean Harper is the CEO and co-founder of Kin Insurance, a Chicago-based home insurance start-up focused on using technology to offer homeowners the lowest rates as quickly as possible. He does so in an industry known for moving slowly. “We believe in creating meaningful change for homeowners who need our solution the most,” Harper says of Kin. Prior to founding Kin in 2016, Harper founded Fee Fighters, later sold to Groupon, and TSS-Radio, an e-commerce company. Prior to Kin, both Harper and co-founder Lucas Ward consulted for top financial companies, including several for PNC. 

Kin offers home insurance in Florida and California, both states known for their catastrophe exposure. Kin recently closed a $35 million Series B funding round led by Commerce Ventures, which brings its total funding to date to $90 million. 

In this interview:

• How Harper moved from consulting to start-ups to founding Kin
• The 3 criteria Harper wanted in creating a start-up
• How Kin innovates compared to legacy insurance companies
• Kin’s entry into catastrophe insurance coverage
• Why Kin is better at underwriting insurance than legacy companies
• The future of insurance online and the value of real customer service
• Kin’s culture, early experiments and what Kin is focusing on next 

I would love to hear about your background and how you came about founding Kin.

My co-founder Lucas and I have been doing online financial services for a long time. We just sort of fell into the start-up thing and realized we liked it a lot. The great thing about consulting gigs is you get to see a lot of stuff that big companies aren't doing very well. We really enjoy doing start-ups because you can start with a blank sheet of paper and do it the right way. If you're a software geek, which we both are, you look around for problems that are easy for you to solve. Financial services are easy to solve because it's all online. There's no physical product to worry about. And we're good at online stuff. And really I think if you look at the core of a bank or an insurance company or stock trading company, they're actually software companies, but they're not very good at software. We’re a few companies in now. We’re good at it now, building financial companies from scratch.

Were you in or around the insurance area at all?

Almost all the consulting I did was in financial services and the same for Lucas. We worked at, between the two of us, probably three of the five top P&C financial companies. Basically, Lucas and I had come out of selling our companies and we were kicking around for two and a half years trying to come up with our big idea. In the meantime, we were doing interim gigs for private equity backed companies. We didn't want to sell technology to big financial institutions because their adoption cycles are so slow. We wanted to go direct to the consumer and beyond that, we were looking for three criteria. 

First, I wanted to be in a large and homogenous market. Second, I wanted it to be a market where it was very inefficient. I didn't want to have to win on underwriting at the onset, because it's really hard to win on underwriting until you have data. Now we have a bunch of data. And we have a huge underwriting advantage over our competitors, but on day one, I didn't want to have to do that because it's a good way to get blown up. The third thing I wanted was for there to be new data sources available for pricing and underwriting. 

We didn't just look at insurance. We looked at all financial services. We found catastrophe-exposed homeowners insurance. It fits all those criteria. It's a $40 billion market and growing fast to extraordinarily inefficient expense ratios. The amount of money that's wasted is about 40% of every dollar they collect. And there's just a ton of data out there – the weather that's around the home, geography, the neighborhood, the construction. 

Most insurance companies are underwriting on the same 20 to 40 fields of data that's all self reported or agent reported. They're basically doing it the same way they've been doing it for 100 years. The business model has changed and the main way it's changed since we've climbed our way up the stack is we started as a digital broker, similar to a company like Zebra or Gabi, and then we became an MGA, which is sort of a virtual insurance company. And then last year, we actually formed our own insurance entity. We did that because it's really hard to raise enough money to start an insurance company on day one. We had to build our way to it. We learned a lot at each stage that made us know we were ready to go to the next stage.

You operate on this specific segment of the home insurance market: catastrophe-prone homes.

In the United States, there's about 100 billion dollars of premium spent every year on homeowners insurance. It's growing 3% to 4% a year, and of that 100 billion, 40 billion of it is catastrophe exposed. It's a huge niche and it is clear that the weather is getting worse. Let’s hope we can reverse that, but it's not going to happen overnight. We're going to need to deal with it by having good insurance that allows us to spread the risk out, ready to deal with it by investing and hardening our homes to make them more weather resilient. So, we find our work meaningful because we're working on insurance for people who need it. And I think it's only a matter of time. Here in Chicago, we're pretty sheltered from extreme weather, but it is affecting more and more places. And so even more of the market will end up being catastrophe exposed next year and year after year.

Why are you guys better at underwriting your home insurance than someone else?

We are much more efficient at administering and servicing. We talked about the cost structure before. About 60% goes to pay claims and about 40% goes to other stuff. For us, that 40% is more like 8%, so we're just very efficient. We don't pay brokers. Brokers occupy about 17% of that 40%. We're very efficient at marketing and we have a very good tech system. Your average insurance company spends about 5% of premiums for their IT on an ongoing basis. Yet, their biggest problem is their tech doesn't work. We’re also really good now at understanding the physical properties of the home and the micro environment around it. We know the difference in risk between being the second house off the water and the fourth house off the water in California. Are you right next to the brush land or is there a road between you and the brush land? Because it makes a huge difference. And we're able to ingest all this data and understand on a micro basis which homes are more or less risky. Then we're able to price it properly.

What’s stopping a legacy insurer from utilizing the same types of data that you do?

In theory, nothing. In fact, four years ago, the way we came up with this idea was by going around and talking to a lot of people from the industry and finding all the smart things that they wish they could do but couldn't. At the core, every insurance company actually is a software company. We have a really cutting edge policy administration system, our core processing system. It's leaps and bounds better than what any of our competitors have. It does exactly what we need it to do and it's really easy to change. So if we want to launch a new product or add a new data source, these are the kinds of things that might take us hours and take our competitors years. What determines how successful you are is how quickly you're able to react to what happens in the world. Our competitors are not able to react quickly.

You said that you're able to issue new products at a faster rate. What are some examples?

We saw an opportunity to do insurance for manufactured homes, a very underserved market, in Florida, which is also underserved because of its catastrophe exposure. We actually launched that product in less than a month, including regulatory approval, and that doesn't happen in insurance.

A surprising amount of insurance is still being sold through physical agents, not online. How do you view that? Is the wind ultimately blowing in your direction for insurance being purchased online?

I just turned 40 so I'm sort of borderline millennial and I was sure I was building this for people my age and younger. Amazingly – we realized this three months after we launched and it's still true – our average customer is in their mid 50s. It shouldn't be that surprising. The average age of a homeowner is late 40s, and in Florida, it's higher. But then you start talking to these people and the thing is, they all bank online. Their retirement accounts are all online; they all have the Capital One or Amex credit card. Even they think it's weird to buy insurance at a store. 

We do a lot of customer support on the phone and via email with a real human. Being techie does not mean that you need to be inhuman. If you think about our name, it's Kin. That's family. I don't send automated messages to my children. I talk to them in person. That's how families act with each other. So it doesn't need to be impersonal just because it's tech-based. That's a really big part of who we are. We like having this human element. A home is somebody's biggest asset for the most part. It's nice to be able to ask a person a question like, “Hey, I saw this on the website. Can you explain that to me?” So that actually is a huge role in our customer experience.

How’s business been in the past five or six months, given that most of the current climate has changed?

There's been no impact on consumer demand. Probably the biggest impact for us has been operationally. We've been operating remotely. We're located in Tampa and Chicago and we like our office. We like hanging out with each other. We like going for drinks after work. We like playing ping pong. We like working on the whiteboard. I love going over and sitting next to the salesperson, hearing what they're talking about and you can't do all that stuff in the same way. I don't know if it's impacted our productivity. But I think it definitely is not as much fun. Since we went virtual we've hired 40 people. They've never met their co-workers in person. It's workable. It's just weird.

What are you focusing on?

Right now it's just about scaling what we have and becoming more and more efficient. We're aiming to increase the number of customers by about 15x this year. We know there's at least that many customers who are a good fit for the product. But figuring out how to reach them cost efficiently and how to build our infrastructure in a way that allows us to service them all efficiently is real work. The other thing that we started was something we call the Kin Management Training Program where we're hiring people who are two years out of consulting or  banking and just sort of setting them loose and it's cool to watch because they're great. They don't have any preconceived notions about anything. They just start digging around the data and asking questions and solving problems.

What you had on day one doesn’t look like where you’re at right now. I would love to hear about what those differences are. You experiment, especially through those early days. What did you learn from those experiments to help inform your decisions?

We get out there and we start making stuff and selling it like it's a super lean startup. The downside of that is you end up doing a lot of stuff that you end up getting rid of. We've written and rewritten our core processing system three times. The catastrophe risk – we didn't realize how underserved that market was and what a big opportunity it was. We thought originally that preventative technologies like water sensors and different monitoring tech would be a big part of the business. I think it will get there, but it's just been slower to evolve. We actually started by buying a small insurance brokerage. We didn't have a book of business or any carrier relationship. We wanted some infrastructure. So we found a really small business. They had three people. One of the guys is still a really, really important part of our team. I think if we hadn't done that it probably would have taken us another year or longer to really figure some important stuff out. 

If you could give advice to your earlier self, what would it be?

I think given the information that we had at the time, we made some pretty good decisions. We  knew we wanted to get some level of scale. One thing I'm really proud of is that we can create really amazing outcomes for the people we work with. 

Is there a company or type of product you would dream of partnering with?

We're always looking for partners that can help us get closer to the customer. Citibank would be an interesting one for us. They have this big mortgage business. They’re people who are involved in the financial aspects of owning a home for a large number of consumers. I think we could create a lot of value for each other.

Are there people you look up to in the industry or a mentor that’s helped you throughout this process?

I think we draw more inspiration from the tech side. We definitely have some advisors and now people on the team who I would even consider to be. Our chief actuary, Dan Ajun, is an extraordinary guy. I learn stuff from him every day that's fascinating. I love the guys that dream really big and do crazy things. Jeff Bezos, we draw a lot of inspiration from him. I like that he’s dreaming really, really big, but he's implementing it in an incredibly practical way. Amazon is so practical and efficient. And that's how we aspire to be at Kin, too. We're changing the world. We're changing it by tightening a lot of nuts and bolts.

Do you have any recommended reading or sources of information around the insurance industry?

Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know by Andrew Tobias – it’s kind of an old book – and Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein.   

Awesome Sean. I had fun chatting and I learned a ton here. Thank you.