LA wildfires thrust insurance startup into spotlight as property owners scramble for protection

Midway through December, tech entrepreneur Dan Preston debuted insurance startup Stand’s first product focused on protecting property in wildfire zones. He should have had months to work with prospective customers and to market the offering before any catastrophic fires hit the U.S.

In California, Stand’s home state, fire season normally lasts from early summer through October or November. Stand, which Preston co-founded early last year, announced a $30 million financing round and the new product on Dec. 16, a few days before the official start of winter.

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

“This is certainly not a time you would normally see events like this,” Preston said in an interview this week. “It has put an accelerant on business in a pretty massive way. As soon as this stuff started happening, the inbound demand was about 5-10x overnight.”

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

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

It’s not a surprise that firms are exiting the state. Goldman Sachs estimates that insurers could face up to $30 billion in losses tied to the LA. fires.

Through a combination of technology and a reimagining of home insurance, Preston wants to offer reasonably priced protection to homeowners in wildfire zones.

For property owners, the key piece is recognizing that they have to make changes to their homes and the surrounding land so that fires are less likely to spread out of control. That could include pruning trees, replacing wood fencing with steel or adding concrete barriers between homes. 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 insured a few properties so far, but is in talks with hundreds of potential customers. That number is increasing dramatically, he said, as property owners start to understand the consequences of the LA fires.

“It will be a lot harder for folks to find insurance the next couple years because of this event,” Preston said. “In some ways, we have have a responsibility to level up our ambitions, bringing insurance back to the market.”

Bill Clerico, one of Stand’s co-founders and initial 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-tech focused venture firm, Convective Capital, filed to raise $75 million for its second fund.

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

“The bottlenecks are mostly around adoption and deployment — a lot of these technologies are not cutting-edge stuff,” Clerico said in an interview. “Drones have existed for decades, satellites for decades. It’s cameras and software, which found its way into every aspect of society expect 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 year’s 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 that a wildfire there in 2018 inspired him to volunteer at the local fire department and was a factor in leading him to start investing in the space.

While VCs have poured into clean tech in recent years, they’ve mostly avoided investing in companies focused on resiliency and adaptation, in large part because the buyers are “pretty large slow-moving institutions, like utilities, government and insurance,” he said.

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

“Existing insurers don’t compete, they’re exiting,” Clerico said. “if you can have better informed view on risk, it’s a much more favorable place for a startups.”

Still, it’s an extremely tough market.

Stand is currently focused on homes that are worth $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 bring costs down as it proves the model can work.

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

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

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