Root Q3’23 earnings and strategic insights with CEO Alex Timm

Root Insurance held its Q3 2023 earnings call today.

Here’s a summary of the call along with takeaways from my conversation with CEO Alex Timm:

1. Policies In Force: 259,522 – up from 255,279 for the same period of last year (1.7%)
2. Premiums Per Policy: $1,398
3. Gross Premiums Growth: There is a notable increase in gross premiums written from $150.7 million in Q3 2022 to $224.2 million in Q3 2023. However, there was a decrease from Q3 2021 to Q3 2022.
4. Improvement in Loss Ratio: The gross accident period loss ratio has improved, dropping from 92.8% in Q3 2021 to 68.0% in Q3 2023.
5. Net Loss: $46 million.
6. Decline in Renewal Premiums as a Percentage of Gross Earned: The percentage of renewal premiums to gross premiums earned has decreased to 56%. This downward trend suggests that while the company is experiencing growth, it is currently being driven more by new business rather than renewals.
7. Embedded Insurance: In Q3, Root initiated ‘additional partnerships,’ details of which remain undisclosed. According to Timm, price and ease are the primary drivers of conversions through this channel. Moreover, he noted that servicing clients with multiple vehicles and locations was once a challenge but is now being effectively addressed by Root. To be good at embedded, a company must be good across the board—from standard to non-standard, from preferred to mid-market policies. A limited scope won’t attract partners, yet Root is that one-stop shop, says Timm.
8. Embedded as a Percentage of New Writings: Dropped from 38% in Q3 2022 to 10% in Q3 2023.
9. Telematics: In Q3, the company implemented a new pricing model that enhances predictive accuracy by ~17%, and launched “an innovative telematics model” that boasts a 12% improvement in prediction capabilities. According to Timm, most of Root’s customers participate in the 60-day test drive, a period which enables the company to gather data for better underwriting and to filter out high-risk drivers.
10. Nationwide Expansion: Timm expects a nationwide expansion by 2024. Currently, the carrier doesn’t write business in several markets, including Washington DC, New York, Hawaii, Maine, Massachusetts, Michigan, New Jersey, and Rhode Island.
11. IA Channel: As previously reported, Timm acknowledged Root’s partnership with independent agents, including Goosehead Insurance. He views the independent agent channel as a viable path forward, one that can benefit from Root’s seamless integration, which allows for quotes to be generated in under a minute.
12. Q4 Marketing Outlook: Root is seeing a “very favorable marketing environment.” Direct marketing efforts are tied to profitability targets. It anticipates investing up to $50 million in Q4. This projected acquisition expense will be divided equally, with half allocated to performance marketing and the other half distributed among embedded initiatives, commissions, and related expenses.
13. Key Person: Frank Palmer, the chief insurance officer at Root as of 2020, will be leaving the company at the end of the year.