Root Insurance is one of a few unicorn insurtechs that introduced a telematics-based solution for motor insurance. The idea was to create a Pay-How-You-Drive
solution using a mobile app for telematics data collection.
The data analytics powered by machine learning should have allowed Root to assess risk more efficiently, achieve a better loss ratio, and offer competitive premium costs to its customers. Nothing new, but Root managed to make it to the top, or a sort of...
In 2016, Root Insurance
started its journey in the US, but it looked more like a rocket jump rather than laying a foundation for sustainable growth:‘With just $4 mln in premiums written in 2017, they reached $106 mln in direct premiums written in 2018 and hit $600 mln in 2021.’
What a blast! And one of the reasons for such tremendous growth was a brilliant job done on funding.‘In 2018, they secured $150 mln in funding by closing two rounds. In 2020, they set up an official funding record for Ohio with almost 1 bln of investments!’
These huge rounds and tremendous growth skyrocketed the company evaluation to $6.7 bln in 2020 when Root officially IPOed with the shocking share cost of $27.
But there’s always a reverse side of the coin, and Root is not an exception. Despite impressive growth, funding, and disruptive (as they claim) underwriting technology, Root was lagging in crucial insurance metrics:
✅ Direct Loss Ratio, standing at 100+ to 70+ points vs. an average industry metric of 60 points.
✅ Customer retention rate of up to 47%.
Simply put, claims and operations cost Root more, than they earned selling premiums, not to mention huge expenses on attracting new customers. All this resulted in negative annual income, reaching 415 mln by 2022. Following this, the stock cost dropped by 92% and 330 people lost their jobs.