Welcome, film buffs and insurance aficionados, to Insurtech Advisor’s latest feature presentation: “Rolling with Root: A Cinematic Take on Their 4Q23 Epic and Full-Year Saga.” Sit back, grab your popcorn (buttered or not), and let’s delve into the drama, plot twists, and lessons from Root Insurance’s recent financial performance. It’s a story of innovation, challenges, and strategic maneuvers that could rival any Hollywood blockbuster. In fact, the results reminded me of a line from Young Frankenstein — “It’s alive, alive, IT’S ALIVE!” However, insurtechs have been using Roger Rabbit’s excuse for far too long — “I’m not bad. I’m just drawn that way.” The public markets and investment community have woken up to that fact.
Table of Contents
Act 1: Setting the Scene
Root Insurance, known for its tech-driven approach to car insurance, released its 4Q23 and full-year financial results, and let’s just say, it’s been a ride worthy of a Michael Bay film—explosive with moments of intense action. In a world where traditional and digital collide, Root stands out as a protagonist with a vision, utilizing data and technology to offer personalized insurance rates based on driving behavior.
After hitting some tricky air pockets in 2021 and 2022, Root made a dramatic upward ascent in the back half of 2023. In the fourth quarter, Root delivered exceptional growth and loss ratio improvements that surpassed expectations. CEO Alex Timm described reaching an inflection point that enables the company to prioritize sustainable long-term growth or short-term profitability. Let’s examine the key drivers behind Root’s comeback story.
Root drove almost 5x growth in new writings and 55% expansion of policies-in-force compared to 4Q22. This momentum propelled full year 2023 gross written premiums up 31% to $783 million. Equally impressive, Root’s Gross Accident Period Loss Ratio landed at an industry-leading 66% for 4Q and the full year. This performance suggests that Root’s pricing and underwriting improvements are taking hold.
Act 2: The Plot Thickens
In the latest plot twist, Root’s 4Q23 results reveal a narrative of growth, challenges, and strategic adjustments. While the specifics of their financial performance are detailed in their release and some are presented here, we see a company navigating the treacherous waters of the insurance market with the agility of Jack Sparrow.
Root categorizes distribution into two buckets – Direct business from owned marketing channels and Partnerships through embedded channel integrations. The Direct channel remained their primary growth driver, fueled by machine learning algorithms to optimize customer acquisition costs. Meanwhile, Partnerships reached 41% of new writings, as seamless API integration helps convert captive customers across partner platforms. Moreover, with Carvana’s apparent turnaround, this should continue to drive positive growth in this channel.
Like any good thriller, there were moments of suspense. Root’s journey through 4Q23 was no different, facing the industry’s titans and emerging technologies. However, they’ve continued to innovate, focusing on telematics and data-driven insights to refine their pricing models and customer experience—think Tony Stark in his lab, but for insurance.
Act 3: The Climactic Finale
As we reach the climax of our tale, Root’s full-year saga showcases a strategic pivot akin to the plot twists in “The Empire Strikes Back.” It wasn’t just about survival; it was about adaptation and foresight. Root displayed determination reminiscent of the early NASA pioneers and has been laying the groundwork for a future where insurance is not just a necessity but a tailored, dynamic service that meets individuals’ evolving needs.
While Root has not achieved escape velocity to self-sustaining profits yet. However, with significant improvement in loss ratios and a scalable expense structure now established, profitability depends largely on their discretionary marketing investments. Root reduced unencumbered cash consumption from $179 million in 2022 to only $52 million last year, providing flexibility in their pace of growth.
Epilogue: Takeaways for the Regional Carriers
Now, as the credits roll, what lessons can regional and insurance carriers in general glean from Root’s cinematic year? Here are a few director’s cuts:
- Embrace Innovation: Like Root, regional carriers should not shy away from leveraging technology to enhance their offerings. Whether it’s adopting telematics or exploring new data analytics tools, there’s a world of innovation to explore. Could some of their pricing and underwriting techniques translate to benefit your book of business? Archie Manning likes to say “Wishing won’t make it so, but tryin’ might.” No reason not to test some continuous pricing models or develop an AI roadmap and governance approach. We are here to help.
- Customer-Centricity is Key: In a scene where the customer is king, carriers need to focus on personalization and user experience. Think of it as casting your customers in the leading role and tailoring the script to fit their unique stories.
- Adaptability is Your Superpower: The insurance industry’s landscape is as changeable as the settings in “Doctor Who.” Being flexible and ready to pivot your strategy can help navigate through unexpected plot twists. In Top Gun, Lt. Pete “Maverick” Mitchell stayed relevant by embracing new technology. Don’t rest on legacy systems in the spirit of Maverick’s NASA engineer tag line “the future is coming and you’re not in it.” Pilots who resist change get left behind.
- Learn from the Blockbusters: While regional carriers may not have the same budget as the blockbusters, there’s value in studying their strategies. Root’s approach to data-driven decisions and customer engagement can inspire innovative practices on a smaller scale.
As we close the curtains on this feature presentation, remember that the insurance industry, much like the world of cinema, is filled with opportunities for creativity, innovation, and transformation. By taking cues from Root’s journey, regional carriers can script their own path to success, ensuring that no matter the challenges, the show will go on.
So, here’s to the unsung heroes of insurance, ready to face the future with the wisdom of Yoda and the courage of Indiana Jones. May your decisions be guided by insight, your risks be calculated, and your innovations be groundbreaking. Roll the credits.
If our journey through Root’s financial landscape has sparked ideas or questions, let’s turn those thoughts into action! Book a meeting with us to explore how your organization can navigate the insurtech revolution with innovation and insight. Your next blockbuster strategy is just a conversation away.
Kaenan is a professional in the areas of block chain, telematics, wearables, analytics, artificial intelligence (AI) and Insurtech. He has played a key role in innovating many start-ups and established carriers. His advice has been widely appreciated in the financial community, which resulted in multiple quotes and publications in various media.
Most recently he was Practice Lead for Innovation, Fintech, and Strategic Insights at EY. Throughout his career he has held leading roles within Marketing Strategy and Decision Management with top Insurance, Banking and Finance companies, including USAA, Citibank and Sallie Mae.