A note from our CEO: Root is now in 20 states

This past week, Root began insuring good drivers in Oregon, making it our 20th state. This is a huge milestone for us as a company. Drivers across the country are embracing us as the future of car insurance—proof that our model of rewarding good drivers with fair pricing works.

When we launched in 2016, it was hard to imagine just how far we would come as a company in such a short amount of time. We have added 10 new states in 2018 alone—with more still planned before the year is up. I attribute our success to our speed and nimbleness as a company and an unwillingness to settle—we are constantly working to improve and do things better. As we move forward, our goal is to continue our mission of bringing fairness and simplicity to an outdated, needlessly complex insurance industry.

Here’s how we’re going to do it.

Getting better at predicting the business

As a new insurance company, one of the biggest concerns that we’ve encountered from potential customers is whether we’ll be able to pay out claims. The answer is a resounding yes. In fact, we are very conservative when we plan for claims.

We do two things to help us minimize risk. First, we work with reinsurers. We pay them a portion of the premiums we collect, and in return they take on a portion of our claims risk. That ensures that we never get in over our heads. Next, we plan for claims to be more severe than we think they will actually be. For example, in 2017 we planned to pay $1.50 for every dollar of premium we earned. However, at the end of the year we had only paid out 66 cents for every dollar of premium we earned. (This calculation is often referred to as the “paid loss ratio” and is calculated on a net basis, removing what we ceded, or gave, to the reinsurers.) When launching a new product, this is always prudent. When a claim comes in - especially if someone is injured - we set a very large initial reserve which allows for this protection. For example, for collision claims, we reserved $4,683 on average while we actually paid out $2,685 on average for closed claims. As we mature and begin to get really comfortable with our predictions of losses, we will remove some of this conservativeness, but for now, we like that our balance sheet is conservative, and it ensures our customers are protected.

It’s also important to note that we are getting better at understanding our customer lifecycle. We have a first term retention rate that’s the best in the industry - driven by our customer satisfaction and pricing. We’ve also noticed that the customers we keep have a significantly better loss ratio in their second term (their second six months), and early signs show continued improvement in subsequent terms.

All this means that we’re starting to understand our business even better as we mature. This leads to being able to more accurately predict outcomes and it increases our confidence in the business through our rapid expansion.

Reinventing the claims experience

Root in-app claims process

We created Root to reinvent every part of the car insurance industry. Giving fair pricing to good drivers is just the beginning. We think the claims process can be simpler, faster, and a better experience for customers, and we are tackling it head on as our next challenge. Drivers with claims have been at the mercy of slow, outdated, and frustrating processes with insurance companies that lack the motivation to improve. At Root, we allow our customers to file a claim within the app to make the process simpler and quicker. Accident detection, instantaneous claims payouts, and predictive fraud algorithms are not only possible–they’re here. We are still early in our journey to reinvent the claims process, and are excited to make it an even better experience for our customers as we roll out these features.

Our pricing models are getting better every day

We base our pricing on the simple premise that better drivers are less likely to get into accidents, and therefore they should pay less for car insurance. As we’ve grown, we have continued to collect data and gain greater insights into what constitutes a good driver, and we have evolved our driving-behavior models as a result. As we gain more and more data, we will continue to adjust our pricing models accordingly to accurately rate drivers, and we will always reward good driving with better rates. This is very exciting, as we now have substantial evidence that our internal models out-predict those of the industry.

I’m confident that Root is set up for continued innovation and growth. Creating an insurance company from the ground up, in a market saturated with traditional, established giants of the industry, was a risk. Creating an insurance company based on fairness—using a person’s driving ability as the primary predictor of their risk—was revolutionary. Some called it crazy, but 20 states later, I’d venture to say we’re doing something right, and I can’t wait to share how else we’ll drive this industry forward.

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