Shares in Root Insurance leapt 20% today to $23.15, after CEO Alex Timm pushed back against the notion that the insurer should be characterized as a non-standard auto carrier.
Root is developing a new pricing engine that will bring substantial improvements to its underwriting profitability, the InsurTech’s CEO Alex Timm told a Goldman Sachs conference.
Timm said the model, named Usage Based Insurance 4.0, will incorporate more complexity and accuracy in Root’s risk-taking activities.
“We've grown substantially and retrained our model substantially,” Timm told Goldman Sachs analyst Yaron Kinar at an investor event.
“We've been able to add more and more complexity into our telematics models and our pricing models…we're not talking small improvements anymore in the iteration of its models – we're talking giant improvements.”
At the conference, Timm denied that Root is a non-standard auto company, an allegation first raised last year by this publication.
He said around 10%-12% of Root’s book is non-standard, but that that figure shrunk in 2020.
“Throughout 2020, you did see us trend more towards a standard customer mix. That's both a function, we believe, of brand awareness as well as adding on more different marketing channels where a more standard customer may be,” he said.
Timm characterized most of his customers as being “in the middle” on the socioeconomic spectrum.
“It’s not super preferred. We're not talking about the folks who need boat insurance…and need to insure their wine.”
Root’s low retention levels have also been criticized by analysts.
Timm argued that part of the issue is that Root tells 10%-15% of customers at the end of a month of telematics monitoring that other insurance companies “probably have a better price for them”.
He added that the company’s rates had been topsy-turvy in recent years as the carrier sharpened up its underwriting.
“When we launched, we had no data, and we've had to aggressively reprice many segments of our book,” 32-year-old Timm said.
“When you look at our mature markets, that's really where you see retention pretty much stabilized to very expected levels, very industry-esque levels,” he explained.
He finished by admitting the carrier had made errors in the past but has learned from them.
“We've made a lot of mistakes, obviously, in our time. We have the scars to show for it. I think what excites me when I look forward is just the massive growth opportunity,” he continued.
“There really is no technology-based insurance company out there today that is really accelerating and taking market share the way that we think is possible.”
