Marketing and sales cuts in Q3 will impact PIF: Root
After auto InsurTech Root cut its marketing and sales spend by 40% during the third quarter, policy retention levels will likely be affected during the fourth quarter of the year and the first half of 2022.
“We're not providing any specific guidance with respect to renewals, but you can expect that as we continue to reduce that sales and marketing spend level, there will be an impact on PIF,” Root CFO Daniel Rosenthal told investment analysts during the third-quarter earnings call.
But “we're not guiding to any specific levels of retention”, the executive warned.
Root cut marketing spend in Q3 in response to what it said was record-high inflation caused by supply-chain issues, driving a $45mn quarter-over-quarter improvement in the company’s operating loss.
However, the InsurTech’s net loss widened by 56% to $133mn from $85.2mn last year, as its direct loss ratio climbed to 92.7% from 89.8% a year earlier.
Root also expects rate increases in the coming months, as the Ohio-based InsurTech adjusts its pricing and underwriting models.
“We have substantially improved our pricing and underwriting models,” Root co-founder and CEO Alexander Timm told analysts.
“We continued the rollout of UBI 4.0, our latest and greatest telematics model; and McModel 4.1, our national pricing model,” he said, adding that “UBI 4.0 is currently active in 20 of our 31 states, representing roughly 70% of our addressable market”.
The company said the new model enables a precise telematics quote and improves overall segmentation.
“Since the rollout of this model, we have been able to extend quotes to an additional 10% of users,” Timm said.
“We are also in the process of rolling out McModel 4.1, which leverages Root's growing data set to expand modeled coverages, improve segmentation and better predict the lifetime value of a customer,” he concluded.