Root’s Q4 2021 highlights

Root Insurance shared their Q4 2021 and full year results and here are some highlights:

• The company ended 2021 with 354,371 auto policies, an addition of 31,612 policies over 2020.
• The company’s net loss in 2021 was just over $521 million compared to a net loss of $363 million in 2020.
• Sales and marketing expense nearly doubled in 2021 – $270 million versus $140 million in 2020.
• Gross written premium in the quarter increased 9% to $158 million compared to Q4 2020.
• In 2021, gross written premium reached ~$742 million, a 20% increase from the prior year.
• Gross accident period loss ratio in Q4 was 90.7%.

In the earnings call, Root’s co-founder and CEO Alex Timm said that 2021 was a challenging year as inflation pushed losses to new levels and digital marketing spend became less efficient. However, because of its “technology and data advantage,” the company was able to identify these trends early and take swift action.

During the fourth quarter, Root implemented 8 rate increases and an additional 5 were implemented to date in the first quarter. The company is currently looking to get a 56.4% rate increase approved in the state of Nevada. Since the beginning of 2021, Root has implemented 42 rate increases with a weighted average rate of roughly 14%.

After cutting marketing spend by 40% in Q3, Root continued to limit spend in Q4 with a 62% reduction. In Q4 2021, Root spent $24.7 million on sales and marketing compared to $65.4 million and $111.7 million in Q3 and Q2 of the same year, respectively. In the first half of 2022, Root plans to spend less than $25 million in marketing. Root’s new CMO as of November 2021, B.C. Silver, is bringing “some differentiated strategies” to the company’s direct marketing efforts.

Root expects that Carvana customers will represent a material percentage of new writings in Q1 2022 and continue to build throughout the year. When asked about the independent agency channel, Timm provided the following answer:

“We do have investments throughout multiple distribution channels, including our independent agency channel, which is still live, and we are getting policies through that channel today. However, what we have seen and what we have observed over the last 6 months with really the – with the Carvana partnership and the success of the embedded product has really surpassed any of our expectations. And so what we, in the immediate future, are really focused on is we think it’s very prudent to focus our resources there to continue to drive that growth channel. And we also believe that, that growth channel actually can create a moat around our business. Because there is – it is differentiated access to customers where we can uniquely service those customers in the moment that they actually have the need. And so we think because of that, that’s really where we’re focused right now. Of course, as we progress, we believe that there’s lots of other ways to talk to customers too. And so we will be, over time – over a longer period of time, continuing to incubate other distribution channels. But right now, the focus is Carvana.”

Root believes that the embedded channel is a “gigantic opportunity.” The company again mentioned Carvana and their ability to deliver “one-click experiences” and at the same time leverage data to improve the underlying unit economics. “We think that there is going to be a very large shift. We think it builds better consumer experiences. And we think that we’re at the tip of that spear. And we’re going to continue to expand that product and distribution line,” Timm said.

Matt Bonakdarpour, Root’s chief data science and analytics officer, is now the new CTO.

Hemal Shah, Root’s chief product officer who joined in 2019, has decided to leave the company.