ROOT, INC. Letter to Shareholders: Q3 2021
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Key quarterly metrics:
Gross written premium ($M) | Gross earned premium ($M) |
$189.4 | |||||
$204.6 | $154.4 | ||||
$164.6 | $99.9 | ||||
$119.6 | |||||
3Q 2019 | 3Q 2020 | 3Q 2021 | 3Q 2019 | 3Q 2020 | 3Q 2021 |
Gross accident period loss | Gross LAE ratio |
ratio |
12.7% | |||||
9.9% | 10.6% | ||||
100.3% | |||||
79.6% | 91.3% | ||||
3Q 2019 | 3Q 2020 | 3Q 2021 | 3Q 2019 | 3Q 2020 | 3Q 2021 |
Gross profit ($M) | Direct contribution ($M) | |||||||||||||
$0.7 | $(5.5) | |||||||||||||
$(10.5) | ||||||||||||||
$(16.1) | ||||||||||||||
$(31.1) | ||||||||||||||
$(36.5) | ||||||||||||||
3Q 2019 | 3Q 2020 | 3Q 2021 | 3Q 2019 | 3Q 2020 | 3Q 2021 | |||||||||
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Letter to Shareholders: Q3 2021
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Dear Shareholders:
Key to Root's long-term success as an auto-first carrier led by an actuary is evolving and leveraging the competitive advantages afforded by our data science and technology stack, differentiating and diversifying our distribution, and continuing to improve our insurance operations and customer experience. We've sharpened the focus on these core areas of our business and are pleased to report we are making measurable progress against each, better positioning us to deliver sustainable, long-term value to all stakeholders.
Third-quarter highlights include:
- Developing the embedded product that will power our exclusive partnership with Carvana that we announced in August
- Diversifying our distribution channels through the growth of our partnership channel, bringing the ease of use of our technology to the independent agency channel, and decreasing our reliance on performance marketing
- Reducing sales and marketing spend 40% since last quarter in response to record-high inflation caused by supply chain issues; this allows us to prudently manage capital, reduce customer acquisition costs, and drive a $45 million quarter-over-quarter improvement in operating loss; we expect further reduction in sales and marketing spend in the coming quarters
- Growing gross written premium 24%, driven by the halo effect of previously committed marketing dollars
- Improving underwriting results through better segmentation and customer understanding through model updates including UBI 4.0 and McModel 4.1, our latest telematics and pricing models, and refining traditional underwriting techniques
- Following quarter close, we repaid both our term loan A and term loan B. We have signed an exclusive term sheet with BlackRock Financial Management, Inc., on behalf of funds and accounts under its management ("BlackRock"), to put in place a larger term loan facility with a longer maturity than our previous structure. We expect to work in good faith with BlackRock to close the facility before year-end, subject to negotiation and documentation of final terms and the terms and conditions contained in the definitive documentation.
During the quarter, we announced that Root is consolidating the Chief Revenue and Chief Operating Officer responsibilities under Dan Rosenthal, one of Root's most experienced operating executives. The move demonstrates the importance of placing marketing, insurance, and business growth development under a single leader. In his new role, Dan's mandate is to drive profitable top-line growth and streamline operations. We have
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Letter to Shareholders: Q3 2021
____________________________________________________________________________________________________________
initiated a search for a new Chief Financial Officer, and Dan will continue to serve in that capacity until his successor is identified.
We're clear on what we need to do as an organization to achieve the vision and goals Root was founded on: build world class technology to address long-standing inefficiency and bias in the auto insurance industry, provide a great customer experience at all touchpoints, and deliver long-term value to our shareholders through strong underwriting results and prudent capital management. It is through these actions that we secure our future success.
Q3 2021 highlights:
All figures are compared to Q3 2020 unless otherwise stated.
- Gross written premium increased 24% to $205 million
- Gross earned premium increased 23% to $189 million; Gross earned premium from seasoned states increased to 76%
Gross earned premium by seasoned versus
unseasoned
100% | |||||
80% | 46% | 31% | 27% | 22% | 24% |
60% | |||||
40% | 69% | 73% | 78% | 76% | |
54% | |||||
20% | |||||
-% | 3Q 2020 | 4Q 2020 | 1Q 2021 | 2Q 2021 | 3Q 2021 |
Seasoned | Unseasoned |
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Letter to Shareholders: Q3 2021
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- Renewal premium % of gross earned premiums remained roughly steady over Q3 2020 at 60%.
Renewal premium % of gross earned premium
70% | 64% | 66% | 62% | 59% | 60% | ||||
60% | 51% | ||||||||
48% | |||||||||
50% | 45% | ||||||||
42% | |||||||||
40% | |||||||||
30% | |||||||||
20% | |||||||||
10% | |||||||||
-% | 3Q 2019 | 4Q 2019 | 1Q 2020 | 2Q 2020 | 3Q 2020 | 4Q 2020 | 1Q 2021 | 2Q 2021 | 3Q 2021 |
- Gross profit decreased by $17 million to ($16) million as our results remain pressured by the current loss cost environment
Below, we'll provide performance highlights for each of our key business drivers: customer experience/product, underwriting, and growth.
Customer experience/product
We operate our business with the consumer at the center of all we do. We have growing amounts of real-time data that provide an understanding of our customers, paired with world-class technology that allows us to respond to changes quickly. Our technology allows us to deliver a quote in less than a minute, something that differentiates our product offering in our direct channel and also provides meaningful opportunities to build differentiated access to customers and broaden our distribution.
Distribution
Diversifying our marketing channels by leveraging our technology platform widens and deepens our funnel, enabling us to reach more consumers and drive future profitable growth. In previous quarters, we placed heavy reliance on performance marketing channels for customer acquisition, exposing us to significant cost increases and unacceptably low returns as experienced earlier this year.
This quarter, we significantly dialed back our spend in performance marketing, reducing sales and marketing spend 40% over last quarter. This move away from performance marketing investments has both greatly reduced our customer acquisition costs and provided us with additional bandwidth to prioritize expansion of our partnership
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Root Inc. published this content on 10 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 November 2021 22:07:09 UTC.
