Root has lost more than $415 million from January through September 2021, almost double the same period a year ago. The Ohio based digital auto insurer also took year-to-date hits on net premiums earned and total revenues. It promises a marketing revamp will start to bear fruit in 2022.
At the same time, Root experienced some gains during the 2020 third quarter, where it reported increases in premiums and premiums in force, and customer acquisition costs are slowly improving.
“We are aligning the key pillars of our offering and using our technology and customer knowledge to competitively acquire profitable business,” Root Co-Founder and CEO Alex Timm, and Daniel Rosenthal, the company’s CRO, COO and CFO wrote in Root’s Q3 2021 shareholder letter. “We have reined in customer acquisition costs in an inflationary environment and are actively laying the foundation for profitable growth.”
Timm and Rosenthal said they expect gross written premium to reflect year-over-year declines in the fourth quarter and the first half of 2022 as the company reworks how it and where it spends marketing money and pursues “more cost-efficient distribution channels,” along with reducing customer acquisition costs and operating losses.
Under the assumption that these changes will take hold, Root projects losses for 2022 somewhere between negative $505 million and $55 million. As well, Root predicts full-year operating losses in 2022 will improve based on its operational changes.
Root said repeatedly through its Q3 2021 shareholder letter that biggest way to get there is by way of a marketing rethink.
The InsurTech is moving away from “performance marketing channels” for customer acquisition, which created “significant cost increases” and “unacceptably low returns” seen earlier in the year. As a result, Root said, customer acquisition costs have declined to the point where it can focus more on its partnerships (such as the embedded insurance deal it formed with Carvana) and further develop its independent agency plans. Root disclosed in the 2021 second quarter that it would scale up an internal sales agent program and pilot a program to provide its digital auto and other coverage through independent licensed agents.
“Through our broadened channel strategy, we also enhance our ability to reach customers that retain longer and at better unit economics than we have been experiencing recently through performance marketing channels,” Timm and Rosenthal wrote. “These new channels are expected to become a growing part of Root’s book over the next year.”
Investors appeared to respond favorably to Root’s results and outlook. Root disclosed its Q3 results on Nov. 10. A day later, the company’s stock price spiked to $5.78, about a dollar higher than the previous day’s close. It traded at $5.70 in after hours trading on Nov. 12.
Additional Q3 and Nine-Month Result Highlights
- Root booked $85 million in net premiums earned during Q3, compared to $45 million in Q3 2020. From Jan. 1 through Sept. 30, Net premiums earned are at $225.4 million, down from $278.4 million in the first nine months of 2020.
- Root reported $204.6 million in gross written premium for the 2021 third quarter, up from $164.6 million last year.
- Sales and marketing spend hit $65.4 million in the third quarter, up from nearly $37 million a year ago. Sales and marketing spend for the year through Sept. 30 is at $245.5 million, compared to $90.1 million, a jump reflecting the company’s attempt to scale nationally.
- Net losses for Q3 reached negative $133 million, versus negative $85.2 million last year. For the first nine months of 2021 the number is at negative $411.2 million, compared to negative $2298.7 million the year before.
- Root’s gross accident period loss ratio was at 91.3 percent in Q3, compared to 79.6 last year.
- Root had 380,836 auto policies in force in the 2021 third quarter, versus 322,423 a year ago and 242,631 in the 2019 third quarter. Its renter policies hit 9,143 in Q3, compared to 7,367 in Q3 2020 and 825 in Q3 2019.
- Root’s auto premiums in force were at $751 million in the 2021 third quarter, compared to just under $600 million the year before and $425.6 million in the 2019 third quarter. Renters premiums in force were about $1.3 million in Q3 2021, $1 million in Q3 2020 and $100,000 in Q3 2019.
- Root had $1.1 billion in cash in hand at the beginning of 2021, compared to $416.6 million in January 2020. As of Sept. 30 2021, Root reported $835 million in cash on hand, versus just under $219 million at Sept. 30. 2020.
- Root said the renewal premium percentage of its gross earned premium was at 60 percent during the 2021 third quarter, about the same as it has been all year. The number was as high as 66 percent in Q4 2020 and 64 percent in Q3 2020.