Root officially debuted in the U.S. market on October 25. The fledgling auto insurer, just 18 months old, relies on telematics and a customer’s smartphone to deliver what it says will be significantly cheaper rates for the best drivers based on their current driving data.

“We sell auto insurance entirely on a smartphone,” CEO and co-founder Alex Timm told Carrier Management in a telephone interview. He added that Root’s business model is “enabling us to get the best drivers much, much better rates than currently on the market, which we feel is the rate they deserve.”

Its “root” principle is to have a “fundamental fairness in mind” in terms of pricing, Timm said.

The startup’s home base is Ohio. It received regulatory approval there earlier this year and that is where it is starting to sell. The opening came after months of Root privately testing its signature app and insurance functions, which turn a user’s phone into a telematics device that monitors driving behavior. Customers can also purchase their policies entirely on their smartphones.

Root expects Illinois regulatory approval by the end of the year or early 2017. After that, it plans to file for approval in 10 or more states in the 2017 first quarter, with a goal of becoming “close to national” by the end of 2017, Timm said.

Root’s emergence follows the launch in recent months of a number of new insurtech brokers and insurers, all with related pitches about making the insurance-buying experience both easier and more cost effective for consumers. Another startup insurer, peer-to-peer venture Lemonade, opened for business last month in New York, selling homeowners and renters insurance.

Potential Root customers download its app onto their smartphones, which enables a scan of their driver’s license. Then comes a two-week wait while Root gathers data on its potential customer to determine what kind of driver he or she is. Once approved, Root sends a push notification electronically, and the customer then can use Apple Pay to purchase the coverage. Aside from the waiting period, the initial enrollment takes less than a minute.
Consumers can use the Root app to obtain a quote, purchase a policy and make a claim.

The Root app turns a consumer’s smart phone into a telematics device, one that gathers data on driving behaviors, and whether there are less-than-safe habits on the road. “Over 70 percent of people are” safe, Timm said, and they get the best rates.

That means the rest—roughly 30 percent—are less-than-ideal drivers. The Root app sifts out the “bad driver” by using the smartphone data, measuring elements such as how fast a driver accelerates or breaks, tailgating patterns, swerving, breaking patterns, changing lanes, distracted driving and other related data.

Of the plan to insure only good drivers, Timm said Ohio regulators approved the business plan as legal and proper, and he added that all carriers typically have target markets and underwriting guidelines.

“They may target older people, or people in the prime of life,” Timm said. “We are saying we are only targeting insurance to that good driver … we are not necessarily telling these bad drivers they cannot be insured. We tell them there is a better carrier for you, maybe Progressive or GEICO, aligning the risk with who we are really looking for. The insurance company we are building is really for good drivers.”

Root’s pitch still relies on demographic data that a traditional insurance carrier would use, including gender, marital status and age, but the insurer says it places a greater emphasis on current driving records generated from telematics as part of the underwriting process. Timm said he hopes to shift the balance even more this way down the line, and said it will be ultimately fair for consumers across the board because the business model encourages safer driving.

Programs such as Progressive’s Snapshot device rely on driving data to save 10 percent, but Timm says that the process to qualify for the discount includes a lot of bureaucracy. He said only a minority of carriers use telematics data, a statistic he hopes to change.

“The majority of the market is still based on traditional underwriting variables—credit score, age, gender, year/make/model of vehicle, marital status. Some still have occupation, some ask your level of education ….They will use these reports and that information in order to try to predict whether you will get into an auto accident,” Timm said. “It is not very granular.”

Timm found that experience only counts so much, as some newer drivers have safer behaviors and records. That’s where a wider use of telematics and regular monitoring of driver behavior gives Root the edge, Timm said.

“How you drive—telematics data—can predict future accidents way more than any other individual [element],” Timm said. “That’s why a telematics device has been such a huge focus of some carriers. What they haven’t been able to do is align that with a really good consumer value proposition, again, still not giving good drivers the rate they deserve. We have taken away all of those barriers.”

Root’s other goal is to make customers happy with their digital insurance experience, something he said has ranked low for property/casualty customers of traditional carriers.

14 Year Old Insurance Geek

Timm happily describes himself as “living and breathing insurance since age 14.”

“At age 14, I was at Century [Insurance Group]. I had to convince them [to hire me]. They had a math test for entry that lots of people have not passed, and I made a wager and said, ‘I bet I can pass and you have to hire me.’ I passed it and they had to hire me,” Timm recalled happily. It was his first summer job.

From there, Timm met some of the people in the actuarial department, made connections and ended up working during winter break. (Timm’s father, Christopher Timm, is president of Century.)

“My first job in insurance was calling people and doing policy management on phones,” Timm said. “I very quickly realized we were there for people on what is usually one of the worst days of their lives: losing a loved one, house burning down, auto insurance accident. I started to be really fascinated by the industry and [its] purpose.”

Timm said he loves mathematics. He became an actuary and worked for larger insurance carriers, where he began to notice distractions such as “crazy media budgets” and carriers not thinking of the consumer first.

That’s what he hopes Root will change.