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Telematics deployment could put Root on road to success: Carbone  

Traffic jam in the city

A leading InsurTech analyst who has been critical of Root says he now believes the carrier could become a major force in the US auto market by harnessing its telematics data to improve underwriting.

Matteo Carbone, who runs the Internet of Things (IoT) Insurance Observatory, has become more optimistic about Root’s prospects than he was in the past, provided the carrier is able to improve its loss ratio.  

Root has a “clear opportunity to improve their results if they will start to use telematics data better,” he told The Insurance Insider in an interview. 

“If you start to introduce behavioral change management, like Allstate do and Discovery have done in South Africa, then you can start to have a real impact on the loss ratio.” 

In the third quarter of 2019, Root lost $49mn, and saw its loss ratio deteriorate by 2.9 percentage points to 132.1 percent. Despite those struggles, the US direct-to-consumer auto market has opportunities that the company may be in a position to exploit, according to Carbone. 

According to data from the National Association of Insurance Commissioners, in 2018, the personal auto market in the US was worth $244.5bn. Most transactions are still handled by human insurance agents, as opposed to apps like Root, with giants such as Progressive and Geico dominating.

“There is a huge opportunity out there for somebody that is able to sell directly to customers,” he said. 

He added that Root need to do “everything right” operationally for its strategy to work. 

Previously, Carbone told this publication that a $3.65bn valuation of the fast-growing company “makes no sense”, and is unlikely to align with the true worth of the carrier.  

He has also penned a series of critical blogs about Root over the last two years. In a piece on 31 October he said that Lemonade, Root and Metromile were in a “pricing war”. In a blog, co-authored by Camino Ventures co-founder Sri Nagarajan, he said that Root’s “structural underpricing of the risks seems the main driver of their exponential growth”. 

In the second quarter of 2019, Carbone noted Root was burning through $129,000 in cash a day, indicating sustainability issues. 

But prospects have been looking brighter for Root lately. The company received a $350mn cash injection from investors in August, along with a recent $100mn debt raise.

Carbone argued the company needs to drop its current approach of basing pricing in-part on a one-one trial period, and instead should “leverage the telematics toolkit that is already in their hands”. 

In the future, Root may benefit the low churn rate in US auto insurance. 

“Even if they raise prices, they will probably get the renewal in most cases.” 

The IoT Insurance Observatory, a global InsurTech think tank, now has around 50 members including Munich Re, Swiss Re and State Farm.  

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