Root had to become an insurance company to deploy its software, but now the very carriers it competes with for policyholders are asking how they can use that tech.
In recent months Root Inc. (Nasdaq: ROOT) has started to develop brokerage technology and is in talks with other insurers to embed it, the Columbus company said in announcing first-quarter results.
That's a new source of fee revenue as carriers adopt a range of functions, whether simply for better mobile customer claims filing or its full suite of underwriting analytics, co-founder and CEO Alex Timm told Columbus Business First. He called it "coopetition."
“It’s a strong indication of the future,” Timm said.
The parent of Root Insurance Co. might use the tool to hand off customers with poor driving records – who don't fit its risk profile of covering good drivers – to insurers who do target that market, he said. Or it could be used in a state where Root isn't licensed.
"We’ll actually place them with another carrier and really become the technology platform powering the experience," Timm said. "It's very capital efficient. It scales very easily."
It's too early to tell how much of the business will turn to white-labeled software and when, he said.
The model actually returns to Timm's first ideas before starting Root seven years ago. He wanted to fully unlock the power of technology to harness the mobile revolution and make insurance more fair – basing premiums on driving habits instead of arbitrary measures like credit score.
"We couldn't convince anybody," he said. "That's when we decided to build the insurance carrier."
An analyst asked on Thursday's conference call whether the company would eventually shift to more fee-based revenue than premiums. Dan Rosenthal, COO and chief revenue officer, did not give specifics but said Root will "explore many options."
"From the moment we announced the Carvana deal last August, we started getting calls from other insurance carriers," Rosenthal said on the call. "It was transformational in terms of how other carriers saw what Root is doing.
"We are attracting a customer segment they want – and we are doing it with an efficiency they don’t have. It is contributing to very productive conversations."
Although Root's embedded "Carvana insurance built with Root," a policy quote presented at the time of purchase with the online used car seller, prompted those calls, the first brokerage tech will be in its direct business, Timm said.
Root won't stop directly underwriting policies, he told Business First.
"We'll still be the insurance carrier for many hundreds of thousands of our members," he said. "We expect (other insurers) to compete fiercely with us in certain realms and then partner with us in certain realms."
