All right. All right, good afternoon. Today I'm really excited to have back, for the second year, Alex Timm, the Co-founder and Chief Executive Officer of Root. Root was founded in 2015 on the idea that car insurance rates should be based primarily on driver behaviors, not demographics. They use mobile technology and data science to offer fair, personalized rates to good drivers.
They went public in 2020, and today it's the largest insurtech in the country and continues to boast one of the best underwriting records in the industry. It is well positioned for the next chapter of growth, and we're going to learn more from Alex on how that's going to happen. With that, let me welcome you, Alex a nd the team from Root, and jump into a question. While we see some familiar faces here, insurance isn't first and foremost on their minds, so we'd love to hear you share a little bit about your passion for Root, the story, how you got here. So take a minute or two to.
Sure. Yeah. Well, one, I don't think insurance is top on anybody's mind, right? You talk to consumers and I've yet to meet somebody who said, "Well, I'm going to have a great week and I'm going to go shop for car insurance," right? So why is that? And there's a reason why that it's considered such a pain. It's hard for consumers to understand. They don't know why they're purchasing the product. It's really expensive. They don't know, "Hey, if I buy the red car or the yellow car, what's going to happen?" And so there's just all this confusion and issues in the industry. In the meantime, technology is rapidly changing.
And so whether it's the advent of mobile data and the proliferation of mobile phones or sensor data, or the ability to use AI and machine learning algorithms, particularly now that computing power is so cheap to actually start to train new algorithms. So those were some of the things that we saw when we started the company. It was really a dissatisfied customer, and then really a fundamental change in technology, both in terms of where consumers were purchasing, which was on the mobile phone, but then also in the very core of data, like how data is actually structured now and what you can do with it.
We started a company where we said we were going to meet consumers where they are on the mobile phone, and by doing business that way, we're going to be able to leverage all of the rich data, behavioral data off of that phone to create better risk scores and basically price insurance better. And that's the name of the game in insurance is pricing risk, right? And that's fundamentally a predictive science problem. And that's what we launched. We were really the first to basically turn the supercomputer in your pocket called a mobile phone into an insurance prediction machine. And we were growing very rapidly really since then. Now, fast forward 10 years, 50% of our business is still through that core product direct. We've also since then launched our embedded product where we're the exclusive insurance provider for Carvana Insurance.
And so if you purchase a vehicle on Carvana, you can just include insurance right there with your vehicle instead of having to go shop and try to figure out proof of insurance. And then we've got another quarter of our business that's through independent agents. And so we've been growing very nicely. We've reached profitability. But fundamentally, what we are is we're a technology company building better customer experiences at better prices. And we do that really by being best in the world at creating AI and machine learning-based systems that can take in lots of rich data to make the most precise estimate of risk in terms of auto insurance, who's going to get in the crash, who's not, for anybody. So that's who we are.
That's awesome. The growth's been remarkable, as you just kind of said over the past couple of years. But talk a little bit more detail if you could on the direct channel, the partnership channel, because I assume that's going to drive future growth. Is that?
Yeah. So the direct channel we don't run. The direct channel is an interesting one. Auto insurance is the most heavily advertised product in the United States, which is wild because it's a mandatory-to-purchase product. Progressive spends over $3 billion every year just on advertising, and you've got Geico roughly at the same spot. Nobody's growing the size of the pie, right? They're all competing for the same customers. So because of that, how do you compete, and how do we go after that? Well, what we've done is we've actually really leveraged our data science and our technology to figure out how do we actually become much more efficient at bidding exactly on the right customers at the right time, and so in direct, we're mostly growing through search channels right now.
And so, making sure that we show up to the right customer, we understand what they're worth to us. We've got really advanced bidding algorithms that basically drive that. And so what you see on direct is it's cyclical. These guys, sometimes you see, really big carriers for a variety of reasons push in really hard and sort of spend lots of advertising dollars sort of indiscriminately. And when that happens, what you'll see from Root, and you've seen this in the past, is we'll pull back. At other times, they pull back because they get over their skis and pricing becomes soft. And what you'll see is we'll push forward. You've seen us do both of that in this channel. In 2023, we doubled the size of our direct business in 12 months. And that's because everybody else had pulled back.
And then you're now seeing a more competitive environment in 2025, and you've seen our growth pull back there. And so that channel's growing. It's still growing year-over-year, even with a really competitive environment. But it kind of grows countercyclically. And so you can kind of imagine like a sine curve about a line up and to the right. And then you've got our embedded channel. That channel has grown roughly 2x year-over-year. And so that when we realized that, "Hey, we've got real product-market fit with this three-click purchase experience with Carvana," we realized, "Wow, there's a lot of other places that we could actually develop that product." So we launched a partnership and announced a partnership with Hyundai. And we're continuing to grow our OEM base as well as financial services. And that's growing, again, very, very quickly.
Then independent agents is probably the fastest growth driver currently in our business. Agents are about a third of the market in the United States. They've been 10 years ago; they were a third of the market. 50 years ago, they were a third of the market. So consumers are still driving to agents just as much as ever before. It's a $100 billion total market. And Root has never shown up there until about two years ago. And what we found is that that three-click purchase experience that we really originally invented for customers on a mobile phone turns out agents really like that too.
They don't want to be on the phone with you any more than you want to be on the phone with them to talk about car insurance. And so as we've launched that product, we've actually seen really material take rate. And so we've been scaling that. That tripled year-over-year. It's roughly a quarter of our business now. And we're still in fewer than 10% of all agents nationally. And so that has this like a very clear growth trajectory. So we've got diversified distribution. We've been very focused on that. We think all of these channels should be growing. We're still less than 1% market share. We're growing the business very fast in many of these channels. But they grow a little differently.
Interesting. And you said each of them is growing. Talk a little bit about the margin profile in these businesses. And do you have a preference which grows faster?
At Root, we went through some real tough times. We at one point lost over 90% of our market cap, which may be something most people wouldn't admit to or say on this stage or point out, but I think it's important to understand because in those moments, what it has done is it has taught us so much discipline, financial discipline, and it forever made us a better company. Unfortunately, we had to learn that the hard way, but now coming out of that, you ask about where does growth come from? Do we care about it? We always, every piece of new business that we add, we make sure we return our IRR on that business over a hurdle rate no matter what. We don't solve for quarterly growth targets or quarterly earnings targets. We don't run the business that way.
And so in terms of do we care if embedded grows faster or independent agents or direct, no, we love them all equally. We are economically ambivalent, and we never grow for growth's sake. We grow in a very disciplined manner. We only deploy that capital when we know it's going to return back to our shareholders. And so sometimes that means in a given quarter, direct won't grow as fast. Sometimes it means we'll grow really fast in a given quarter. But that's really the principle by which we grow the business, and we really don't stray from that. And so whether it's an independent agent policy, an embedded policy, or a direct policy, we don't care. We sort of love all of our children equally in that regard because they all produce the same return.
That's helpful. It sounds like you're making the right business decisions for the long term. And to that point, you brought up that independent agents, $100 billion opportunity. Talk about your technology advantage relative to the other companies these agents are dealing with. How helpful is that?
Yeah, I mean, it's pretty crazy. If you think that buying insurance online is hard and why does that take 15 minutes when nothing takes 15 minutes to buy online, you should see the technology that independent agents use. They go in, they enter a bunch of information into an agency portal, usually on the phone with the customer. Most agents know, actually, they write it all down on paper because they know they're going to have to enter it in like 3x or 4x . They then, once they get all this information and on their screen, they have like an Expedia-type product where it's supposed to show all the prices. But instead, it shows estimated prices, and sometimes it just says offer available. They then have to click on that.
After they click on that, they bridge out to the carrier's platform, so a Progressive platform, something like that. They have to re-enter in all of that information, and then they get a real price, which is insane, so what we've developed is basically, because we're on a modern technology platform, we have quote APIs, and those quote APIs can basically take first name, last name, and address and deliver a bindable quote, and so what we've done is we've integrated that with these agency systems, so now if an agent goes through, they can answer a few questions and a bindable Root quote, a real quote, shows up in the system, and they can click bind.
They don't have to go out to another system. There's no bridging. They don't have to write anything down. They can just sell a policy. So what happened is we saw, in terms of the results, we took that 22-minute call time down to under three minutes. And that's huge for these guys because they are sales organizations. The more time they can spend selling, the better. And so we've really cleaned up that technology quite a bit. And that's really probably the number one reason why we're growing so fast in that channel.
Just talk about that. With the legacy auto insurance, you seem to have a significant competitive advantage. You're taking market share from them by doing this. Talk a little bit about how you can disrupt further these massive budgets they have that they can't really compete because they're spending all that money.
Yeah. I mean, our first competitive advantage is really pricing and pricing and automation. And we have created, like I was saying earlier, a platform that allows us to basically ingest any data you can imagine and basically put that into an AI or a machine learning algorithm and immediately start to adjust pricing in the market and generate filings automatically for state regulators. And it's kind of wild. If you look at most insurance companies, one, most of the top 10 insurance companies that we're still up against are over 100 years old, right? So Marc Andreessen wrote the Software Is Eating the World blog post, I don't know, a decade ago. It choked on insurance. And there's a lot of reasons for that.
But so when you look at what that means in terms of their ability to sort of predict risk and to do what is fundamentally an analytical task, they still have people, 51 different people for every single product sitting in a state saying, "Here's a spreadsheet with a line in it. Okay, I think this one gets a +3 . This one gets a -4 ," doing it all incredibly manually, right? And our President and CTO of the company, he was one of the first six guys on the Citadel's statistical arbitrage floors. And he talks a lot about the movement from Wall Street into quantitative funds and how that happened and the technology that actually enabled that. That never happened in insurance, even though fundamentally the two problems are the same. They're both prediction problems.
And so we've created this platform that allows us to basically suck in all sorts of data and then very immediately and very quickly respond. Great example of this. This year, we shipped our new pricing model, and it increased our quote LTVs by over 20%. We rebuild all of our models at minimum every year. Most of our competitors, that's once every 10 years. Best in class, that's once every five years. And so we're able to respond much quicker. What you're seeing now is actually our average premiums are coming down for customers, right? And this is an inflationary period where affordability is a huge issue. Well, we're getting better and better and better at figuring out who's actually going to get into an accident.
As we do that, prices for the 80% of people that are subsidizing the 10%-15% of people causing accidents out there, that ends up becoming a better and better deal for them. And so that's sort of this compounding competitive advantage. And the only way you can do that is with a truly closed-loop system. You can't outsource your technology. A lot of our competitors are on mainframes still. They have 60 different backend systems, and they've outsourced that. So that's our first competitive advantage. And the second is sort of by virtue of building a system like this, everything's on an API. Everything's easy to use. We have modern quantitative software developed.
And so that allows us to do things like, for example, in the Carvana product, we can ingest all of the data that's actually going through just the vehicle purchase flow, and then we can generate a price that's bindable immediately. We don't need to ask you more questions because our models are actually robust to the amount of data. You give me half the data, I can give you a price. You give me 75% of the data, I can give you a price. You compare that to most of our competitors, they've had the same insurance application in the market for probably 50 years. They don't know what happens if suddenly they don't ask you a given question or they don't have a given data field. They can't generate a price, right? And so that's a huge difference.
You think about connected vehicle data and ingesting connected vehicle data, which is very important to the OEMs, and actually leveraging that in pricing, particularly as these vehicles are getting smarter and smarter and autonomous technologies continuing to advance. What does that do to risk? How's that going to change things, right? In order to actually understand all of these things, you have to have that modern quantitative system. That's really the core asset that we've spent an inordinate amount of time and money building.
Just to build on that, it sounds like it's extremely set up to benefit from AI. Is there?
Yeah, absolutely.
Anything to talk about there?
Yeah, I'd say.
I'm curious.
Yeah, I think people, when they think of AI, sometimes they think of chatbots, and I would say AI is like way more than chatbots. If you take a step back and you look at what were the quantitative techniques that allowed a transformer or the transformer and GPT to sort of work, and these things called gradient boosting machine or artificial neural networks, those techniques that they're using to basically assign a probability as to what's the next word supposed to be and then optimize for that, that same predictive technology is basically what we're also using to just in a different manner. We're basically feeding and underwriting data, and then we're predicting basically who's going to get into an accident, a car accident, and that sort of prediction loop is fundamental to who we are.
So that has been sort of we've been AI native in that regard for quite some time. And it's the reason why we started the company was because you can't use those kind of methods on old systems. So that's a huge, huge, huge piece to it. I still think chatbots will have their place in insurance, probably most applicable in claims and customer service. But I think the bigger thing is going to be how you actually apply a lot of those more modern algorithmic approaches to the fundamental of what insurance is, which is pricing risk.
That's super helpful. As you said, you keep investing back into the business. You know it's the right thing to do. Talk a little bit about what you're investing in, testing from a marketing channels perspective, and what should we expect in the future, coming quarters?
Yeah, we're still very early, particularly in, for instance, in our Hyundai partnership. We just recently launched with them, and we're really excited about continuing to invest to get even closer and more embedded inside a vehicle. So you can imagine a world where a customer turns on or purchases a vehicle, and the Hyundai app is immediately in an infotainment center and is connected through insurance. And as you drive, your price updates. You can imagine that if you get into an auto accident, because there's now sensors in all of these cars, we want to be able to ingest that data to know immediately, hey, an accident happened. Two, we know that the left front panel was damaged. Three, we've integrated now with their logistics and service centers to know where to ship that part and when that car should actually be in the shop.
So it's not just sitting there for days. So now what the consumer sees is they get into an accident, car immediately knows and says, "Great, here's your appointment. You're going to be totally fixed and repaired." So that's a huge product that we're continuing to invest in. We know that we've got really strong growth with that product right now, but we're continuing to invest even deep in our integrations even further with all of these OEMs because we think that that's going to be a huge part of the future. We are investing still in our direct product. We're making it easier to use. We're making payments and flexibility easier for customers, which is increasingly important in an age of affordability. It's kind of amazing. Most insurance companies don't offer a payment cycle of every two weeks. Most Americans get paid every two weeks.
So there's some basic things we're building as well. And then we are continuing to experiment with more marketing channels. And so we, again, like I said, started really with bottom of the funnel search channels. And we did that because it was really data-rich, and we knew we could train a lot of our marketing algorithms there. Now that we've done that, we're beginning to actually experiment with things like connected TV, YouTube, social media, podcasts. And we're seeing some really interesting results. So I think you're going to see us also look at those channels that are working and generating returns for us, and we'll be growing those as well.
That's great. And while the product's auto insurance, listening to you speak, it's clear you consider Root a technology company, first and foremost. You talked about the new pricing algorithms. You're able to turn those almost double the time everybody else. Can you touch on your ongoing capacity for tech innovation and what we should expect more? Are you going to continue to invest in technology?
Oh, absolutely. There is so much more to invent than we've even thought about. We don't see a reason why you wouldn't be able to adjust pricing models. Sure, it's great we can do it once a year versus the five years that everybody else is at. It should be able to do it daily. There's no reason it can't, and so we're continuing to build that and invest there as well, so we think we're less than 1% market share today.
We're in 35 states. We're building out our national footprint now. We just got approval in New Jersey, which came through, and so now you're going to start to see us continue to grow just through sheer geographic expansion, and so we still have a lot of work to do, but more work in front of us than behind us. But we think that the opportunity for innovation really abounds here.
Yeah, it's interesting that your underwriting continues to be best in class as you take on more business. So those algorithms seem to be very well aligned. Talk about a little bit with this enhanced technology, will you look to accelerate growth and expanded market share, and where are you going to take that? Are there places you aren't that you want to go?
Yeah, we're going to continue. I mean, right now, we are really focused on growing the business because of what you said earlier, which is those underwriting results. Again, we're not going to grow. Our intention is not to grow for growth's sake or to grow at loss ratios that we don't like or margins we don't like. But with sort of the analytical rigor we have in the company at this point, we feel very good about driving further growth in the company. And so you're going to see us appoint many more agents. Again, we're in less than 10% of the market there. There's no reason to think we can't scale across most all of the market. You're going to continue to see us add OEMs and partners to our partnership platform. We've already got lots of big ones under contract that we still just haven't launched.
And so part of that is just letting that earn through. And then on direct, we're going to watch the competitive environment. We'll continue to experiment in these new channels. And as those channels look profitable, you'll see us grow those. If they're unprofitable, you'll see us shut them down really quickly. And then in our core channels, we'll watch the competitive environment. If people get ridiculous and start chasing growth, you'll see us pull back. And we won't grow for a quarter or two on direct, that is anyways. But also, if you see them pull back, you might see us go a lot harder because that's how we don't operate the business. Again, we don't chase growth, and we don't operate the business on the short term that way.
You've talked about Carvana. You've talked about Hyundai. Is there other opportunities in those markets to expect to see anything else from you?
Yeah, I think you're going to see us continue to expand our reach, both. One, Hyundai's one OEM. There's no reason to think that this is not going to really proliferate across many OEMs. And so we've been working with multiple OEMs. We also are continuing to work with financial services companies. We announced Experian. That's a really natural time to talk to customers about car insurance. They've got an app. They're trying to figure out how to save money. Okay, well, have they thought about car insurance? Most of it's mobile, so we can actually put our telematics inside of these other apps as well so that we can understand, okay, who's a good risk and a bad risk actually using some of these apps. So I think you're going to see all of that really broadly expand.
Great. And let's end here, if we could, on this question. Your strategic priorities in the medium term, how should we think about that as you look beyond 2028? What's this company look like?
Yeah, in the medium term, I'd say you should expect us to go national. So we're going to scale nationally. We're going to continue to add partners to our partner platform, grow independent agents. We're going to invest in our pricing technology, which means that we're going to turn those algorithm updates into our goal is as a stopping point once a quarter until we get to once a day.
So you should expect that to accelerate and then continue to grow the business. We think there's no reason. This is, again, a $300 billion market that consumers don't love. They hate, actually. They think it's a rip-off, and technology also promises to completely change that, and we think we're the one. We're the biggest. We're profitable. We've got that head start. And there's nobody else really, really in that position. And so we think it's ours to lose more than anything.
Thank you. Alex Timm, thank you very much for being here. And if anyone has any questions, just grab the team. So thank you again for being here.
Thank you. Appreciate it.
Yeah that closes the call.