Insurance is often a family business, and it was for Alex Timm, the founder of Root Insurance, a usage-based insurance company that handles everything from data collection to quoting to policy servicing through its smartphone app.
Timm’s first job — at age 14 — was in insurance, making phone calls on behalf of his father’s agency to help customers manage policies. But despite that baptism by fire, he fell in love with the industry.
“When your neighbor’s house burned down, insurance was right there to help them pick up,” Timm says. “It’s a very complicated, mathematically driven industry, but I’ve always loved that there’s this ‘noble cause’ at the same time.”
Eventually, Timm he got into the actuarial side of the industry and worked at State Auto and Nationwide, the big insurance companies located in his hometown of Columbus, Ohio. That’s where he first began to notice that the insurance industry needed to make some changes. While he was working as a consultant for Nationwide, “[the insurance industry’s] digital satisfaction ratings were worse than government services,” he says. He saw an opening to create a new kind of insurance company that was more customer-friendly.
“There was very little innovation in the space, and it was frustrating,” he says. “There were some really obvious things that were going on like big data — it was fairly obvious that it could tell us a lot about risk profiles. But we didn’t know how to get it or make sense of it. That’s an inordinate amount of inefficiency that consumers are paying for.”
Timm set out to build a data-driven insurance company from the ground up that could incorporate the full potential of advances in analytics, digital channels, and self-service with the singular goal of making insurance a better product for policyholders. So in March 2015, he began working on Root.
Root’s goal is to lure good drivers with the promise of lower rates. Once someone downloads the app, it collects data about that driver’s habits over a period of about three weeks. After that time, a quote is generated.
“We pull the data that we collect from the car, pass it to the data science team and run predictive analytics on it” to get a handle on how a driver operates, he explains. “The smartphone data is unbelievably granular — an accelerometer can pick up very minute details.”
Root’s early days were “much like starting a technology company” Timm relates. That’s because his goal from the start was a fully integrated app experience.
“We were focusing on the app, because the first big piece was the technology. Consumers want to do business on a smartphone, there shouldn’t be 100 different fields to fill out with two thumbs. It should be easy, not confusing.”
Twelve of the company’s 20 employees are in the technology department, a 60% ratio that Timm expects to keep up even as it expands into new markets. The fact that Root doesn’t rely on legacy systems and is building everything from scratch is to its advantage, he says.
“Technology changes so quickly and so fast, that if you’re not consistently reinventing your entire code base you’re going to be left out,” he says. “We have that agile mindset that will enable us to innovate as we scale and allow us to avoid a lot of bureaucracy.”
Actually taking on risk and selling coverage was a crucial component to his plan, he asserts: The idea of simply developing technology to sell to insurance companies never crossed his mind.
“You can’t reinvent the industry by sitting next to it,” Timm says. “Many of our startup competitors are making mobile apps and trying to sell to or partner with an insurance company. But then you have to succumb to [that company’s] business model.”
When discussing how his company is different, Timm is fairly critical of established insurance practices. For example, he says that the current system of pricing is “extremely broken” and not “based on the right data.” But that’s to be expected because of his passion for serving the insurance customer. Timm truly believes in the transformative power of digital.
“The way you do it better than everyone else is data science,” he says, explaining that technology takes some of the pressure off of consumers at application time and reduces the need for esoteric links like credit scoring to refine pricing.
“What it will do is it will begin to make insurance a lot more consumer-friendly,” he says. “We can cut out a lot of those naive assumptions about these old underlying variables. When we begin to measure these things better, we can make the world fairer.”
At the same time, Timm and by extension Root are acutely aware of the further disruptions coming to the insurance industry. The company recently announced a program for Tesla owners who use the automaker’s Autosteer driver-assistance technology. Through an integration with Tesla’s onboard computer, Root can identify when drivers switch to Autosteer and provide a discount when it is on. The program is bold, but it’s the data-driven approach that led Root to embrace autonomy at a time when many insurers are not sure how to respond. That comes from Root’s belief that it’s how you drive that matters.
“We believe that these self-driving cars are performing better. It’s been proved very strongly in the data,” he says. “Insurance is going to have to evolve, because [autonomous vehicles] will make insurance far cheaper over time.”
