Although it raised rates and slashed expenses in 2022, insurance technology company Root Inc. recorded a combined ratio well in excess of 200% in its private auto segment for the second straight year.
Root had a private auto combined ratio of 277.0% in 2022, up from 256.8% in 2021 and 186.8% in 2020. Branch Insurance Exchange recorded a combined ratio of 218.5% in its private auto business, a substantial drop from the 581.8% it recorded in 2021, according to an S&P Global Market Intelligence analysis.
Among the five insurers in this analysis, Clearcover Insurance Co. had the third-highest private combined ratio for 2022 at 157.8%, followed by Just Insure Inc. at 119.7%. Metromile Inc., which was purchased in July 2022 by Lemonade Inc., was fifth at 119.4%.
The analysis was based on the Insurance Expense Exhibit of the annual statutory property and casualty statements from US filers with the National Association of Insurance Commissioners.
The ratios are a reflection of the increases in frequency and severity that have plagued auto insurers across the US for the past two years. All five companies in the analysis had private auto combined ratios that exceeded the 111.8% mark that the property and casualty insurance industry as a whole recorded for 2022.
Both Root and Metromile also experienced year-over-year declines in direct written premiums. Root booked premiums totaling $555.9 million in 2022, a 23.3% decrease from $724.6 million in 2021. Metromile's decline was much more modest, ticking down to $109.8 million in 2022 from $110.7 million a year earlier.
Insurtech Advisors analyst Kaenan Hertz said there are some positives for Root behind its grim numbers. The insurance technology (insurtech) company's net loss has been coming down quarter over quarter, and management seems to have tamed the company's loss ratio.
Root's rates soar, policy count tumbles
The analysis also reveals that Root aggressively pursued rate hikes in 2022, especially in the early part of the year, which KBW analyst Tommy McJoynt said has helped improve the loss ratio component of the combined ratio. However, that effort has introduced a disruptive element to the company's customer base and has caused a runoff in the company's policy count, which fell 37.8% year over year in 2022. That trend continued into the first quarter of 2023, as policy count tumbled 40.4% from the prior-year period.
Root is losing some operating leverage because the business is shrinking. What the insurtech company does have is a "decent cushion of cash," McJoynt said.
"While they are continuing to burn through their existing cash resources with these high combined ratio reports, they still do probably have at least a year, probably comfortably two years ahead of them where they can try to continue to figure things out," he said.
Hertz is less concerned about Root's falling policy count given the improved profitability of remaining and newer customers.
"I can foresee within a few years, if they continue similarly, they will actually turn a profit," he said in an interview.