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Arthur D. Little

Arthur D. Little has been at the forefront of innovation since 1886. We are an acknowledged thought leader in linking strategy, innovation and transformation in technology-intensive and converging industries. We enable our clients to build innovation capabilities and transform their organizations. ADL is present in the most important business centers around the world. We are proud to serve most of the Fortune 1000 companies, in addition to other leading firms and public sector organizations. For further information, please visit www.adlittle.com

Library: Insurance Thought Leadership – Is insurtech a superpower?

Executive summary :

 The Digital Insurer reviews Insurance Thought Leadership’s Report on Is insurtech a superpower?

Insurtech is not a magic wand 

I’ve spent the last six years bragging about insurtech’s potential in improving the insurance business, for instance in the 2016 article My Four Ps of Insurtech and, at the end of 2017, the book All the Insurance Players Will Be Insurtech. One of the insurtech topics I have talked most about has been telematics (usage-based insurance for my U.S. friends), such as in The Past, Present and Future of Telematics and UBI

But, since its inception, Root‘s auto insurance book has not performed well. For each dollar of premium paid by the client, their risk transfer approach has always cost more than $1.35 (Lemonade has done worse.)

Rapid growth

So we have an insurer that in 2017 underwrote $4 million in premiums and – in just four calendar years – has scaled to more than $700 million. Root obtained a $3.6 billion evaluation at the halfway point of this journey.

As of March 25, that valuation had tumbled to slightly above $500 million. Something has not gone as they expected.

In recent weeks, we’ve read about Root reducing marketing and other expenses:

However, these cuts don’t seem to compensate for the main problem: the amount of claims compared with the premiums.

For reference, this is the historical series of U.S. auto insurance key performance indicators (KPIs)…

Here we have the key point: the book of business’ (un)profitability and the role of insurtech (usage of telematics data).

How it started

Root started its journey in 2015 and the following year began to transfer risks using telematics:

I like this idea of using telematics data for providing the first quotation. Even Progressive has liked it (this probably is even more indicative that it makes really sense) and introduced Snapshot Road Test in 2020.

See also: 5 Tips to Ensure an Insurtech Fails

See the full report for more…

Link to Full Article:: click here

Link to Source:: click here

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