The better way to price car insurance
My college apartment was an illegally subdivided home where the landlord split the main utility bill based on the number of tenants in each apartment. I remember feeling frustrated seeing other tenants in the building leave their lights on, crank up their heater, and generally act indifferent as I footed a portion of their bill.
Believe it or not, this example is how car insurance companies determine rates today. Customers get put into pools based on their demographics, FICO score, profession, education, or other correlations for risk. Those pools represent an aggregated risk of which the cost is then spread across all the members in that pool. Are you an incredibly cautious driver? Never speed? Do you drive very few miles? Do you only drive at night? None of these decisions impact the cost of your car insurance today. Sounds crazy, right? Facebook can personally tailor each ad that I see and Amazon knows what I want to buy before I do, but my insurance carrier ignores me and aggregates my risk.
I wrote about the changing behavior in the insurance landscape last year, highlighting that new carriers would evolve to take advantage of the large volumes of new data from connected devices to deliver superior consumer experiences. This is why I am so excited to announce our investment in Root Insurance, a next generation car insurance carrier that gives good drivers the best rates (often up to as much as half off).
Root is able to do this by taking advantage of the data collected from the customer smartphone’s GPS, accelerometer, magnetometer, and gyroscopes to determine a customer's actual driving risk. While there is a lot of third party data highlighting that this data is the best way to price insurance, a $220B industry has been unable to make the adjustments necessary to incorporate these new data streams. These are hard problems to solve and Root has assembled a phenomenal staff of technical talent and industry veterans to execute on their novel approach.
Root pairs this superior driving experience with a redefined customer experience. My colleague Alex Ma has blogged about the importance of design, the Root experience is mobile-first and unlike anything else you have experienced when buying car insurance. Application, payment, claims, and service can all be handled directly through the mobile experience in a fraction of the time versus incumbent experiences.
This combination of better pricing with exceptional customer experience has caused Root to have explosive growth over the past twelve months. When CEO Alex Timm and I started discussing a growth round, I immediately knew that I wanted to be involved in the company’s ambition to expand from a dozen states to nationwide coverage. I’m glad to announce our participation in a $51M growth round alongside our friends at Redpoint Ventures, Drive Capital, Ribbit Capital, and SVB Capital.
If you’re in the market for car insurance, download their app and give it a shot. I think you’ll be pleased.