“InsurTech” might not be a dirty word, but for anyone outside of technology circles, the practice of lumping the names of existing industries with the word “tech” can be a grating one. See here: FinTech (financial technology), PropTech (property and real estate technology) and EdTech (education technology).
But for Alex Timm, co-founder and chief executive officer of Root Insurance Company, technology is inseparable from insurance. While not yet available in New York, Root is licensed to offer car insurance in 36 states. Using telematics – a broad field of technologies including devices that collect and transmit data on vehicle use – the company offers rates they say are lower than the ones offered by legacy insurance giants, which tend to rely on demographic data to determine rates. Root instead relies on data points including driving speed, braking and speed of turns to determine “good driving” behavior.
The Ohio-based company is currently seeking a license to operate from the state Department of Financial Services in New York. Timm has identified one possible opening in the state, pointing to the benefits his company could provide for the many new licensed drivers through New York’s recently passed Green Light Law, which allows undocumented people to apply for a driver’s license. City & State checked in with Timm about how Root could serve new drivers, the process of applying for a license with DFS and why insurance technology is here to stay.
This conversation has been edited for length and clarity.
What is Root?
Root is a car insurance company, and we're based entirely on a mobile phone. What that allows us to do is use all of the data that we can collect from a phone – predominantly driving data, things like are you texting and driving, are you tailgating – to actually base your rate on those factors versus just using demographic factors like age, gender, marital status. One of the things that that (leads to) is much fairer rate for consumers and a much more controllable rate for consumers. If you drive well, you get a good rate. If you don't drive well, you don't get a good rate.
Collecting data from users’ phones, I imagine, opens up data privacy and security concerns. How do you toe that line in collecting the right amount of data and keeping drivers' data secure?
The first and most important thing is that we never sell data, we don't share data, unless we're mandated by law – if it's subpoenaed or something like that. We're incredibly transparent. When a consumer downloads the app, we say you're sharing your driving data with us and you're sharing your driving data so we can base your car insurance on how you're actually driving. They can even review their trips in the app and see exactly what we collect, they can dispute it with us, they can talk to us and request that it gets deleted. In terms of security, being a new tech company, we definitely are on the cutting edge of a lot of cybersecurity protocols, in terms of if someone was to hack us or something like that.
Root is currently available in a couple dozen states, but not yet in New York. What's the regulation that's keeping Root from offering insurance to drivers in New York?
A lot of states have regulations that are very favorable to incumbents and keep a lot of the innovative players out. Basically what these regulations require a company to do is to have years and years of operating history and years and years of profits. And obviously as a startup or somebody new to the space, we haven't been around for years and years. It's a very hard process, but we are working with DFS and we think we're making good progress with them.
What’s that process of working with DFS been like?
It's been long and arduous. We have submitted a lot of filings for them. We have explained our business many times for them, we've been out speaking to them multiple times as well. And it's been a long, long process. As we introduce and explain the company and as we get them to feel better about and understand the company, we have noticed that we don't think they're necessarily against innovation or anything like that. We just know that it's a very long process.
You have said though that Root could benefit New York at a time when it's seeing a lot more people applying for drivers' licenses. Why is that?
I think especially with the passing of the Green Light bill, there's going to be a lot more people in New York that will be licensed drivers, and a lot of those folks, by the traditional demographics, are not going to be treated very favorably. I do think it's a timely issue for New York to make sure that companies like Root and the use of telematics are just broadly in place, because those folks particularly are going to have a hard time getting affordable insurance because of the way the traditional market discriminates against them.
Do you see some of the legacy auto insurance companies moving in the direction of mobile insurance and telematics?
I would say they're trying. It's been very slow, and one of the things they haven't been able to do is build the product the way we've built the product. We are seeing them try, but the hard part is when it comes to the technology and the product, it's a very difficult product to actually build and make it work. But we fully expect that the industry will be forced to move more and more in that direction.
You talk about the field of “InsurTech,” and I think those kinds of mashed-together names can provoke some eye-rolling for people not working in tech. What do you think – does your field deserve a better nickname?
You know, I think names are hard. (Laughs.) But I think the underlying trend is that every industry is going to be impacted by software and big data and artificial intelligence. And if you're not using those things, the likelihood of being disrupted is very, very high. And when I look at the insurance industry, they're not really leveraging those things. They're not world-class with software, and they're certainly not world-class with machine learning. I think there's a lot of "InsurTech" hype that's just basically making a prettier website, and I don't think that that's true "InsurTech." But I think if you're really leveraging software and data in unique ways that nobody's done before, and truly using machine learning, then to me that's the heart of the matter.
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