Q3 2020 Root Inc Earnings Call
Hi, and welcome to the World Inc. third quarter 2020, <unk> earnings Conference call. At this time of all participant lines are in the listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone please be advised the todays conference is being recorded if you.
The acquire any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today, Chris from Oneq Investor Relations. Thank you.
[music].
Good afternoon, and thank you for joining US today route is hosting this call to the stuff its third quarter earnings results for the period ending September 2020, but the.
Spending on todays call for Alex him co founder and CEO, and Dan Rosenthal Chief Financial Officer.
Earlier. This afternoon, we issued in the Nagaworld share or letter announcing its financial results.
Well this cold war for like I will discuss the within that document for more complete information about the open it for performance. The also encourage you to read or and the final initial public offerings prospectus dated October 27th 2020 and filed with the Security Exchange Commission income.
Quarterly reports on form 10-Q for the third quarter of 2020 to be filed with the Securities and Exchange Commission. This week.
Before we begin I want to remind you that matters discussed on today's call will include forward looking statements of related to our operating performance financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note. These forward looking statements reflect our opinions of the date of this call and we undertake no obligation for buys this information of the results of new development stuff.
Forward looking statements are subject to various risks uncertainties and other factors that could cause our actual results to differ materially from the as expected in the script today.
In addition, we are subject to the number of risks that may significantly impact our business and financial results for <unk>.
A detailed description of our risk factors. Once again. Please review our final IPO prospectus in our upcoming form 10-Q, where you will see a discussion of factors that could cause of the company's afterwards, all the different materially from these statements involve our shareholder letter released today.
A replay of this conference call will be available on our website under the Investor Relations section.
I would also like to remind you the during the call we will discuss some non-GAAP measures and talking about performance you can find the reconciliation of those historical measures to the nearest comparable GAAP measures in our shareholder letter released today and our for.
Filings with the FCC each of which is posted on our website at IR Dot joint route Dot Com I will now turn the call over to Alex him with roots co founder and CEO.
Thank you and good afternoon, we are thrilled to be speaking the both new and prospective investors day on our first earnings call. The public company. We hope you had the opportunity the glance through our shareholder letter, which we posted to our Investor Relations site. The letters of the great job in providing insights in the why we dealt route but perhaps even more important the lays out how we are executing on our.
The rest of vision, the fundamentally and positively drive change and the U.S. auto insurance industry.
The very exciting time to share our story with you the opportunity we see before US is monumental and we follow the three core objectives to guide us as we execute on our plan for.
First and foremost is our objective to drive significant growth nexus to enhance profitability by a loss ratio and retention improvements and our third quarter objective is to optimize customer acquisition by a direct marketing and the strong user experience. What we have accomplished so much already in the five years since I co founded the company with my partner damage.
I guess, we remain obsessed with building the root of the future with the proprietary telematics algorithm and a burgeoning integrated data set in a highly skilled response of smart good productive team of people.
A couple of quick on some of these main themes before turning the call to our CFO, Dan Rosenthal to walk you through our successful execution across the core objectives I just laid out as well the first introduce you to our financial principles and share our guidance after which we will open the call for your questions.
We're still in the very early days of grid.
We look to the future we believe the opportunity in front of US is massive and that we have what it takes to create a historic market the finding company.
We have a line all of our strategic decision, making with delivering long term profitable growth driving our market leadership with technology innovation and pushing our commitment to revolutionize the insurance industry.
We found agreed on the belief that machine learning in modern technology could fundamentally revolutionize the state insurance industry, that's right for disruption, while delivering vastly superior consumer value proposition and experience more simply put we wanted to utilize technology and data science. The solve some of the most challenging big data questions out there and.
Fundamentally change the way auto insurance is underwritten.
With $266 billion in annual premium the U.S. auto insurance sector is an enormous market.
The product is the government mandated purchase for the vast majority of motorists. Nevertheless pricing of auto insurance is very little to do with how consumers actually behaved behind the wheel.
Consumers have little to no control over their auto insurance their policies are often price using sales demographic information that is hard or impossible to change such as age gender marital status for education. It's also an industry, where historically lower risk. Good drivers are systematically overcharged to subsidize losses the emanate.
From the higher of its bad drivers, there's a fundamental element of unfairness inherent to the traditional insurance industry.
The the industry that I grew up in and it's the thing that it's always bothered me the most.
Consumers are better and we believe technology and data science for the keys to unlocking products that will enable that change.
The technology has radically altered and improves so many aspects of our lives the insurance industry, mainly still operates the same way of did a century ago. The industry continues to principally rely on our capex variables that do not miss your driving behavior and her unfair to consumers further is not a week into the reality the consumers are walking around with supercomputers otherwise noted.
Smartphones and their pockets the can offer the day lose of individualized driving data on a daily basis. We built the route of the mobile App to capture telematics state of the uniquely emanates from the smartphone.
As data and predictive analytics are the foundation of insurance the industry is in a prime position to be disrupted by an innovator leveraging advanced data science. The machine learning techniques. We believe that route has the material first mover advantage given our central focus on telematics and mobile first consumer experience combined with our balance sheet strength.
And the five years since founding route we've developed industry, leading and highly proprietary telematics and data science capabilities.
We are particularly proud of our ability to discern distracted driving a meaningful driving risk that cannot be measured effectively by OEM integrated card data or dongle devices provided by carriers the.
The National Safety Council the reports that one in for accidents in the United States is caused by distracted driving so the ability to measure distracted driving is paramount to a strong telematics program. In addition actions like heartbreaking cannot accurately be used to forecast loss cost without a corresponding claims data set and the other contextual behavioral data cash.
Richard by a mobile telematics, which route possesses in spades.
We've been asked for and most of the industry isn't focused on implementing something similar the.
The answer is that it's extremely hard to construct even harder to apply to an existing book of business, particularly with legacy systems are.
Our telematics are different because they are built on a proprietary integrated dataset of complex behavior data tied directly to actual claims experience and we use the power of the state across our entire portfolio.
In fact behavioral dragging day to is the first thing we look at when considering the customers risk and in the case of the 10% to 15% highest for its drivers we underwrite these customers out without considering any other variables.
The highlight how this differs from the legacy carrier side, one of the large national players recently acknowledged publicly that all although telematics is there for most powerful rating variable.
The last in terms of their price you algorithms.
So why is this the case income in space. The classic innovators the lot if an industry incumbents talk to implement telematics based pricing across its customer base. It would really large scale biopsies as customers react to those price changes.
This risk of cannibalization simply outweighs the benefits of the legacy players. Some of argued that industry players face such initiatives one of US all the time, but I'm like the traditional rating variables telematics data is collected by these carriers. After they of Aerie acquired the customer and spent an entire six month term with debt.
We believe route is the only carrier with scale and focus working to implement telematics based pricing upfront.
Moreover, no other carriers built on proprietary modern technology like right now.
That allows us to rapidly test, new behavioral data elements and retrain, our underwriting and pricing models in real time, our day to advantage and engineering capabilities allow us to streamline quote flows create faster and better claims experiences and in the future will allow us to even further differentiate our product pricing and service.
Ultimately our goal is to implement a full behavior based pricing model.
Weve already removed the use of education occupation from a pricing and we are committed to moving credit scores well in conjunction with the National Association of insurance Commissioners Summer meeting in August of this year, we announced our drop the score initiative.
Finding or plan to remove credit score from rating factors, we have made a commitment to remove the use of credit score from a rating variables. No later than 2025, and we're advocating for in challenging the broader insurance industry to follow our lead and do the same.
We're still in the very early days of route with the successful completion of our IPO and concurrent private placement on October 27th 2020, and our revised reinsurance program in place as of July Onest 2020, we now have more than $1.2 billion in fresh capital and the capital light business model.
Take full advantage of the massive growth opportunity in front of us.
You can say that we're competing with legacy carriers, who have really deep pockets and have been building their brands for nearly a century.
The real competition is inertia the inertia of an old anarchic industry that is slow to adopt the technology and even slower to embrace meaningful change.
So how do we know it's all working I'll now turn the call over to Dan to take you through the significant progress we continue to make across our core objectives as well as provide financial highlights from the quarter and share additional color on our outlook over to you then thanks.
Thanks, So much Alex and good afternoon, everyone full details of our third quarter results are available in our shareholder letter so I'm not going to repeat of many of the numbers, but I would like to discuss a few key results from strategic milestones highlight some aspects of our financial framework to help you understand the fundamentals of the <unk> model and provide more.
The detail on how we are thinking about the rest of the year.
I'll do all of this through the core objective framework that Alex spoke about at the top of.
Successful insurance technology business like group needs to drive significant growth.
Enhance profitability of the loss ratio and retention improvements and optimize customer acquisition via direct marketing and the strong user experience.
Across each of these three core objectives, our year to the trends have improved significantly as our business continues to mature.
Growth is our top priority as it enriches our flywheel with more data for this end, we posted strong growth during the third quarter and year to date periods by all measures that we deem important.
We ended the quarter with premiums in force of $600 million up 41% from last year.
Total policies grew 35% and average auto premium increased 6% compared to the prior year period the.
Direct written premiums were $471 million for the nine months ending September 30 of 2020 of 53% versus prior year.
And the amount of our policies around the year to date direct earned the premium grew 93% of $450 million compared to the nine months ending on September Thirtyth 2019.
The 41% growth rate in premiums in force based primarily on the strong share expansion in existing markets launched in 2019 for earlier demonstrates the depth of share available in our currently active states. Our team is obsessed with the understanding the local factors that drive our customer's decision.
And allow us to continue to grow in each market we serve.
Now that we have a more mature product informed by millions of customer experiences. We plan to bring group nationwide. After disciplined expansion into 30 states, we're ready to accelerate that reach to this end. We are incredibly excited to announce that in November we closed the acquisition of a shell insurance company with property income.
Casualty licenses in all states plus the district of Columbia.
With this new access to the vast majority of the U.S. market. Our teams are gearing up to launch a new states throughout 2021, we recognize from experience that Steve experience for him required individualized rate plan tailored state management and methodical growth.
Beyond the state expansion, we can further tap into this massive market fives rushing the customers need for insurance Holistically. Although we firmly believe auto is the gateway product. We've recently expanded our offering to include both homeowners and renters as additional tools to building, a strong and lasting customer relationships.
Protecting our customers other investments with these additional products is a natural way for us to improve retention and grow our premium base.
Our data driven edge has been built on the significant volume of rich data fueled by our customer growth. We believe we have a powerful first mover advantage here now five years, and the making which only strengthens as we continue to grow.
Collecting more data enhances our predictive modeling capabilities in a virtuous cycle of the power our flywheel, our proprietary telematics solution integrate striving for activity data with actual claims experience and applies our machine learning capabilities to derive precise insights from the growing data set.
We collect roughly four terabyte of rich behavioral data on a daily basis directly from powerful sensors within our customers' smartphones.
Do you centres allow us to track driving patterns that are most relevant in determining a person's driving ability such as heartbreaking abrupt turning and distracted driving.
In the third quarter of 2020 alone we collected an additional 1.5 billion miles of integrated driving and related claims data increasing our total miles collected from more than 14 billion, but.
But it is not just the number of miles or claims that matters you does the of.
Moving to translate this data into the behavioral insights with a high degree of accuracy across hundreds of phone models and then understand how these behaviors caused the losses not explained by other variable and when they do cause of loss how much exactly that claim will cost.
It's also the ability to improve our business by identifying the underwriting and claims fraud and managing our claims cost with real time data.
Not only are we constantly monitoring and analyzing this rich data internally for the benefit of our proprietary telematics program, but given our commitment to transparency, we now share of our cumulative mileage data with the world.
As the Cove in 19 pandemic began to unfold in early 2020, we utilize our unique access to real time driving trends and started providing it for all to see via our website.
This transparency helps our industry answer important questions such as how much driving actually decreased as well as the ways in which driving patterns change the.
Beyond a simple mileage measurement, we've been able to gain additional insights through our telematics focus about drivers profiles to more accurately assess their true driving exposure during this unique Todd.
Our growing dataset powers, our flywheel and plays right into our second quarter of jacket, leveraging our data science expertise to enhance profitability via the loss ratio and retention improvements.
Through the continued improvement in our telematics, scoring with the industry's largest and growing dataset of behavioral data and claims experience, we are creating a risk segmentation advantage and making auto insurance fairer for consumers as.
As our unique approach gains traction and we amass more customers. It improves the overall seasoning of the book and drives down our direct loss ratio over time.
Our quarterly results reflect our strong progress in this area our direct accident period loss ratio was 85% in the third quarter, a 16 point improvement from 101 per cent in the third quarter of 2019.
Meanwhile, our direct loss adjustment expense with 10% in the third quarter, a three point improvement from 13% in the same prior year period.
The increase predictive power of our telematics and our state management program have driven material total direct loss ratio of improvements.
Through the first three quarters of 2019, as we entered seven new states only for states in our footprint had direct accident period loss ratios below 90%.
Conversely through the first three quarters of 2020 as the predictive power of our telematics and true and we matured in our existing states with only one new state launch a total of 26 states had direct accident period loss ratios below 90% and 21 states were below 80%.
We believe that our first term post telematics underwriting loss ratio of compares favorably to first term loss ratios at legacy insurance carriers. However, our total direct loss ratio cannot be compared apples to apples against other auto insurance players many of whom have been in business for several decades and have less.
The 20% of their total premiums coming from new customers as opposed to the approximately 50% of share of new customers that route during the trailing 12 months.
Moreover, it is overly simplistic to directly compare a personal auto insurance loss ratio to another personal line like homeowners are renters, given massive differences in complexity of rating models average premiums and retention forget about apples to apples comparing auto <unk> home to renters loss ratios.
There's like comparing stake to yogurt to Penny all are nice foods, but they have little else to do with each other.
Finally, our business model is uniquely based upon underwriting out the highest risk drivers due to their disproportionate likelihood to be involved in an accident in fact, our year to date direct loss ratio for the pre telematics underwriting period is more than 20 points higher than the post telematics period.
Given the use of our book and how quickly we are growing the significantly weighs on the total loss ratio in the short term.
We expect to reduce this loss by more rapid identification of high risk driver characteristics and underwriting out the an unacceptable risk as well as improving the lifetime value of customers that we bring into the marketing funnel.
Similar to loss ratio and mature portfolio will naturally experience higher retention rates at a macro level as the longer customers had been within insurance provider the stickier they become.
For now our current portfolio is at a disadvantage in this regard.
Also related to maturity is price volatility, which of course can also impact retention.
A young insurance company like route naturally experiences more price volatility as we launch new states transition the company models for underwriting variables and develop new telematic scores.
As we are managing the business for its long term potential we believe near term volatility is always worth absorbing to drive the right long term decision.
While select markets will experience price volatility as we open new states and address some existing sales, we expect price volatility across the book to reduce over time.
We are actively targeting retention improvements through the product offerings and features customer engagement via proprietary techniques and customer targeting which all can drive meaningful improvements in this metric as the portfolio scales and matures as an example, the addition of renters and home insurance offers twofold retention improvement potential.
First through cohort mix shift as customers or desire to bundle can now shop with fruit and second with cross sell as auto customers with root, adding the additional policy have shown to retain approximately 15% better the non bundled customers at the completion of their first term.
Product flexibility includes the ability to easily adjusted coverage with one quick and even to rejoin the group in a simple new streamlined enough feature called Boomerang.
Since the testing began earlier this year Boomerang has successfully reinstated more than 15000 policies or the equivalent of 4.7 per cent of our auto policies in force at quarter end. This is a great example of how basic blocking and tackling within our proprietary technology stack can capture means.
For improvements in our unit economics.
Our data science led customer targeting strategies allow us to better identify potential high frequency shoppers as well as potentially longer retaining customers and pay the appropriate customer acquisition price to drive a target customer mix into our funnel.
Furthermore, we believe claims is the most important moment of truth for our customers and the long term driver of retention as we build a more mature book of business. Our claims experience is truly differentiated and will allow roots of stand out to customers from the beginning we have always built claims with technology in line, enabling us to handle claims fast.
For and better than any of our competitors, we continue to automate a higher percentage of our claims volume in the third quarter, allowing customers to take pictures of an accident. The answer a few questions and within 24 hours get a complete resolution and money in their bank accounts. This has improved customer satisfaction as well as reduced both claim.
And claims handling costs.
So back to that important question, how do we know it's all working.
Adjusted gross profit our key non-GAAP profitability measure shows how our growth.
Underwriting maturation of our customer book and kind of capital disciplined come together to generate variable profit and mark our progress towards building a sustainably profitable business, we measure our progress towards profitability with adjusted gross profit for direct earned premium in order to best capture of the contribution margin of our customer revenue.
Loss ratio and customer retention are significant drivers in our profitability and we expect these to improve overtime.
As of our company growth and accumulates more internal loss in premium data, our data science and actuarial teams construct more accurate predictive models. This is the flywheel at work. We are now deploying the third iteration of our internal pricing model due to the increasing size of our internal dataset. This integration reflects debt.
Step change in our approach whereby we are able to accurately adjust more rating element. This.
This in turn allows us to provide fair and more accurate rates to our customers in so far as we've improved our lost cost accuracy by about 20%.
Early signs of that the fourth the iteration of our pricing model will produce even more substantial benefit once it is deployed we.
We also expect further improvement in loss adjustment expense, which we believe already is in line with industry, leading levels and will naturally experience further operating leverage as the business scales and our claims related technology continues to improve.
Third quarter gross profit was $1 million and that were adjusted gross profit was $10 million again, the latter of which is our key profitability measure and was substantially better than a loss of $27 million in the third quarter of 2019 due to an improvement in direct loss ratio loss adjustment expense ratio.
And variable expenses net of reinsurance seeding commissions.
Adjusted gross profit fully incorporates the work we've done on our reinsurance program a critical efficiency lever for growth we set out in 2020, the land the right reinsurance structure for our business today.
We're proud to say the beginning July one of this year, we transfer 70% of our premiums and related losses to reinsurers. While also gaining a 25% commission on written premium to offset some of our upfront and ongoing costs.
This reinsurance program is exactly what we need to allow our equity capital to drive growth and build a deeper moat around our technological advantage and that's what ultimately matters reinsurance has implications for GAAP revenue and our new reinsurance program will cause a reduction in GAAP revenue versus prior quarters. This.
This is why we use direct earned premiums as our primary top line metric for the business. It removes the volatility of our reinsurance program and really captures the revenue is received from our customers.
Our third core objective is to optimize the customer acquisition via direct marketing and a strong user experience the structural tailwinds that play whereby consumers are migrating from agency the direct channels and driving accelerated growth for direct to consumer brands leveraging mobile plays right into our hands.
We acquire 75% of our customers through direct mobile channels, driven by our unique onboarding experience. The can be completed its fastest 47 seconds, which is highly differentiated and not easily replicated with legacy systems. This is our primary distribution source our life blood yet this is only.
One part of equation driving a long term cost of acquisition the advantage versus the industry. Our data science led marketing strategy is another vital part of this equation and inherent to the data DNA of route we use data driven targeting strategies across our marketing channels.
Our digital distribution model also allows us to be more agile when we see opportunity present itself for in some cases slow with caution.
The onset of COVID-19 in March we reduced our performance marketing spend maintaining and monitoring it with a watchful eye during the second quarter.
In the third quarter, we resumed pre cope at levels of marketing spend as we saw signs that the pandemic was accelerating structural shifts in the auto insurance that support routes direct to consumer and telematics strategies.
Our third and fourth quarter marketing strategy is focus on the test and invest approach as we set the stage for our push into more states. In 2021, we are targeting a build out of new channels such as streaming video to establish a set of diverse acquisition channels that work together the.
Additionally, we launched a brand focused campaign in the lead up to the presidential election in an effort to make route more of a household name.
The campaign features NASCAR driver an advocate bubble Wallace. This work highlights the importance of bold progress and reflects the words culture and commitments of fair pricing based on driving performance rather than demographics. We are extremely pleased with the positive exposure of route has garnered from this campaign thus far.
That route we are always looking for new ways to solve a problem by leveraging technology, while we have a team building a differentiated customer acquisition funnel. The question was posed in the corridor what about the customers that we underwrite out.
Could we help them find insurance elsewhere and potentially launch a new revenue stream for the company.
In less than a month, we launched the program to redirect customers with their permission to other carriers and in so doing we are able to offset 3% of our customer acquisition spend in the month of October yet.
Yet. Another example of what is possible with the nimble technology infrastructure, we Havent group.
In the near term, we expect the amplified brand spend will take time to drive acquisition efficiencies and could result in temporarily elevated customer acquisition cost levels. However, the longer term benefit will far outweigh any near term pressure, particularly as we expand our footprint nationally.
I'll close with some thoughts on how we're thinking about the business and year end 2020, and beyond and then we will welcome your questions.
We will continue to prioritize growth because we believe our business only gets better as more data flows in which turns our flywheel and helps to unlock the full potential of our business model more.
More data allows us to deploy even more advanced the algorithms, which allows us to further differentiate our product from the rest of the market, while becoming an even better underwriter.
The flywheel continues to develop we expect our operational scale will realize the economies of scale and grow margins to be clear we base all our strategic decision, making on building the business for long term sustainable growth and profitability. The near term targets that we're establishing today demonstrate that we are on track and delivery.
From this framework.
Well 2020 has been a year that few could of expected and no. One will soon forget we'll continue to deliver strong financial results. Our current expectations for for the full year of 2020 are as follows direct earned premiums of $595 million to $600 million.
Adjusted gross profit of $14 million to $16 million.
Route is a long term focus company and management team. We're excited about our 2020 accomplishment, but even more about what is to come well.
Well share a 2021 outlook when we report our Q4 and half why 2020 results in the new year.
The until then we look forward to pounding the virtual pavement actively engaging with our new and prospective investors and keeping you updated on our progress as we continue on this exciting journey together.
Operator, please open up the lines for questions.
As a reminder of task of question you on each of press Star one for your telephone to withdraw your question press. The pound key we asked the you. Please limit yourselves to one question and one follow up question. Please standby well, we compile the queue in a roster.
Our first question comes from the line of at least Greenspan from Wells Fargo. Your line is now open.
Hi, Thanks. Good evening My first question on dine out of policies in force and obviously slowed down a little bit sequentially from Pfizer has talked about all the time, well just kind of pulling back on the advertising just given the uncertainties surrounding clothing on net.
In your prepared remarks, you pointed to no picking up on the AD side from here as there were some of you know more certainty in the environment. So can you give us the sense of how you think policies in force growth within auto constrained in.
In the fourth quarter and then also yeah. Some initial views on 2021.
At least this is Dan. Thank you so much for the question and nice to speak with you again I I think what you see on policies in force is.
The is the result of the way we've managed marketing spend this year and if you think about it in the in the first quarter of the year, we spent about $36 million in sales and marketing and we dropped down the $18 million in the second quarter and now we're showing $37 million in sales and marketing spend for the third quarter and that debt.
As you said was really related to cope with the uncertainty in mid March of what the world was going to look like how consumers are going to treat their auto insurance and as we then had a good grasp on where things were going we ramp back up the marketing spend in the third quarter and what I think you'll start to see as we fine tune our algorithms and.
Continue building.
As a the progression on the in policies in force the won't necessarily show up in the fourth quarter, but will show up as we grow towards 2021, we're not providing guidance today on 2021, but as we show in the shareholder letter and as we just talked about we do envision now that our mark.
Operating spend is back to the pre coded levels and we're excited to build upon the.
Okay. That's helpful and then my second question.
His prepared remarks on you mentioned targeting the mom attention improvement.
He is the right even more company on the.
The new percentage of your business a lot higher right. What's the some of the incumbent carriers. So could you tell US you know whether you want to share targets for just as we can think of that might that 50%.
The could trend over time, as we think about the potential for your.
For the ability to improve the right is on the other retained portfolio represents the larger piece of the pie can you just give us the sense of know how we should think about that trending over the line the town.
Absolutely. This is the this is Alex and you bring up a fantastic point on on retention.
In the near term as you as you mentioned you know our retention rates will certainly be lower than a blended age of up much mature book.
And that's simply because of new business, obviously has the higher.
Churn rate of and turns out of your book faster than a.
Once it's been with US for a few terms and then you said you should really substantial improvements in that in that number as you called out terms the.
The other thing though that's.
Probably.
Leased as they get to us having an early book, though is really the fact that we've launched in so many new states and that Weve aggressively had to test and learn our way then.
When it comes to our pricing algorithm. So the number one reason and this is a true out route and true. If you just look at industry studies of that folks shop their auto insurance.
Just because of the price change.
And would we launch into the state Yeah, we don't have a ton of data when we launch into that state. So not surprisingly a huge because the that first rating plan is a little crude.
As we then go in and acquire some customers in that state we.
We observed some claims data we.
We adjusted our pricing and when we do that it does result in a short term spike in churn.
And that's what you've seen in several states and so when you look at the blended number.
It's really not indicative of the long term run rate of of the business, which we do expect to at least get to around industry average now we do under.
Underwrite out the worst drivers and so we don't necessarily anticipate.
That change I mean, and we think that that's actually a competitive advantage. You know this is not the retention for retention sake, so to speak.
The other thing, though that is really important here too is the customers that you're the were actually acquiring and so we measure our book very detailed.
From segment the segment and what we've been able to do over the period of the last year or so as we've done. This is really start to skew our book more towards higher retaining customers, particularly in those states.
We've had a successful where we've had a successful the number of iterations on our rating plan and so we've gotten a lot of the rate shock side of the Buck.
And that we've actually seen come through the book, a very successfully and is driving up retention and we're doing that through highly targeted marketing initiatives.
And then the the last thing that we are seeing also improve retention considerably is our product features.
So Dan mentioned Boomerang in his prepared remarks, which we've now seen I think you said over 15000 policies.
That allow customers to come back to us, but there's lots of other things like cross sell so we've noticed you know we're still read the in the early days of cross sell we're only in a few states when it comes to renters insurance and home insurance and we see a substantial reduction.
In churn when we do cross out at a policy.
A second policy to to uninsured and so as we scale that we expect there to be even more upside quite frankly, so I think the the the answer really is that in the in the near term as we continue to launch more states. There may be some short term volatility, but long term, there's a there's no real reason to believe.
All of that it wouldn't would trend up quite substantially and that's exactly what we're seeing in the data.
Thank you. Our next question comes from the line of Youssef Squali from true. It's your line is now open.
Can you hear me.
Yep.
Excellent. Thank you guys just a couple of questions on something you just talk to the out maybe Alex.
On the plan to launch in other states can you just help us understand the pace of rule out of that you guys plan on doing how does that compare to your.
You're thinking just a few months ago pre acquisition. The this basically dramatically accelerate your plans in there for could have a pretty material impact on your sales of marketing would be great to hear how you're thinking about sales of marketing next year, although not the certainly asking for guidance and.
Then just quickly.
What steps are you taking to identify some of these policyholders who the high propensity to shop around that's something you also talked about earlier. Thanks.
Absolutely those are fantastic questions. So the first question around the acquisition of the 50 state shell that gives us a license in pretty much all states that we aren't currently operating and net.
How were going forward and launching the state. So yes. The answer is reducing net we certainly are going to accelerate our seat expansion plan by of that acquisition.
So you should expect us to continue to launch in new states and that obviously will be a very large growth lever that.
Prior to the acquisition was quite frankly not available to the company as we were happy to go state by state.
That being said, we still have to do filings our product filings.
And we are aggressively working on that now.
So you should expect us to continue to add more states really throughout all of 2021.
And that will be a substantial growth lever for the business, we will clearly put investment in marketing dollars behind those new regions. We will also be monitoring those regions very very closely to make sure that the models are performing well to make sure that our initial rating plans again, we don't have data in those markets yet so our initial range.
The plans, we will launch in those markets and I will be ready to adjust those very quickly in terms of the pace and it varies by state.
From states take a very long time to prove things regulatorily.
Other states are are very quick and so it will be a cadence really throughout the year.
In terms of the the second question and and how do we identify customers that have a high propensity for shopping.
Upfront and there's there's a variety of ways, we do that but the the first is the marketing channels that we leverage these digital marketing channels. They actually provide us lots of rich data, even well before we decide whether or not we're going to show an individual consumer and advertisement and so I may very well know.
Now what an individuals if they have currently have prior coverage, whether or not they're a homeowner and their.
Their age or how many times they've switched insurance in the last year or so and those are datasets that we can gather from a lot of these customers even before again, even before we market to those customers and so we actually of the data science model, that's running that optimizes for the lifetime.
<unk> of a customer on a lot of our digital channels and then that allows us to say if the customer we believe it's very sticky and that going to churn where other than okay with the higher customer acquisition costs on that customer, whereas as the customer it looks like they're probably going to turn very quickly. There then we manage those customers to a lot of customer acquisition.
Cost and the lower first term loss ratio as well.
Which which we are launching in our current rating plans as well and so we do a lot of that through marketing and then as the consumer continues to progress through the funnel, we automatically update basically our expectations via that model to try to predict how long that customer is going to stay with us.
And then that allows us to basically appropriate true appropriately triage. These customers. So it's a mix between both targeted marketing.
As well as the and making sure that within our rating plans, we are appropriately accounting for the different propensity to shop, and so that longer retaining customers, we might be okay. With the first term loss ratio being higher than a very bad cherny customer, we named demand of lower loss ratio.
Great. Thanks, that's helpful.
Thank you for our next question comes from the line of Michael Phillips from Morgan Stanley. Your line is now open.
Thank you good evening everybody.
That's the sort of what I thought your graphs that you put in the state of loss ratio distribute closer is for distribution by state and you're in a letter was pretty telling and you talked about of but in your commentary.
So you know, it's an expansion intelligent on the loss ratio perspective for any company I'd, probably more so for a couple of the pest fitness mobile technology and distracted driving price algorithms that you guys are doing thats kind of putting pressure on the loss ratio. So I guess the question would be how do you weigh the plan for national expand.
And in the press for that will bring on the loss ratio versus focusing on what are you currently are and getting kind.
The loss ratio improvement from their current states.
Mike This is Dan. Thank you so much for the question and you're right. We do we decided.
We decided to to share that data on on the loss ratio because we thought it was very compelling.
And what you're seeing there is a function of time more than anything else as of the business has time for policyholders to mature.
In the each state you can see the loss ratio performance trend really be quite strong.
So then the question around state expansion, Mike is a good one because you're right. If we just enter stage and prioritize expansion without prioritizing the overall portfolio. It will put pressure on the loss ratio. So for us. It route it's not when we enter a state. It's how we entered the state and we've done that.
A couple of different ways first.
First is we've really fortified our team we've invested a lot on the team side to bring in professionals, who have really strong state management experience in some of the states, where we are not today, we brought in the new VP of product and pricing in late August with the.
The three decades in the industry, we brought in a new head of claims who understands the pitfalls that you can find when you enter a state and we also have the learnings from the 30 states that we've already answered that we can apply in large parts of the states that we are not yet writing business and so we are frankly very bullish on the.
Just turning the flipping the switch and saying let's go in for 48, 49 states immediately, but let's do it the right way and I think the what you'll see as we enter 2000 2020 2021 is we'll be very thoughtful about that we'll be prudent stewards of capital will be testing because that's what we do at root words very data driven for very.
The test oriented and so you'll see that do the you'll see us do that pretty consistently.
And the bigger difference versus say 2017, 2018 or 2019, because we have this very nice installed base of in force premium in states that are already maturing as you can see on page 12 of the shareholder letter and are going to continue to mature next year and that's very powerful for us our largest state of Texas.
And just look the in Texas and in 2020, we took the base rates down and year to date, we've seen loss ratio improvement of about 36 points.
On the 59% earned premium growth that's.
That's quite significant when you look year over year out of state, where the which is our number one state and really shows the benefits of maturities. So you've got that installed base to support the loss ratio as we dip our toe in some of the state expansion.
Okay. Thanks, Dan that's helpful. Second question kind of related you might have even mentioned.
I mentioned, the Miss and your answer just now so I apologize, but on that same page and your commentary that you believe your first term policy of for some post the telematics underwriting loss ratios compare favorably to legacy players the.
The can you quantify the like what kind of number of you're talking about that.
Yeah, we we look at some of the publicly available data and some of the reports and see a first term loss ratio estimated to be you.
You know in the mid Eighty's somewhere in there for.
From the the large direct carriers for us that that story is comp of complicated by just comparing apples to apples for two reasons first as we identify part of our business model is underwriting out the poor drivers during that first term and so that's where it's very hard to compare our.
Loss ratio and retention to leg of street legacy industry players and what we identify today is that the loss ratio delta between the pre telematics theory of them. The post telematics period of that first term is around 20 points so quite significant the.
The second thing is the today for us about half of our premium comes from new writings versus renewal of customers and obviously as you know Mike renewal of customers have a lower loss ratio of not just at route but throughout the industry and that premium differences north of 80 per cent for renewal premium legacy carriers. So you also see what happens.
But some of the legacy carriers is absorbing the first term loss ratio with a bigger base of renewal of customers. So on a blended basis. When you are comparing direct the loss ratio, it's very hard to look apples to apples that route again, a function of time, we are trending that way of the book matures as we have a larger percentage of our premium come from renewal of customers.
We expect to trend in that direction from the overall blended rate, but we feel very good about where our first from loss ratio is particularly in that post telematic space.
Thank you. Our next question comes from the line of Ross Sandler from Barclays. Your line is now open.
Hey, guys from.
Two questions one on kayak and then one on retention.
Any color on the the new AD campaign, the TV campaign, and the do did CAC in Threeq to Ah I notice of the marketing was pretty consistent with with the with our plan, but how the cared for fan.
In the third quarter and then.
Dan you mentioned the price increases and the third generation of your pricing model. So I guess.
How does the is pricing decision general of you know foot with with retention in the is there anything you guys can do during the customer acquisition stage or of the initial test dry period to drive up retention rate, either just acquiring more selectively or.
Oh pricing, maybe a little bit debt.
Differently during the test dry period.
In light of per.
Improving retention any color on that would be helpful. Thanks.
Thanks, Ross and although this is our first earnings call I have a feeling it wouldn't be an earnings call without a question from you on cash.
I'm excited and I'll look forward the that continuing.
Quarter after quarter in a good way the.
CAC was in line with our expectations during the quarter you know as we talked about in our shareholder letter, we're expecting elevated levels not just in the third quarter, but in the fourth quarter, because we're testing we're investing to support the state expansion plan for that I was just talking about and we're investing on the brand side as well and we think the longer term.
The benefit of that spend the is going to far outweigh any pressure, particularly as we expand the national footprint, we do expect sales and marketing overall will be up a little bit from the third quarter as we build on the launch of the campaigns you mentioned around bubble Wallace around the election and really capitalize on some of the momentum from.
National publicity related to the IPO as as well as the just.
Just the overall campaign and expanding our footprint the.
The bubble always campaign itself was very strong for us.
Received about 13 million organic impressions on social media.
More than 400 million earned media impressions. It was really strong and I think it really represented our brand in a very powerful way. If there's one word around bubble was that I think you'll hear resonate from us in the years ahead. It was authenticity and we really strive to have route be for an authentic brand.
And authentic community for our customer base and bubble Wallace and his story really represented the authenticity incredibly well. So we did not intend to moving to the endorsement space.
Early on.
What we saw this is really a golden opportunity and we're thrilled with the results of the campaign, just thus far and look forward the continuing the partnership with club.
As for your second question I will turn it over the Alex.
Thanks, Danielle I believe the the second question was primarily around how we make pricing decisions, particularly with respect to retention so effectively the.
Way that it works is we we always have a target more or less first term loss ratio and retention by customer segment.
Within every state.
And when we launch these plans we observe.
Observe them for a bit of time, so that we can get enough claims data primarily frequency data to understand exactly what's working what's not working and then what we do is we adjust those those rates. So that we are hitting our targets in.
And sometimes that takes us a couple of iterations, sometimes it takes us six that duration. The it varies and once we hit that though what we find is that that's really when you see retention sort of normalized income back up so in terms of how do we price, though in order to really optimize retention.
Really what we do is we try to predict basically retention of a customer segment upfront and then from there. What we do is if we know you're going to be with us for a long time, well actually be okay, offering you a lower rate because we know for the lifetime of that policy.
That your lifetime value to EPS will be very high.
In terms of how are we changing the pricing, particularly during the telematics period.
To reduce churn of one of the things that we found is that.
The faster, we can make a decision as to whether or not we believe someone is a good driver or a bad driver I. We call. This the the test drives period.
The but the faster that test is in the want the though the the shorter it is the better we do.
In terms of retaining that customer and keeping them keeping them happy.
And one of the things we found that not only are the predictive models that were still shipping the not only the day substantially at the very significantly more predictive of than our prior versions of the model that were even on today in many states.
But there also were able to make the determination much quicker and so we've done that through now several different iterations, where we're now able to identify really good drivers in really bad drivers even sooner than we would have otherwise and what that allows us to do then is get that telematics based rate ended the consumers' hands much much faster.
It's not a for a 100% of the customer base the other.
Folks, we still need to monitor for for extending duration, but for a lot of them you can figure it out actually fairly quickly.
And so we're doing a lot of interesting things on that front, one of which we are using actually the motion chip inside the phone to to get very high accuracy readings very very quickly and that we have seen have material impact on the.
The number of customers that we can telematics the rate, which then in turn leads the obviously better conversion and retention.
Thank you for our next question comes from the line of Matt Carletti from JMP Securities. Your line is now from.
Hey, Thanks, good afternoon.
Alex actually want to follow up on your last answer there and if you could expand on that a little bit and specifically you know as the the date of flywheel goes and you're able to kind of identify the baby the tails of the risk spectrum more quickly how quickly can that get rolled out in the into.
The results I mean, you kind of quote your material the two to four wheel drive the or test drive period now is that how how how quickly and how good could be could that get in a couple of years time could you be talking about of a one week test drive period or is it more incremental than that.
Yeah. That's a great question, so where it ends up we don't know, but we can certainly get within the one we test drives period and in fact, we can get to the point with certain depending on where you are in the tails on either very good or very bad you can actually get some pretty accurate readings within just a few day.
It's often.
So you can can do that very quickly.
In terms of how fast we ship those.
Once we have that modeled in play.
Its very very easy to ship. So it goes into R&D. The R&D tie in the data science can take anywhere from a couple of weeks to a couple of months, depending on the nature of the data science problem and the once we've identified that then shipping it is actually pretty trivial. It just it lives on the our servers and so we don't.
Have to do an app update even to actually do that so we can actually just almost real time ship that and so those are things that that we deploy very quickly.
In terms of showing up in the financial results.
Of course, the those premiums would have to earn through our book and so you know it will take more time, probably a period of three to six months to maybe a year or two to really show entirely through.
Just because of the nature of the business that we acquired customer upfront and then obviously earn that that revenue and pay those losses over time.
Great. Thanks, and my other question is the are you spend a bit of time and thank you for doing so on kind of outlining the or your three core objectives and give me some incremental data around each of those my question is if we look at one and two which is basically growth and profitability can you can you give us helps a little bit of the bigger picture of how we.
You should think about how route goes.
The goes about balancing those two and obviously the need for growth the capture market share versus show profitability and particularly as we think about.
The other stake holders in the room, whether it be investors on this call for your reinsurers for you know the.
At some point.
Potentially needing to go back and you raise raise capital.
Yeah, Matt. Thanks for the question. This is Dan ill say, a constant balance of growth and profitability for us and we have the ability to focus on long term execution and that's really what we're focused on we feel like we have built out three important votes around technology around.
And the size and quality of our customer base and the capital that we have in place to now go execute on our plan and that really is our singular focus so as we gain the benefits to the next iteration of the pricing model or from refining the pre telematics period that Alex just talked about we can really choose whether.
To take some of those benefits to growth for the profitability and for US. It remains the balance. So mikes question earlier about state expansion is a good one as we decide to ramp up some of our stage, which is the right thing to do for the long term to expand the footprint will also be conscious about pressure on the loss ratio. So we don't want the.
The state expansion to drive the loss ratio really hot so part of what we will do is take the overall benefits of our telematics and our pricing model then take a bit more of those benefits into profitability. So that's sort of what I'm trying to suggest that it's a constant balance for us really focused on executing the overall plan and your bench.
In our reinsurers our reinsurance the have been fabulously supportive of the business model and our growth plan overall as you know.
We have five of the top 10 reinsurers in the world.
Participating in multiple treaties for us.
We expect that that will continue but we like our reinsurance program because of its flexibility and because it allows us to be nimble and toggle up and down the percentage of premium that we cede overtime and again, a constant balancing act of growth and profitability as we think about 2021 and beyond.
Thank you for our next question comes from the line of the around cannot from Goldman Sachs. Your line is now from.
Thank you and good evening everybody.
All of quick numbers questions, if I could first can.
Can you maybe tell us what the new writings were in the quarter and then also if you could maybe give us I think similar to the us from one disclosures the the renewal book loss ratio.
Yeah, I'll take that your ROE and good evening to you.
We are we do not disclose new writings just from a competitive sensitivity standpoint. So we point you to enforce premium obviously direct earned premium.
And policies in force as you're thinking about the top line overall and.
And so that's where we've decided to focus the business on the loss ratio, what we've decided to do the year was focused more on questions around the pre telematics period versus posts and also showing the really significant benefits of of loss ratio distribution by state for the first nine months of this year.
Net versus fiscal year 2019.
So that's the way the we're presenting loss ratio and ultimately we think it's it's the that's the simple us.
And most direct way to describe the auction period of direct cost ratios rather than split them.
New versus renewal.
Okay.
Okay, and then if we do look of the loss ratio for the year to date for us as a year ago.
Is there way for us the think about the the covert impact there if we try to adjust that out to have a more kind of apples to apples comparison.
Yeah, I think the cobot for US was a story of a couple of different chapters and we're in the middle of chapter three chapter one was March through May.
And we saw probably about 15 to 17 points of loss ratio of benefit derived from the periods of March through May do the covance and do the less driving and obviously reduced claims frequency.
Chapter two is was the period in the third quarter, and we really see the extended cove. It impact of the size of some other carriers and we think thats due to our portfolio mix, California, Massachusetts, New York, New Jersey States with high commuting in normal times.
And the states or cities.
And and the have higher levels of coated restrictions in place right now than other parts of the United States.
Those are not in our footprint so for US we didn't see quite the code of it impact in the third quarter or really any significant impact from cove in in the third quarter like some other carriers may have seen.
Chapter three is what's happening now you know we saw some signs of reduce driving over Thanksgiving.
We were frankly glad to see people, taking coven seriously and we think.
The the that's obviously important of the with what the country is dealing with right now. It's just too soon to know for November and I don't want to make assumptions on the rest of the year, but think of that your own of chapter three that I'm sure will come back and talk to you about in the near future. We're obviously watching it extremely carefully and unlike most carriers I think we have just.
The best ability to track of this on the literally of daily basis, looking at where our customers are driving how much they're driving understanding the claims the tie in so we're really able to see the impact of co bid, we think as well or better than any carrier out there and for the benefit of the public Wi Fi.
Share the cumulative debt cumulative of data on our website around how our customers are driving since really the beginning of the pandemic. So we'll continue to do just do that joined the root dotcom.
And we think that we'll be watching that very very carefully in the weeks and months ahead.
Thank you for our next question comes from the line of sales Stephano from Deutsche Bank. Your line is now open.
Yeah from from good evening.
We saw in the shareholder letter of the the launch of the next version of the pricing of the algorithm.
It seems like a fleet for the second half of the 21 can you talk to us about how the pricing algorithm will come through in the financial debt is 80.
Is this for new business is it for routine business as well.
Should we expect a stair step improvement in underwriting or you know as you talk about the the acquisition of customers on the algorithm and then the the time delay in the earn through of the pricing for them.
Absolutely and that's a great question. So the the new algorithms when when we launch them and were all of them out I think you can expect both the third generation of our traditional model from the fourth generation, where you'd be I'm models to be in the market and.
Very soon and then in probably the first half of 2021.
And if if you look at how that's going to impact things. What we do is in certain states, where we feel confident in our loss ratio on her losses projections.
Effectively what we do is as we get better and better at segmentation, we're actually able to bring base rates down and maintain the same level of loss ratio of performance.
Or even exceed it as Dan had mentioned it we've actually reduced rates in Texas, and seeing lower loss ratio and superior growth.
So states, where we feel very confident in our unit economics, you will see of come through quickly in the terms of in terms of growth and reduced customer acquisition costs.
However in states, where we may not be where we want to be in terms of the overall loss ratio as we were all of those models out we may not reduce base rates to the same extent or made the increase base rates with those rate changes on those because that's the loss ratio of clay.
It takes longer to show up in the numbers. So you can say if we launch of model hypothetically speaking sometime in the first half of Q1.
Model would then be in force for the new business. So it does take effect on new business not renewals.
And the and then over that period of time, what will what will happen is those policies will come on under the new rating plans and then it will take six months for those policies to fully earn through to the new business portion of our book.
And then even longer of course for all of the policies to sort of get the get onto the Disney rating plans. So it is on the loss ratio side of things that take a longer time to earn through probably.
Probably takes really we start seeing results within six months six months and then within one year you see the.
Some of those results come true.
Okay understood in switching gears I wanted to ask about of Apple.
Apple upcoming changes to the mobile App identifier and so I guess the impression that early next year is going to be much harder. When this change comes through this.
The spend money advertising in half and also tracking of the performance of it.
And I guess in my off base in thinking that there's the potential risks to root here or how should I be thinking about how this is going to impact you and maybe your mix of customers for iOS versus Android.
Yeah. That's a good question you know with each week, we now lived through lots of different iOS permissions.
Through out the the history.
History of rude and typically what we see is that each one requires us to do something slightly different so of each basically version of the of the operating systems were actually going back and looking at the way. The code is written and making sure that we can still get the data we need.
As part of that we actually even develops motion on the models and where we really just use the gyroscope in the motion chips. So that we don't even need the GPS Jeff because for a while there location data was what was really really targeted in terms of advertisements I think because a lot of what we'll be doing two will be on mobile web.
I think you will see a a minimal impact to it but it's certainly something we're monitoring.
Thank you for our next question comes from the line of David lots of Madden from Evercore. Your line is now open.
Hi, Thanks, good evening.
Hi, I had a question.
No it doesn't sound like we're going to get the renewal of loss ratio.
But I guess I'm wondering.
Yeah ill pass growth was flat in Twoq, you is down a bit and I'm talking sequentially. It was flat in Twoq, you down a bit threeq you.
Doesn't sound like debt will be much I'm in for Q.
Much growth on a quarter over quarter basis and for Q I'm just I'm just wondering.
You know what sort of benefit was there in the 85% direct loss ratio just from.
Just the <unk>, just given the less new business drag or new customers as that as that Pip growth has had stepped down and how we should think about that I guess in for Q and into the first half of next year.
Thanks, David for the question, Yeah look renew our renewal loss ratio.
Compared to our new business loss ratio is in line with.
What we presented in the US one there was no material deviation or anything like that.
And so you know we expect that that will continue and obviously, we were showing you that of of per se as a percentage of our overall premium renewal percentage is remaining to your point roughly the same for slightly higher I don't think across the overall base, it's not having the material impact on our loss ratio of nor do I think of well through.
The end of the year.
I do want to be clear on one thing in terms of our forecasted guidance range. We are forecasting growth in direct earned premium through the end of the year and obviously, bringing that forward from for about 450 million.
The end of the third quarter to a range of 595 to 600 as we come through in the fourth quarter, but what we're describing to you is the ramping back up of marketing spend which really as I said started in the third quarter starting to pay dividends the little bit in the fourth quarter, but really more in 2021 and that's how we expect to go forward.
Thank you. Our next question comes from the line of Brian Meredith from you'd be EPS. Your line is now open.
Yes, Thanks, Alex I'm wondering you talk little bit about you talked about for targeted marketing and then perhaps maybe improved loss ratios or at least your initial customer you're getting what other stuff you are doing to try to improve that first term loan.
Cash ratio.
[noise] [noise] absolutely. So the the biggest thing that we're doing that is going to continue to improve the first term loss ratio as our state by state management, and so I guess I Didnt and lots of states were looking at our of our first from loss ratios and we're happy with where they are and then in lots of states for in some states and flow states were saying.
We want to do better.
And in those states, where we want to do better we will take a base rate we need to however, the other thing that is just going to continually drive the loss ratio.
To improve its just improvements in the segmentation and right now we read the art scene the.
Hi ceiling, if you will to collecting more data in retraining. Our models rapidly. So for instance are you. The I 4.0 is looking like it substantially more predictive than you'd be high at 3.0, and what that then allows us to do is really make a choice you can either growth faster, although we have plenty of substantial.
Growth throughout 21, but we can either grow faster.
Before we can reduce loss ratios in flow of more to the bottom line and it becomes the strategic decision as to exactly where we want to place our bets at that point, but continuing to invest at root in the world class at pricing leveraging all of the data and the technology off of the phone and we're still experimenting with new data sources.
As as well not just from the phone but from everywhere.
As we continue to do that you will see segmentation continue to improve which is really when you start to see the best of both worlds for you can actually reduce loss ratios and growth as well.
Thank you for our final question comes from the line Nick Jones from Citi. Your line is now open.
Great. Thank you I guess just touching on maybe the competitive dynamic today you know there is some.
Competitors are kind of doing a mileage based.
Insurance pricing, we pay per mile and then we've also seen some recent announced and the announcements such as for the partnership with Verisk Ingest partnership with American family. So I guess can you touch on how the competition is changing you know it sounds like there's some other.
Opportunities within telematics, that's a little different than than kind of how you are going to market and is that changing faster than it was before I guess just any color on how you see the competitive landscape today in terms of telematics and trying to using leveraging more data from pricing insurance.
Yeah.
Absolutely those are great questions.
The the competitive landscape.
Dave is going to the first in terms of the pace of change you know thinking about Oems.
Those are not new so those who have been around for a decade or.
For more of the on Star program has and attempts to sort of sell insurance through.
Connected vehicle so.
You know I wouldn't call that a change it's just sort of another chapter of the same thing thats been happening over the last two decades, and there's lots of barriers to those of particularly on the getting traction obviously, it's more difficult. Most consumers for instance don't have just a single make of the vehicle and so having.
You know just state insurance carrier insurance product per vehicle can be pretty difficult. Obviously bundling is a big element to a lot of.
Consumers as well and then just as well of the technical challenges the data off of these vehicles.
Frankly, none of them none of it looks the same there of various quality, but that being said, we do believe that long term. The data is going to continue to proliferate and this will be data both again, oh vehicles, but also for the smartphones behavioral data that we can gather from smartphones that isn't on the the the vehicle.
And that's going to continue to proliferate and so for instance that route we have agreements with roughly 47%.
Of connected vehicle backed by market share, 47% of connected vehicle day that that we can actually get a and we've got that under contract now. So we certainly are looking at all of that data and like I said some of its good some of it's not good and then the key is really making sure that it works for the consumer and so how do you actually seamlessly integrate something like the.
All of data inside of a really amazing product flow from the consumer and that's really where were focused because again the data isn't the that's been around for decades. The new thing is how are you going to make it actually worked for the consumer to solve the consumer problem in a seamless way and that's really what we're working on where we are if the consumer comes to.
The route and you do and we do have connected vehicle data, we have something called the skip drive where you can instantly get of telematics rated quote and that's really the only thing out there like that in the market today and the fact that life for a while and were continue to experiment with that.
In terms of some of their cash flow.
The competitive landscape per per mile billing.
That's something again that has also been around for a long period of time, we think a niche audience.
Certainly interested in that its its difficult to add to the for US. What we found is when we tested that you know most consumers actually we found really want a stable build they don't want their insurance bill jumping around too much and so we found that it's actually the more beneficial map the do necessarily per mile, especially given.
Net or our squared in predicting the number of miles that of consumer is going to drive over a period of the year from the test drive period is well above 95% and so you know its not like were really surprised when we see how much is somebody's is driving but I think long term you're going to continue to see vehicle technologies progress quickly you're going to continue to see day.
The you really come from all sorts of different angles, whether it be the phone whether it be vehicles, whether it be something else the wearable device.
Who is going to be positioned the bass is the insurance company that is the most tech savvy and data science savvy to actually ingest all of that data and know what to do strategically over the long term with it the actually better serve consumers and I think thats exactly where we position group. So I think that's the trend a fantastic answer a fantastic I question.
And I'd just add one thing quickly you know really Alex is totally right Brian.
In terms of I'm, sorry, Nick in terms of.
How we are approaching our business I think this is where the most of that I talked about earlier really matter around our technology around the size of the customer base that we have today.
And in addition around the capital or premiums diversified its not tied to one state that's not tied to one type of customer.
I think the that really matters the maturity of the state matters as we point out in the shareholder letter and the fact that our telematics is really able to focus on distracted driving I want to emphasize that one of them for accidents in the United States is tied to the distracted driving and the integrated card data cannot touch on that cannot discern distracted.
Moving from the date of that they receive so hugely important questions that are frankly in the face the industry as we continue to build out the rebrand and the root community and focus on providing a fair and more tailored customer experience overall.
This ends of the Q and a session and I'll turn it back to management for closing remarks.
We just would like to reiterate our thanks for everyone. Joining today I. We are thrilled to talk to you guys today and continue.
To the update you on the business and the company results. So we will talk with you all in about 90 days again. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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