Root officially debuts in the U.S. market on Oct. 25. The fledgling auto insurer, just 18 months old, relies on telematics and a customer’s smartphone to deliver what it says will be significantly cheaper rates for the best drivers based on their current driving data.

“We sell auto insurance entirely on a smartphone,” CEO and co-founder Alex Timm told Carrier Management in a telephone interview. He added that Root’s business model is “enabling us to get the best drivers much, much better rates than currently on the market, which we feel is the rate they deserve.”

It’s “root” principle is to have a “fundamental fairness in mind” in terms of pricing, Timm said.

Ohio is the startup’s home base, and regulatory approval there earlier in 2016 means that is where Root will do business first. The debut follows months of privately testing Root’s signature app and insurance functions, which turn a user’s phone into a telematics device that monitors drivers’ behavior. Customers can also purchase their policies entirely on their smartphones.

Root expects Illinois regulatory approval by the end of the year or early 2017. After that, plans call for filing approval in 10 or more states in the 2017 first quarter, with a goal of becoming “close to national” by the end of 2017, Timm said.

Root has about $7 million in initial funding from Drive Capital and 20 employees. Timm, 28, said it will be recruiting around the country as Root expands. Munich Re, Odyssey Re and Maiden Re are providing reinsurance, and Silicon Valley Bank is backing Root’s reserves. The combined financing “gives us a very strong capital position,” Timm said.

Root’s emergence follows the launch in recent months of a number of new InsurTech brokers and insurers, all with related pitches about making the insurance-buying experience both easier and more cost effective for consumers. Lemonade may be the most similar to Root in terms of it being a startup carrier, although Lemonade is a peer-to-peer insurer focused on homeowners and renters insurance.

How Root Works

Potential Root customers download its app onto their smartphones, which enables a scan of their driver’s license. Then comes a two-week wait. As Timm explained, Root gathers data on its potential customer during the waiting period to determine what kind of driver the potential customer is. Once approved, Root sends a push notification electronically, and the customer then can use Apple Pay to purchase the coverage and make things official. Aside from the waiting period, the initial enrollment takes less than a minute.

Consumers can use the Root app to get a quote, purchase a policy and make a claim.

More broadly, however, the Root app turns a consumer’s smartphone into a telematics device, one that gathers data on how the customer is driving today, and whether there are less-than-safe habits on the road. “Over 70 percent of people are” safe, Timm said, and those folks get the best rates.

That means the rest—roughly 30 percent—are less-than-ideal drivers. The Root app sifts out the “bad driver” by using the smartphone data, measuring elements such as how fast a driver accelerates or breaks, tailgating patterns, swerving, braking patterns, changing lanes, distracted driving and other related data.

On the plan to only insure good drivers, Timm pointed out that Ohio regulators approved Root’s business plan as legal and proper, and all carriers typically have target markets and underwriting guidelines.

“They may target older people, or people in the prime of life,” Timm said. “We are saying we are only targeting insurance to that good driver.… We are not necessarily telling these bad drivers they cannot be insured. We tell them there is a better carrier for you, maybe Progressive or GEICO, aligning the risk with who we are really looking for. The insurance company we are building is really for good drivers.”

Root’s pitch still relies on demographic data that a traditional insurance carrier would consider, including gender, marital status and age, but a greater emphasis is placed on current driving records generated from telematics as part of the underwriting process. Timm explained he hopes to shift the balance even more this way down the line, and said it will be ultimately fair for consumers across the board because the business model encourages safer driving, which would hopefully also make society safer.

Timm noted programs such as Progressive’s Snapshot device rely on driving data to save 10 percent, but the process to qualify for the discount includes a lot of bureaucracy. And he asserted that a minority of carriers use telematics data anyway, a statistic he hopes to change.

“The majority of the market is still based on traditional underwriting variables—credit score, age, gender, year/make/model of vehicle, marital status. Some still have occupation, some ask your level of education ….They will use these reports and that information in order to try to predict whether you will get into an auto accident,” Timm said. “It is not very granular.”

Timm found that experience only counts so much, as some newer drivers have safer behaviors and records. That’s where a wider use of telematics and regular monitoring of driver behavior gives Root the edge, Timm said.

“How you drive—telematics data—can predict future accidents way more than any other individual [element],” Timm said. “That’s why a telematics device has been such a huge focus of some carriers. “What they haven’t been able to do is align that with a really good consumer value proposition, again, still not giving good drivers the rate they deserve. We have taken away all of those barriers.”

Another goal Root has is one of making customers happy with their digital insurance experience, something Timm said has ranked low for property/casualty customers of traditional carriers.

Timm at Age 14: Insurance Groupie

Timm also happily describes himself as “living and breathing insurance since age 14.”

“At age 14, I was at Century [Insurance Group]. I had to convince them [to hire me]. They had a math test for entry that lots of people have not passed, and I made a wager and said, ‘I bet I can pass and you have to hire me.’ I passed it and they had to hire me,” Timm recalled happily. It was his first summer job.

From there, Timm met some of the actuarial department, made connections and ended up working during winter break. (Timm’s father, Christopher Timm, is president of Century.)

“My first job in insurance was calling people and doing policy management on phones,” Timm said. “I very quickly realized we were there for people on what is usually one of the worst days of their lives: losing a loved one, house burning down, auto insurance accident. I started to be really fascinated by the industry and [its] purpose.”

Timm said he also loves mathematics. He became an actuary and worked for larger insurance carriers, where he began to notice distractions such as “crazy media budgets” and carriers not thinking of the consumer first.

That’s what he hopes Root will change.