Root continues to make steady traction growing its premium volume, benefiting in part from rate hikes and new initiatives. But the Ohio-based digital auto insurer saw its loss ratio spike in the 2021 second quarter as higher costs for repairs, used vehicles and miles driven rose above pre-pandemic levels.

Like other mid-stage InsurTechs working to grow scale, Root also remains a money-loser. The company reported a $178.6 million net loss in Q2, or negative $0.72 per share, according to results released Aug. 11. That compares to a $32.2 million loss, or negative $1.03 per share, a year ago.

Investors initially were unphased but drove the stock down nearly 20 percent a day later on Aug. 12 compared to its $6.87 per share close on Aug. 11. Root’s stock priced at $27 per share during its late-October 2020 IPO, which raised $724.4 million for the company and was widely considered a success. (Multiple shareholders have since filed a class action lawsuit against Root, alleging its IPO was negligently prepared and omitted material facts.)

At the time of its IPO, Root reported $200 million in debt. Root reported more than $1 billion in accumulated loss as of Q2 2021 compared to $748 million as of Dec. 31, 2020.

Root put a positive spin on its Q2 2021 results, reflecting a period where executives launched new initiatives meant to fuel longer-term growth and stability.

“We will continue to successfully execute against our plan to build differentiated products that are better for customers while growing the company into a profitable, disruptive force in the industry,” Root CEO and co-founder Alex Timm and CFO Daniel Rosenthal said in their letter to shareholders. “Root has an industry-defining platform that is built to last.”

Root reported more than $974 million in cash and equivalents on hand at the end of the 2021 second quarter, down from more than $1.1 billion when the quarter started. That compares to nearly $242 million at the end of Q2 2020 versus $416.6 million at the start of that quarter, according to Root.

New Initiatives

Timm and Rosenthal used their shareholder letter to tout a number of new initiatives. The company, for example, detailed the expansion of its partnership with digital car seller Carvana. Together, they’re developing an insurance product that lets Carvana offer personalized, bindable quotes to car buyers.

Root’s shareholder letter argued that the deal will be financially lucrative, in part by revving up the pace and scope of customer acquisition “at attractive costs” and also generating a better class of customers that last long-term.

“It will enable us to connect with customers at the point of sale to deliver a transformational, vertically integrated customer experience,” the shareholder letter noted. “Product development and integration will begin immediately.”

The deal also gives Root a cash infusion. Carvana plans to invest $126 million in the company, giving it a 5 percent ownership stake, according to the letter.

As a digital insurer, Root is also making the acknowledgment that not everyone wants to buy insurance online. Agents will soon be part of the equation, Timm and Rosenthal’s shareholder letter noted.

“We recognize that some consumers prefer a human element when making significant purchases,” the letter states, observing that Root’s technology can arguably help make human-driven experiences easier and faster.

“To do this, we are scaling our internal sales agent program and piloting a program to provide our product through independent licensed agents,” the letter states. “Offering the human touch widens the funnel to more good drivers that can benefit from Root’s technology and enables another connection point with potential customers.”

Rival Metromile has taken a similar route, recently disclosing plans for a new independent agent program that started in the 2021 second quarter, with more than 600 agents appointed to date. The program will scale further through the rest of 2021.

Root also recapped that it hired two new vice presidents of marketing in order to expand and diversify how and where it commits its marketing efforts.

Financial Results Are a Mixed Bag

The company’s direct written premium reached $177 million during the 2021 second quarter compared to $142 million the year before. Similarly, direct earned premium hit $181 million, up from $152 million in the 2020 second quarter.

Root’s direct accident period loss ratio climbed to 88 percent, however, compared to 66 percent the year before. Root said that inflationary pressures increased the cost for repairs and used vehicles, and miles driven rose to above pre-pandemic levels, which led to more loss frequency.

Root reported more than 373,721 auto insurance policies in force as of Q2, up from 334,327 in the 2020 second quarter. Renters policies reached 9,103 during the quarter compared to 5,974 last year.

Root produced $971 in premiums per auto insurance policy for the 2021 second quarter, better than the $909 per policy last year. Renters also improved slightly, to $141 in premiums per policy compared to $139 in premiums per policy a year ago, the company said.

Sales and marketing expenses jumped to $111.7 million during the quarter as Root revved up hiring and marketing outreach, compared to $17.4 million in the 2020 second quarter.

Technology and general/administrative expenses also grew year-over-year as Root continued to scale its operations.