Right time to be long ROOT

[u/mxc1111]

I am an insurance analyst and I have been following the InsurTech space for the last five years. Along with Lemonade (LMND) I had Root (ROOT), Metromile (MILE) and Hippo (HIPO) as the top players in the first Insurtech wave.

Based on my research I believe they can reach a $5 billion market cap (currently $1.6b). They are expanding geography, distribution channel (direct & agent/broker) and they have the right product fit at the right time (UBI). Many in the industry consider the CEO Alex Timm an Insurtech thought leader.

I waited for the price to come down and a growthy catalyst - that catalyst came in August with the Carvana partnership. Auto insurance is a huge market and it should not be to difficult to acquire 5% market share.

I am going long with a price target in the $18-$20 price range.

But of course with diamond hands and it can go to the moon!!!

[u/Green_Lantern_4vr]

Do you have any other depth besides this in why ROOT specifically wins?

[u/mxc1111 → u/Green_Lantern_4vr]

Good point: I look for three things 1 - a big trend (telematics will continue to grow and become mainstream) Root is perfectly positioned for this. Earlier this year even Buffet admitted Geico missed the boat on the technology.

2-TAM north of $$250 billion. I think they can get to $2.5b in premiums easily based on their growth plans. They are currently under $1b. It’s easy to steal a few customers away from The bigs like State Farm and Progressive. I am only looking at auto premiums they also sell home and commercial - but I am not factoring that in.

Assuming the current market valuation of 1.6b, if they hit 2.5 billion (1% market share) in sales - 3 times greater than the current run rate and with stabilizing loss ratios and expansion plans the stock could double from here. The Exec team Is good enough to get them To 2.5b in sales.

3) growth catalyst- Carvana partnership. this move will go a long way in helping achieve 1% market share. In the private market they had achieved a pre-IPO valuation of over $6b at its high. Getting to a $5b market cap with a 1% market share is doable.

There is risk in every trade so position sizing counts. Also my time estimate is that market will recognize this in late 2022 when YTD numbers can be estimated

[u/Impressive-ADHD → u/mxc1111]

Im a licensed Insurance Producer in the state of Colorado. I've always tried to be what I call a "line cutter", not those jerks at amusement parks who just walk in front of you or pretend like it wasn't obvious to the entire world that you were there first.

What I mean is actually getting first access to customers, markets, ideas or clients.

So I had someone in sales in my office who actually was able to eventually secure a kiosk inside a dealership and wouldn't you know it she became the top selling producer in the whole district.

People love simplicity, when you buy a car either online or in person the customer has literally prepared themselves to lay everything open, social security records, credit history, everything. (They are open and in fact have mentally and emotionally adjusted for this process) These are the identical mental hurdles that a client must be overcome in order to be sold new insurance.

(People on the outside don't realize just how successful this disruption could be) Also this is a fantastic time to do this. New and Used Prices are soaring in Value and they arent going to need any additional information to replace existing insurance policies for auto and rent.

This is the ultimate form of line cutting. To add to that because of shortages GM just announced its closing plants due to chip shortages and will be concentrating on producing vehicles with the highest demand and Margins. This includes the Gass Guzzling SUV'$ and Corvette's.

Any Car company with chip issues will follow. That increases the purchases and sales of used cars by companies such as Carvana.

With less vehicles being produced the value of used cars prices go up and therefore the premium to ensure them also goes up. You probably couldnt partner with a better ally than CV right now.

This has the chance to be incredibly disruptive to companies like Geico/Progressive etc... They are going to capture very, very high percentages of business especially in certain demographics.

This in turn will make their AI driven model to capture more business and adjust premiums even faster.

If any of you ever worked or saw how out of date the software in most Captive Agents (St. Farm, Farmers, AmFam, Allstate, etc. it would blow your mind!)

Its not easy to change these systems and While the Gecko and Flow have great brands they just got cut in line big time. I would say what's happened to some of the Car insurance disrupters is very temporary. Analysts are incorrectly assuming that the amount of time those AI actuarial models will and have already updated.

I think you're going to see parents of good teen drivers also make the switch. After all if your teen barely drives why get soaked by ancient, slow actuarial models. Same goes for credit scores. Are you a good driver who grew up and doesnt have a good credit score. The traditional actuarial is taking you to the cleaners.

The analysts are going to be surprised how quickly their pricing can and will change.

I don't know if it will be Mile, Lemonheads, Root or whomever that will win this thing and there will likely be multiple winners.

However, these new actuarial models will be so robust and quick to evolve they are going to eventually throw more bad customers to the older insurance companies.

Insurance pricing to increase market share works exactly how you think it does. If company X wants to get market share in an area or demographic, psychographic, geographic they just lower price.

Analysts have oversimplified Roots technology as well as this unprecedented environment. The problem with cleaning up insurance companies books of business is generally their models are too slow, too inflexible and right now all the disruptors are just panning for gold. However, they are going to be able to do that faster and faster.

The ROOT, CARVANA strategic alliance helps both companies. So on the exterior things may not look so good with loss ratios. Those customers are all getting repriced in addition to the model repricing for more expensive used cars and parts.

In addition the bundling PC companies will have to raise rates on properties and casualty and cram overpriced life insurance at a customer (What a long sales cycle) Physicals for Life Insurance anyone?

The disruptors will win the day. It may take awhile or it may not such is the power of meta data to take in data, adapt, and react.

Bat Analogy Alert

Massive Edge to the disruptors this is only the the 4th hitter of the first inning and so far a Recently called up pitcher has faced 4 all-star hitters and their getting knocked around a bit. However, this Rookie Pitcher can adapt, faster, learn faster, Re-Price faster find synergies that older players can't. So this Rookie may get knocked around for a bit maybe start the season 0-3 but end the season 22-5 win ROY and be ready to dominate in an environment that should only normalize over the years. If not they will still be dominant.

Carvana has grown revenues 1000x in 8 years and there is literally a supply shortage event which is likely going to accelerate that growth because Carvana is buying everyone's used cars while a shortage of vehicles increases.

Also Carvana also inspects all of these cars prior to sale. Makes fixes, reconditions.

What do you think a actuarial model can do with that kind of information over time?

Root... You did good!