What changed in this filing

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Item 1. Business

2022-02-23 compared with 2021-03-04 · 191 added, 114 removed, 295 unchanged (51% of the section changed)

Root is a technology company revolutionizing personal insurance with a pricing model based upon fairness and a modern customer experience.

We operate a direct-to-consumer model in which we acquire the majority of our customers through mobile applications.

We are currently writing auto insurance in 30 states in the U.S.

We operate primarily a direct-to-consumer model in which currently we acquire the majority of our customers through mobile applications.

We have built a company that recognizes each individual is unique and puts customers in control, rewarding them for their actions.

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Traditional methods of pooled risk assessment are not personalized and inherently less precise given individual behavioral data is underutilized or not measured as a component of the insurance risk assessment process.

Traditional systems and processes have become outdated and we believe they are increasingly disconnected from the needs of consumers.

Insurance agents are the predominant form of distribution for traditional insurance and generally require expensive selling commissions, which increases the overall cost to the consumer.

We believe traditional systems and processes have become outdated and are increasingly disconnected from the needs of consumers.

Our initial focus on auto insurance was motivated by how well-suited we believe the product to be for fundamental improvement through technology.

We believe Root is the innovator to drive this transformation.

Auto insurance is required for the vast majority of drivers in the U.S.

and we believe it is typically the first insurance policy purchased by consumers.

Auto insurance is required for the vast majority of drivers in the United States and we believe it is typically the first insurance policy purchased by consumers.

As a result, our auto-first strategy establishes the foundation for an expansive lifetime relationship with the opportunity to add other personal insurance lines as customer needs evolve.

Our strategy has also established the technological foundation for an enterprise software offering, diversifying our revenue streams over time.

The Root advantage is derived from our unique ability to segment individual risk based on complex behavioral data and proprietary telematics, a mobile-first customer experience built for ease of use and a product offering made possible with our full-stack insurance structure all uniquely integrated into a single cloud-based technology platform that captures the entire insurance value chain—from customer acquisition to claims and administration to ongoing customer engagement.

As part of our strategy, we have also established the technological foundation for an enterprise software offering, diversifying our revenue streams over time.

We believe the Root advantage is derived from our unique ability to efficiently and effectively bind insurance policies quickly, aided by segmenting individual risk based on complex behavioral data and proprietary telematics, a customer experience built for ease of use and a product offering made possible with our full-stack insurance structure.

These are all uniquely integrated into a single cloud-based technology platform that captures the entire insurance value chain—from customer acquisition to underwriting to claims and administration to ongoing customer engagement.

As a full-stack insurance carrier, we have the infrastructure to design products and distribute, underwrite, administer and pay claims on all of our policies.

Our model, supported by proprietary technology, leaves us virtually unencumbered by third parties across the value chain, provides complete design and feature discretion and we believe frees us to innovate and iterate more quickly than any of our major competitors.

Our model, supported by proprietary technology, allows us to be more adaptive across the value chain, provides complete design and feature discretion and we believe frees us to innovate and iterate more quickly than any of our major competitors.

We view this flexibility as absolutely critical to introducing new capabilities, reinforcing customer centricity and driving growth.

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As with many data-enabled businesses, we benefit from a flywheel powered by data that allows us to improve our model and fuels growth.

However, in contrast to many other flywheels where growth-generates-data-generates-growth, we believe our flywheel is more powerful in that increased data generates targeted growth and increases the lifetime value of our customers.

Our model naturally benefits from improvement in loss ratios as first term loss ratios decline with our growing data flywheel and our portfolio matures.

We have observed first term accident period loss ratios declining, which we believe reflects our consistently improving risk segmentation capabilities and the power of our flywheel.

Furthermore, renewal premiums, referring to premiums from a customer’s second term and beyond, have lower loss ratios as compared to new premiums in the customer’s first term.

As we grow our business, we anticipate, consistent with industry norms, that our portfolio will mature with a greater proportion of our premiums will be from customer renewals.

We expect this growing proportion of renewal premiums will bring an increasing mix of lower loss ratio premiums and premiums without associated marketing costs.

Our direct written premium, or DWP, grew to $ 616.8 million in 2020 from $ 451.1 million in 2019 and $106.4 million in 2018.

Similarly our direct earned premium, or DEP, grew to $ 605.2 million in 2020 from $352.9 million in 2019 and $61.4 million in 2018.

We experienced declines in our direct loss ratios to 82.0% in 2020, compared to 99.9% in 2019 and 93.6% in 2018 with corresponding declines in our direct accident period loss ratios to 78.0% in 2020 down from 103.7% in 2019 and 112.1% in 2018.

See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Components of Our Results of Operations.”

Our model naturally benefits from growing our data flywheel and our portfolio maturing.

Renewal premiums, referring to premiums from a customer’s second term and beyond, have lower loss ratios as compared to new premiums in the customer’s first term.

As we grow our business, we anticipate, consistent with industry norms, that our portfolio will mature and a greater proportion of our premiums will be from customer renewals.

We expect this

growing proportion of renewal premiums will bring an increasing mix of lower loss ratio premiums and premiums without associated marketing costs .

We announced in 2021 that we continue to diversify the ways we reach our customers and our product offerings.

We are leveraging our technology to develop an embedded experience at the point of car purchase with Carvana.

In mid-2021, we saw an elevated consumer interest in vehicle and auto insurance purchases, resulting in a significant increase in customer acquisition and advertising campaigns in digital channels on the part of our competitors, increasing our customer acquisition costs in those channels.

Not only do acquisition costs in these channels vary significantly quarter to quarter, we believe an embedded product with distribution partners offers an opportunity for greater marketing efficiency than digital marketing channels alone because they allow us to approach captive audiences in a contextually relevant, data-centric way.

The economic instability caused by the COVID-19 pandemic has led to acute inflationary pressures and supply chain disruptions, which have increased the value of used vehicles and replacement parts in 2021.

These cost increases have resulted in greater claims severity while being partially offset by higher salvage and subrogation recoveries on damaged vehicles.

As a result of certain factors related to the COVID-19 global pandemic, we continue to file in multiple states to establish rates that more closely follow the evolving loss cost trends.

In addition, we are developing underwriting models and products that vary the level of reliance on telematics and the point at which telematics are used in underwriting.

Insurance is one of the oldest and largest markets in the world, touching every corner of the world and protecting many of our most important assets.

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First, incumbents generally do not have the technology and infrastructure to collect and synthesize an integrated set of proprietary telematics and claims data.

Second, introducing individualized telematics-based pricing across an existing portfolio constructed without telematics would have enormous profitability implications as lower-risk drivers would be re-rated to a meaningful discount, reducing profits, and high-risk drivers would be surcharged, which could result in reduced retention.

believe we are the only P&C insurance carrier with a scaled proprietary telematics solution designed to price an entire book of business.

The hallmark of our data advantage is our integrated set of actual claims and associated proprietary telematics, which we believe to be the largest in the market.

introducing individualized telematics-based pricing across an existing portfolio constructed without telematics would have enormous profitability implications as lower-risk drivers would be re-rated to a meaningful discount, reducing profits, and high-risk drivers would be surcharged, which could result in reduced retention.

As such, we believe we are the only P&C insurance carrier with a scaled proprietary telematics solution designed to price an entire book of business.

The hallmark of our data advantage is our integrated set of actual claims and associated proprietary telematics, which we believe to be one of the largest in the market.

We match miles tracked, on an individual basis, with actual claims and identify a set of driving performance factors that cause, or on a relative basis are more likely to cause, accidents.

We use an internally developed claims infrastructure to capture comprehensive structured data, contributing to our data advantage when combined with telematics experience and iterated over time.

This integrated data set drives a usage-based insurance, or UBI, score that is almost ten times more predictive at estimating futures losses than a leading third-party provider, according to Milliman, Inc., an independent third-party actuarial and consulting firm.

This integrated data set drives a usage-based insurance, or UBI, score.

When UBI 3.14, a prior iteration of our current model, was reviewed it was determined to be almost ten times more predictive at estimating future losses than a leading third-party provider, according to a leading independent third-party actuarial and consulting firm.

Since then, we have continued to iterate on our UBI models and have released UBI 4.0 in a majority of states, which we believe is more predictive than previous models.

Our model revolves around using integrated data and technology to create a pricing advantage through granular risk segmentation.

The data we collect feeds proprietary risk scoring models which assist us in identifying what we believe to be the riskiest 10-15% of drivers on the road, a group we have elected not to quote thus avoiding a risk segment that is up to two times more likely to get in an accident than our average targeted customer.

The data we collect feeds proprietary risk scoring models which assist us in identifying what we believe to be the riskiest drivers on the road, a group we have elected not to quote, thus avoiding a risk segment that is up to two times more likely to get in an accident than our average targeted customer.

By removing this high-risk segment, we can price the remaining population more fairly, resulting in a stronger conversion of customers whose behavioral data indicates lower risk than a market-standard demographic rating alone.

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Customer Experience

We meet the vast majority of our customers where they are, on their mobile phone, with a user-friendly interface and convenient, efficient experience.

This is the mantra that drives our mobile-first engagement strategy and underpins both our user experience and our fundamental business model.

App installation and initial engagement is intuitive and customers can easily identify the coverage they need in everyday language, including offering bundling options which clearly lay out associated cost savings.

We strive to meet customers where they are with a user-friendly interface and convenient, efficient experience.

This is the mantra that drives our mobile engagement strategy and underpins both our user experience and our fundamental business model.

App installation and initial engagement are designed to be intuitive so that customers can easily identify the coverage they need in everyday language, including offering bundling options which clearly lay out associated cost savings.

Our mobile engagement extends across the customer experience and value chain:

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The vast majority of our new customers come through our digital or partnership channels, which are largely mobile.

We continue to diversify the ways we reach our customers.

We are developing an embedded experience that engages customers at contextually relevant times.

In partnership with Carvana, we are deploying an embedded experience at the point of car purchase.

• Profile Creation.

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A two-to-four week test drive gathers and analyzes data from smartphone sensors measuring braking, consistency, turning, time of day and other performance and contextual data.

We are developing underwriting models and products that vary the level of reliance on telematics and the point at which telematics are used in underwriting.

• Coverage Selection.

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Once bound, customers can perform all policy management functions seamlessly from our app, including profile or coverage adjustments, obtaining proof of insurance or chatting with a bot or human.

We make it easy to file a claim and track processing status through to settlement via the app, allowing us to payout claims rapidly.

We make it easy to file a claim and track processing status through to settlement via the app, allowing us to pay out claims rapidly.

Auto insurance is a product most people use every day, reinforcing the importance of our mobile-first engagement strategy for both customer experience and data collection.

Direct Distribution

We distribute largely through the mobile channel, with over 75% of customers acquired through either our mobile app or mobile web platform.

One of the things that excited us most when we launched Root was a recognition that very little insurance was distributed through the mobile channel.

Mobile is the fastest growing retail channel in the U.S., as customers spend less time in front of computers and utilize smart phones for more convenient shopping.

We therefore designed a mobile-directed customer acquisition strategy, to ultimately deliver customer acquisition costs below the average cost of doing so through each of the direct and agent channels:

Our digital channel is designed to drive volume by efficiently capturing high intent customers.

We distribute largely through the mobile channel, with the majority of our personal insurance customers acquired through either our mobile app or mobile web platform.

Mobile is the fastest growing retail channel in the United States, as customers spend less time in front of computers and utilize smart phones for more convenient shopping.

We therefore designed a mobile-directed customer acquisition strategy, to ultimately deliver customer acquisition costs below the average cost of doing so, through each of the embedded, direct and agent channels:

We build upon the superior mobile and web customer experiences of distribution partners to reach a captive customer base with an embedded solution.

Through our proprietary and fully-integrated application programming interfaces, or APIs, we are able to engage prospective customers when contextually relevant in third-party applications and target high-value customer segments at a higher marketing efficiency than other channels.

We expect increased penetration of this channel over time as we seek to grow embedded relationships with other tech-enabled companies like Carvana, offering access to relevant customer bases.

Our digital channel is design ed to drive volume by efficiently capturing high-intent customers.

We accomplish this by meeting our customers within platforms they use extensively such as Facebook and Google or select marketplace platforms where consumers are actively shopping for insurance.

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We utilize these media channels to drive awareness when launching new states and to actively target customers in active states.

• Partnership.

We build upon the superior mobile and web customer experiences of selected distribution partners such as Carvana, Chime, GasBuddy, SoFi and Stash to reach a captive customer base.

Through deep integration we are able to engage prospective customers when contextually relevant in third-party applications and target high value customer segments at a higher marketing efficiency than other channels.

We expect increased penetration of this channel over time as we seek to grow partnership relationships offering access to relevant customer bases.

We encourage our existing customers to spread our value proposition.

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This is our lowest cost acquisition channel and an important aspect of our ongoing distribution strategy.

While our customer acquisition costs can vary by channel mix, by state or due to seasonality, our main channels allow us to efficiently acquire customers by leveraging our partners’ premier user experiences to approach captive audiences in a contextually relevant, data-centric way.

Accordingly, our marketing costs have historically been below industry averages.

In the near term, as we expand our licensed footprint to 50 states, we have recently begun investing in our national brand, which will increase awareness, build credibility and support all four of our distribution channels.

We have been investing in a product to bring the speed and ease of our technology to the independent agency channel.

This channel provides access to a larger demographic of customers and we believe it has staying power.

We developed an efficient quote and bind process that reduces the time the agent needs to spend with the customer, allowing agencies to be an efficient acquisition channel for us.

Our customer acquisition costs can vary by channel mix, by state, due to seasonality or due to the competitive environment.

We believe our main channels allow us to efficiently acquire customers by leveraging our partners’ premier user experiences to approach captive audiences in a contextually relevant, data-centric way.

Furthermore, we continue to invest in the technology and data science behind our distribution with A/B tests, dynamic bidding models, and rapid updates and iterations, supporting differentiated cost of customer acquisition over the long term.

Capital Management

As a rapidly growing full-stack insurance company, we operate a “capital-light” business model which utilizes elevated levels of reinsurance.

As a full-stack insurance company, we operate a “capital-light” business model which utilizes elevated levels of reinsurance.

Our capital management strategy has three core objectives:

(1) prioritize revenue and targeted customer growth while also maintaining regulatory capital requirements;

(2) source efficient capital to support customer acquisition costs;

(2) source efficient capital to support customer

acquisition costs;

and (3) mitigate impact of large losses or tail events.

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In the near term, our primary focus is to execute on the auto opportunity at hand.

In the longer-term, we will continue to develop additional growth opportunities though the expansion of product offerings, growing our enterprise solution and entering international markets.

In the longer-term, we plan to continue to develop additional growth opportunities through the expansion of product offerings, and growing our enterprise solution and entering international markets.

• Execute the Auto Opportunity

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We would view this as the ultimate achievement in customer transparency and fairness.

◦ Enhance marketing efficiency.

We will continue to enhance the efficiency of our marketing spend through data science and dynamic targeting, as well as expanding our embedded experience.

The embedded experience will allow us to develop integrated auto insurance solutions where we build on the premium mobile and web experiences of contextually relevant partners to access their active customer base.

◦ Grow national auto insurance presence.

We will continue to aggressively invest in domestic growth by becoming active in more states while creating brand awareness through a national marketing campaign.

We will continue to focus on domestic growth by diversifying marketing channels, becoming active in more states while improving brand awareness.

In November 2020, we acquired Catlin Indemnity Company, a shell insurance company subsequently renamed Root Property & Casualty Insurance Company, or Root Property & Casualty, that expands our ability to sell personal auto insurance in 48 states and the District of Columbia.

In instances where a prospective customer solicits a quote in a state where we do not currently underwrite, we retain their contact information with permission and reengage upon state entry.

◦ Enhance marketing efficiency.

We will continue to enhance the efficiency of our marketing spend through better data science and dynamic targeting in our digital channel, as well as greater investment in channel media and expansion of our partnership channel, where we build on the premium mobile and web experiences of contextually relevant partners to access their active customer base.

• Accelerate Insurance Product Innovation

◦ Strengthen value proposition and business model through cross-sell .

We launched our home product in May of 2020 and our renters product in July of 2019.

In instances where a prospective customer solicits a quote in a state where we do not currently underwrite, we retain their contact information, with permission, and re-engage upon state entry.

• Insurance Product Expansion

◦ Increase value proposition and business model through cross-sell .

We launched our renters product in July of 2019 and our home product partnership in May of 2020.

In bundling these products with auto insurance, we unlock the 50% of the market that we believe prefers a bundled offering and was therefore not available to us before.

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We have also observed that customers with multiple policies retain better than auto-only customers.

• Pursue Enterprise and International Expansion

• Insurance Product Expansion

◦ Invest in enterprise .

We have developed a distinct enterprise offering leveraging our existing technology and capabilities.

In March 2020, we launched our first set of enterprise technology products to provide telematics-based data collection and trip tracking and today we have agreements with multiple clients.

Over the long-term we plan to invest in and grow this product offering to create a distinct and scalable software-as-a-service recurring revenue stream absent risk retention.

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In the long-term we will look to expand into the international market, both as a consumer-facing insurer in certain markets and through enterprise software in other markets, enabling select insurance companies with mobile telematics data collection and scoring capabilities.

We may selectively pursue additional acquisitions to accelerate any of our growth objectives or to improve our competitive positioning within existing and new products.

Our portfolio of investable assets is primarily held in cash, short-term investments, and available-for-sale fixed maturity securities, including U.S.

Treasury securities, corporate debt securities, mortgage back securities and other

debt obligations.

We may selectively pursue additional acquisitions and partnerships to accelerate any of our growth and profitability objectives or to improve our competitive positioning within existing and new products.

Our portfolio of investable assets is primarily held in cash, cash equivalents and available-for-sale fixed maturity securities, including U.S.

Treasury securities, corporate debt securities, mortgage back securities and other debt obligations.

We manage the portfolio in accordance with investment policies and guidelines approved by our board of directors.

We have designed our investment policy and guidelines to provide a balance between current yield, conservation of capital, and liquidity requirements of our operations setting guidelines that provide for a well-diversified investment portfolio that is compliant with insurance regulations applicable to the states in which we operate.

For further information, see Note 3, “Investments,” to the Consolidated Financial Statements included elsewhere in this annual report.

We have designed our investment policy and guidelines to provide a balance between current yield, conservation of capital, and liquidity requirements of our operations.

We set guidelines that provide for a well-diversified investment portfolio that is compliant with insurance regulations applicable to the states in which we operate.

For further information, see Note 3, “Investments,” in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

The insurance industry in which we operate is highly competitive.

Many of our primary competitors have well-established national brands and market similar products.

Our competitors include large national insurance companies such as Geico, Progressive and Allstate, as well as up-and-coming companies and new market entrants in the insurtech industry, some of whom also utilize telematics and offer forms of usage-based insurance.

Our competitors include large national insurance companies such as Geico, Progressive and Allstate, as well as up-and-coming companies and new market entrants in the insurtech industry, some of which also utilize telematics and offer forms of usage-based insurance.

Several of these established national insurance companies are larger than us and have significant competitive advantages over us, including increased name recognition, higher financial ratings, greater resources, additional access to capital, and more types of insurance coverage to offer, such as health and life, than we currently do.

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We rely on trademarks, patents, copyrights, trade secrets, license agreements, intellectual property assignment agreements, confidentiality procedures, non-disclosure agreements, and employee non-disclosure and invention assignment agreements to establish and protect our proprietary rights.

Though we rely in part upon these legal and contractual protections, we believe that factors such as our skills and ingenuity of our employees and the functionality and frequent enhancements to our platform are larger contributors to our success in the marketplace.

As of December 31, 2020, we had 4 non-provisional patent applications pending examination in the United States.

Though we rely in part upon these legal and contractual protections, we believe that factors such as the skills and ingenuity of our employees and the functionality and frequent enhancements to our platform are larger contributors to our success in the marketplace.

As of December 31, 2021, we had two issued patents and two non-provisional patent applications pending examination in the United States.

We continually review our development efforts to assess the existence and patentability of new intellectual property.

We have trademark rights in our name, our logo, and other brand indicia, and have trademark registrations for select markets in the United States and many other jurisdictions around the world.

We have trademark rights in our name, our logo, and other brand indicia, and have trademark registrations for select markets in the United States.

We also have registered domain names for websites that we use in our business.

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For additional information, see the sections titled “Risk Factors—Risks Related to Our Business—Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.”

As of December 31, 2020, we had 1,007 full-time, part-time and temporary employees.

Of these employees, approximately 99% were full-time employees.

People at Root

As an insurtech, we believe our differentiating factor is our talent.

We believe our people, their knowledge, their skills and the ways they work will provide competitive advantages to allow us to innovate, move with speed in the market and bring subject matter expertise to bear in the market for our customers and shareholders.

Our Company is founded on a core set of values:

be curious and push boundaries, be courageous and build trust and be focused and deliver impact.

The specific words may change with time as we innovate and grow, but we look for employees who share the essence of these values – innovation, courage and bias for action to drive results.

These values form the basis for our People strategy, which is to give employees voice and choice, build leadership capability to ensure our leaders serve as trusted advisors and the source of truth for our employees and create a sense of belonging for all employees at all levels.

These three pillars underscore each step on the employee lifecycle from attraction, to hire, to onboard, and through growth and development.

We continue to engage with former employees as alumni.

As of December 31, 2021, we had 1,571 full-time employees.

None of our employees are represented by a labor union or covered by collective bargaining agreements.

On January 20, 2022, we instituted an organizational realignment, including an involuntary workforce reduction of approximately 330 employees, which represented approximately 20% of our workforce.

The majority of the reduction was driven by optimizing certain sales and claims departments, especially claims support staff in first notice of loss.

These departments saw a reduced workload that corresponded with the strategic reduction in marketing spend and lower claims volume in the second half of the year.

The majority of the affected employees were notified on January 20, 2022, with most job eliminations effective January 2022.

All impacted employees were supported with financial and career placement aid.

We have not experienced any work stoppages.

We consider our relationship with our employees to be good.

Diversity and Inclusion

We have prioritized diversity and inclusion, as part of our corporate-wide strategic goals.

Strategies we have taken to create and sustain a more diverse and inclusive culture include:

expanding our recruiting efforts to focus on minorities and other diversity dimensions;

learning and development training on creating inclusive environments, unconscious bias, and how to be an ally;

and launching, expanding and supporting our Employee Resource Groups—groups of Root employees that voluntarily join together based on shared characteristics, life experiences, or interest around particular activities.

Workforce Planning and Retention

Our efforts to recruit and retain a diverse and passionate workforce include providing competitive compensation and benefit packages nationwide and ensuring we listen to our employees.

To that end, we regularly survey our employees to obtain their views and assess employee satisfaction.

We use the views expressed in the surveys to influence our people strategy and policies.

We also use employee survey information, headcount data and cost analyses to gain insights into how and where we work.

Belonging at Root

We are committed to respecting, leveraging, and rewarding the unique views and contributions of all team members by increasing diversity while building and sustaining a culture of inclusivity and belonging—a Root that empowers all employees to be unapologetic about who they are while they connect, create, and innovate.

Establishing and maintaining a culture of belonging requires a shift in leadership behaviors and cultural attributes.

As we move to a more distributed workforce as a result of our “work where it works best approach” we plan to focus our behaviors on those that are pointed toward driving empathy and trust across our workforce to demonstrate a sense of caring for ourselves, our people and our business.

Empathy and trust, along with voice and choice are the cornerstones of our culture of belonging.

We are evolving in our approach to a more integrated strategy focused on attracting talent, retaining talent and serving in our communities.

Our Board continues to be actively involved in this process, prioritizing representation at all levels in the company and overseeing our belonging efforts at the full board level.

We promote a culture of diversity, equity and inclusion through, for example, Employee Resource Groups, or ERGs.

We currently have four ERGs – employees who regularly meet to share like experiences, serve as connectors and support each other as they move forward in their careers and lives more broadly:

Celebrating everything LGBTQ+ at Root and in our communities;

Cultivating a professional, healthy, and supportive environment while amplifying Black voices at Root;

• Women @ Root:

Creating a culture and company that empower women and allies to do their best work;

• Root Ability and Allies:

Resource-sharing, celebrating wins, and cultivating a community of support at Root for our team members with disabilities and their allies.

Leadership at Root

We believe we will best meet the needs of our employees by ensuring strong leadership capabilities at all levels in the organization.

As our employee needs and motivations change, we are helping our leaders evolve their leadership tool kits to meet these needs and positioning our leaders to be a source of truth and trusted advisors for all of our employees.

Our senior management is spending more time helping leaders focus on three aspects of leadership:

care for self, care for others and care for the business.

We recently launched Root’s Leadership Academy, a program that provides training, leadership toolkits, opportunities to share best practices, mentorship and support to our people managers.

Ethics and Company Values

In addition to applicable laws and regulations, our Code of Conduct, company values and policies provide the grounding for our ethical framework.

Employees are encouraged to report any unusual behavior or any non-compliant activities through a variety of vehicles to include our anonymous reporting system.

On an annual basis, we provide ethics training to, and require acknowledgement of our Code of Conduct by, every employee.

We strive to ensure our new employees know how and what to report and are encouraged through our values to challenge us and be courageous.

We have an open door policy that empowers employees to reach out to leaders, our People team, our compliance and/or internal audit teams to ensure that their concerns are heard and addressed.

Hiring and Retaining Talent

We are continually working on building a culture of attraction and retention of key talent.

Our recruiting approach has moved from a Columbus-centric approach to a National landscape in order to attract the best talent to innovate and meet the needs of our customers in a multitude of ways.

We are continually updating our recruiting approaches to fill candidate pipelines with diverse candidates with diverse skill sets and life experiences.

Our focus on employee engagement continues with employee surveys and feedback opportunities to create action plans to address needs.

Employees provide their perspectives on everything from facilities, to communication vehicles, to development approaches, to change management strategies, and on many other subjects.

In addition, we are continually revising our performance development processes to ensure that employees receive timely and actionable feedback and can improve their performance and voice their career aspirations.

We are driving to build a more inclusive learning environment where employees can participate in a variety of learning programs offered through our employee assistance program, digital learning platform and our in-person classes.

In addition, we seek to provide competitive pay and benefits through a combination of fixed and variable compensation programs.

We have set salary ranges, based on our defined competitive markets, and annual short and long term incentives aligned to each of our positions as we believe are appropriate.

Our executives and senior leadership roles, along with several identified roles throughout the business participate in a long-term equity-based incentive program, which we believe strongly supports a long term view and pay for performance that is aligned with our shareholders.

Our employee benefits platform is reviewed annually to offer benefits competitive with our market and designed to meet the needs of our people and their families.

We invest in the emotional and physical wellbeing of our employees and their families through our benefits programs.

Our benefit offering covers medical, dental, vision, prescription drug benefits along with a robust employee assistance program, life insurance, short- and long-term disability, paid time off and paid parental leave.

Our move to a “work where it works best” culture allows for tremendous employee flexibility for employees to manage their lives in the ways that they want while also meeting their performance objectives at work.

Meeting Our Employees Needs While Responding to COVID-19 Demands

During the past two years, we have made some fundamental changes as a result of the COVID-19 pandemic.

For the health and safety of our employees, we quickly moved as many people as possible to work from home in the early stages.

As the pandemic evolved and we understood more about the evolving needs of our employees, we surveyed employees and moved to an ongoing “work where it works best” working environment.

In this scenario, we are allowing employees to tell us where they would like to work – in an office, or outside an office anywhere in the continental United States.

This choice allows us to help employees manage their health and the health of their family members, provides them with flexibility to live where they would like, changes our geographic footprint and empowers our leaders to be creative in finding solutions that are mutually beneficial for our employees, customers and shareholders.

Insurance Regulation

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We have two wholly-owned regulated U.S.

insurance subsidiaries, Root Insurance Company and Root Property & Casualty.

Root Insurance Company, an Ohio-domiciled insurer, is admitted in the state of Ohio to transact certain lines of property and casualty insurance, maintains licenses to transact insurance in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington and West Virginia, and has applications pending for licenses to transact insurance in Florida and Massachusetts.

insurance subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company, or Root Property & Casualty.

Root Insurance Company, an Ohio-domiciled insurer, is admitted in the state of Ohio to transact certain lines of property and casualty insurance, maintains licenses to transact insurance in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington and West Virginia, and has an application pending for license to transact insurance in Massachusetts.

Root Property & Casualty is domiciled in Delaware and admitted in all 50 states and the District of Columbia to transact certain lines of property and casualty insurance (including to sell personal auto insurance in 48 states and the District of Columbia).

Since Root Insurance Company is our regulated insurance subsidiary with the largest premium volume, Ohio is considered our primary state insurance regulator.

We have a reinsurance captive subsidiary, Root Reinsurance Company, Ltd., domiciled in the Cayman Islands.

Our licensed insurance producer subsidiary, Root Insurance Agency, LLC, must maintain an insurance producer license in every state in which it sells, solicits or negotiates insurance.

We have a reinsurance captive subsidiary, Root Reinsurance Company, Ltd., or Root Re, domiciled in the Cayman Islands.

Our licensed insurance producer subsidiaries, Root Insurance Agency, LLC, Root Lone Star Insurance Agency, LLC, and Root Scout, LLC, must maintain an insurance producer license in every state in which they sell, solicit or negotiate insurance.

Root Insurance Agency, LLC currently holds a resident insurance producer license in Ohio and a non-resident license in the remaining 49 states and the District of Columbia, except for California, Florida, Massachusetts and New York.

Root Lone Star Insurance Agency, LLC currently holds a resident managing general agency license in Texas.

Root Scout, LLC currently holds a resident insurance producer license in Ohio and a non-resident license in the remaining 49 states and the District of Columbia, except California, Florida, Massachusetts, and New York.

Root Scout, LLC is seeking such license in California, Florida, Massachusetts, and New York and expects to have obtained them by the end of the second quarter of 2022.

Insurance regulators have broad authority to restrict or revoke licenses of insurance carriers and producers who are found to be in violation of any applicable laws and regulations.

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and (iii) expenses incurred and payments received must be allocated to the insurer in conformity with customary insurance accounting practices consistently applied.

We generally must disclose any transaction between our regulated insurance subsidiaries and our other affiliates to the supervisory DOI and obtain prior approval from such DOI before entering into certain material inter-affiliate transactions, including, but not limited to, management agreements, tax allocation agreements, service contracts, cost-sharing arrangements, extraordinary dividends, certain reinsurance transactions and certain loan agreements.

We generally must disclose any transaction between our regulated insurance subsidiaries and our other affiliates to the supervisory Department of Insurance, or DOI, and obtain prior approval from such DOI before entering into certain material inter-affiliate transactions, including, but not limited to, management agreements, tax allocation agreements, service contracts, cost-sharing arrangements, extraordinary dividends, certain reinsurance transactions and certain loan agreements.

Change of Control

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Such regulations may also inhibit our ability to acquire an insurance company should we wish to do so in the future.

See the section titled “Risk Factors—Risks Related to this Offering and Ownership of Our Class A Common Stock—Applicable insurance laws may make it difficult to effect a change of control.”

Pursuant to the Own Risk and Solvency Assessment, or ORSA Model Act, an insurance company with direct written and unaffiliated assumed premium of more than $500 million or that is part of an insurance group with direct

written and unaffiliated assumed premium of more than $1 billion must maintain a risk management framework to assist the insurer with identifying, assessing, monitoring, managing, and reporting on its material and relevant risks.

See the section

titled “Risk Factors—Risks Related to this Offering and Ownership of Our Class A Common Stock—Applicable insurance laws may make it difficult to effect a change of control.”

Pursuant to the Own Risk and Solvency Assessment, or ORSA, an insurance company with gross written and unaffiliated assumed premium of more than $500 million or that is part of an insurance group with gross written and unaffiliated assumed premium of more than $1 billion must maintain a risk management framework to assist the insurer with identifying, assessing, monitoring, managing, and reporting on its material and relevant risks.

In addition, the insurer must regularly conduct an own risk and solvency assessment in accordance with NAIC’s ORSA Guidance Manual.

Upon the request of the superintendent of the Ohio DOI, and not more than once a year, an insurer must submit an ORSA summary report, or any combination of reports that together contain the information described in the ORSA Guidance Manual, with respect to the insurer and the insurance group of which it is a member.

Root Insurance Company became subject to ORSA in 2020 since it had direct written and unaffiliated assumed premium in excess of $500 million for that year and its first assessment is due prior to the end of fiscal year 2021.

Root Insurance Company became subject to ORSA in 2020 since it had gross written and unaffiliated assumed premium in excess of $500 million for that year and its first assessment was due prior to the end of fiscal year 2021.

filed its first ORSA summary report with the Ohio DOI on December 30, 2021.

Restrictions on Paying Dividends

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“Extraordinary dividend” is defined under the Code as:

(i) any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions made within the preceding twelve months, exceeds the greater of (a) ten per cent of an insurer’s policyholder surplus as of December 31 of the preceding year, or (b) an insurer’s net income for the twelve-month period ending December 31 of the preceding year or (ii) any dividend or distribution paid by an insurer from a source other than earned surplus.

(i) any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions made within the preceding twelve months, exceeds the greater of (a) ten percent of an insurer’s policyholder surplus as of December 31 of the preceding year, or (b) an insurer’s net income for the twelve-month period ending December 31 of the preceding year or (ii) any dividend or distribution paid by an insurer from a source other than earned surplus.

As of December 31, 2021, neither Root Insurance Company nor Root Property & Casualty were permitted to pay any dividends to us without approval of the superintendent of the supervisory DOI.

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An insurance company with total adjusted capital that is less than 200% of its authorized control level risk-based capital is at a company action level, which would require the insurance company to file a risk-based capital plan that, among other things, contains proposals of corrective actions the company intends to take that are reasonably expected to result in the elimination of the company action level event.

Additional action level events occur when the insurer’s total adjusted capital falls below 150%, 100% and 70% of its authorized

control level risk-based capital.

Additional action level events occur when the insurer’s total adjusted capital falls below 150%, 100% and 70% of its authorized control level risk-based capital.

When total adjusted capital falls below 70%, a mandatory control event is triggered which results in the supervisory DOI placing the insurance company in receivership and assuming control of the operations of the insurer.

As of December 31, 2020, both Root Insurance Company and Root Property & Casualty’s risk based capital levels are above any of these regulatory action level thresholds.

entered into an agreement with the Superintendent of Insurance, State of Ohio, or the Superintendent, guaranteeing that Root Insurance Company will maintain certain capital and surplus requirements or risk-based capital levels, whichever is greater, and such additional surplus as the Superintendent requires.

The guarantee remains in effect until such time as the Superintendent may release Root, Inc.

As of December 31, 2021, both Root Insurance Company and Root Property & Casualty’s risk-based capital levels are above any of these regulatory action level thresholds and our guaranteed threshold.

Hazardous Financial Conditions

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Our insurance subsidiaries are subject to on-site visits and financial and/or market conduct examinations by state insurance regulatory authorities.

We are subject to financial examinations in any state in which one of our insurance company subsidiaries is domiciled.

For example, Root Insurance Company is Ohio-domiciled and subject to a financial examination by the Ohio DOI at least every five years, during which the Ohio DOI reviews the company’s financials, governance, and operations, including its relationships and transactions with affiliates.

Root Insurance Company is presently undergoing its first financial examination by the Ohio DOI.

The Ohio DOI financial examination is scheduled to conclude at the end of the second quarter of 2021.

Root Property & Casualty is a Delaware-domiciled insurer and subject to similar financial examination by the Delaware DOI.

We are subject to financial condition examinations in any state in which one of our insurance company subsidiaries is domiciled.

For example, Root Insurance Company is Ohio-domiciled and subject to a financial condition examination by the Ohio DOI at least every five years, during which the Ohio DOI reviews the company’s financials, governance, and operations, including its relationships and transactions with affiliates.

Root Insurance Company’s first financial condition examination by the Ohio DOI covered the period of January 1, 2015 through December 31, 2019 and was completed on July 8, 2021.

Root Property & Casualty, a Delaware-domiciled insurer, was subject to a similar financial condition examination by the Delaware DOI, which covered the period of January 1, 2016 through December 31, 2020 and was completed on February 2, 2022.

The Ohio DOI and Delaware DOI examination reports are available to the public and contained no formal findings.

Additionally, no financial statement adjustments were required as a result of the Ohio DOI and the Delaware DOI examinations.

We are also subject to market conduct examinations in any state in which one of our insurance subsidiaries issues policies.

Market conduct examinations examine an insurer’s conduct toward policyholders, including complaint handling, marketing, claims, policyholder notice, rate and form filing, and customer service.

Market conduct examinations examine an insurer’s conduct toward policyholders, including

complaint handling, marketing, claims, policyholder notice, rate and form filing, and customer service.

These examinations can result in fines and other monetary penalties, as well as other regulatory orders requiring remedial, injunctive, or other corrective action.

Root Insurance Company is currently undergoing a market conduct examination conducted by the Virginia Bureau of Insurance.

The examination is expected to conclude near the end of the second quarter of 2021.

Root Insurance Company is currently undergoing market conduct examinations conducted by the Virginia Bureau of Insurance and the Texas Department of Insurance.

The Texas examination is expected to conclude near the end of the first quarter of 2022 and the Virginia examination is expected to conclude near the end of the second quarter of 2022.

In addition, Root Re, our Cayman Islands subsidiary, is subject to inspections by the Cayman Islands Monetary Authority, or CIMA, on an ad-hoc basis and likely within a five-year period.

To date no inspection has occurred.

Statutory Accounting Principles

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jurisdictions.

These accounting principles and related regulations differ somewhat from GAAP

principles, which are designed to measure a business on a going-concern basis.

These accounting principles and related regulations differ somewhat from generally accepted accounting principles in the United States, or GAAP, which are designed to measure a business on a going-concern basis.

GAAP gives consideration to matching of revenue and expenses and, as a result, certain expenses are capitalized when incurred and then amortized over the life of the associated policies.

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We currently have products on file and approved in the following states:

Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia and West Virginia.

Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Wisconsin.

The speed with which an insurer can change rates in response to competition or increasing costs depends, in part, on whether the rating laws are (i) prior approval, (ii) file-and-use or (iii) use-and-file laws.

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In states having file-and-use laws, the insurer does not have to wait for the regulator’s approval to use a rate, but the rate must be filed with the regulatory authority prior to being used.

A use-and-file law requires an insurer to file rates within a certain period of time after the insurer begins using them.

A use-and-file law requires an insurer to file rates within a certain period of

time after the insurer begins using them.

Under all three types of rating laws, the regulator has the authority to disapprove a rate filing.

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(iii) the number of years of driving experience the insured has had;

and (iv) those other factors that the Commissioner of the California Insurance Department may adopt by regulation and that have a substantial relationship to the risk of loss.

and (iv) those other factors that the Commissioner of the California Department of Insurance, or CA DOI, may adopt by regulation and that have a substantial relationship to the risk of loss.

Under current California regulation, the use of telematics-based data beyond miles driven, including when, where or how the car is driven, is prohibited.

We are currently in discussions with the California Department of Insurance, or the CA DOI, to revise its regulations to allow us to use telematics to a greater extent to underwrite and price insurance policies, although we cannot predict the outcome of these discussions, and there can be no assurance that the CA DOI will revise its regulations accordingly, if at all.

We are currently in discussions with the CA DOI to revise its regulations to allow us to use telematics to a greater extent to underwrite and price insurance policies, although we cannot predict the outcome of these discussions, and there can be no assurance that the CA DOI will revise its regulations accordingly, if at all.

Insolvency Funds and Associations, Guarantee Funds, Assigned Risk Plans, Mandatory Pools, and Insurance Facilities

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Similarly, Root Property & Casualty is subject to Delaware’s rules and regulations governing invested assets.

These laws generally require that an insurance company to invest in a diverse portfolio and limit their investments in certain asset categories.

These laws generally require that an insurance company invest in a diverse portfolio and limit their investments in certain asset categories.

Failure to comply with these laws and regulations would cause non-conforming investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in certain circumstances, we would be required to dispose of those investments.

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Insurance producers are subject to regulation on how they may sell, solicit or negotiate insurance and conduct their business, with state laws prohibiting certain unfair trade practices.

Such practices include, but are not limited to, false advertising, making false statements to regulators, unfair discrimination and rebating premium to policyholders above certain de minimis amounts.

We set business conduct policies and provides training to make our employee-agents and other customer service personnel aware of these prohibitions and requires them to conduct their activities in compliance with these statutes.

Such practices include, but are not limited to, false advertising, making false statements to regulators, unfair discrimination and rebating premium to

policyholders above certain de minimis amounts.

We set business conduct policies and provide training to make our employee-agents and other customer service personnel aware of these prohibitions and require them to conduct their activities in compliance with these statutes.

Unfair Claims Practices

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Under these rules and regulations, insurance companies and producers must also establish a program of administrative, technical, and physical safeguards designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity of customer information, and protect against unauthorized access to or use of customer information that could result in substantial harm or inconvenience to the customers.

We are also subject to the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020.

The CCPA gives California residents the right to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed disclosures about how their personal information is used and shared.

The CCPA exempts certain information that is collected, processed, sold or disclosed pursuant to the California Financial Information Privacy Act, the Gramm-Leach-Bliley Act or the federal Driver’s Privacy Protection Act, which also apply to us.

We are also subject to the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020, and the California Privacy Rights Act, or CPRA, which will become effective January 1, 2023.

The CCPA and CPRA give California residents the right to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed disclosures about how their personal information is used and shared.

The CCPA and CPRA exempt certain information that is collected, processed, sold or disclosed pursuant to the California Financial Information Privacy Act, the Gramm-Leach-Bliley Act or the federal Driver’s Privacy Protection Act, which also apply to us.

However, the definition of “personal information” in the CCPA is broad and encompasses other information that we process beyond the scope of this exemption.

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On October 24, 2017, the NAIC adopted the Insurance Data Security Model Law, intended to serve as model legislation for states to enact in order to govern cybersecurity and data protection practices of insurers, insurance agents, and other licensed entities registered under state insurance laws.

Alabama, Connecticut, Delaware, Louisiana, Michigan, Mississippi, New Hampshire, Ohio, Indiana, South Carolina and Virginia, have adopted versions of the Insurance Data Security Model Law, each with a different effective date.

Root takes steps to comply with financial industry cybersecurity regulations and believes it complies in all material respects with their requirements.

A number of states have adopted versions of the Insurance Data Security Model Law, each with a different effective date.

Root takes steps to comply with financial industry cybersecurity regulations and believes it complies in all material respects with their requirements but the patchwork nature of the laws in this area currently can make it more costly and difficult to ensure compliance.

Our board of directors oversees cybersecurity risk management and delegates oversight of our information security program to our executive officers and chief information security officer, who is responsible for the day-to-day management of our information security program and provides updates to the audit committee of our board of directors at each of its meetings.

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Although the FIO has limited direct regulatory authority over insurance companies or other insurance industry participants, it does represent the United States on prudential aspects of international insurance matters, including at the International Association of Insurance Supervisors, or IAIS.

In addition, the FIO serves as an advisory member of the Financial Stability Oversight Council, assists the secretary of the U.S.

In addition, the FIO serves as an advisory member of the Financial Stability Oversight Council, or FSOC, assists the Secretary of the U.S.

Department of the Treasury with administration of the Terrorism Risk Insurance Program, monitors trends in the insurance industry and advises the secretary of the U.S.

Department of the Treasury on important national and international insurance matters.

The FIO has the ability to make a recommendation to the Financial Stability Oversight Council to designate an insurer as “systemically significant,” subjecting the insurer to regulation by the Federal Reserve as a bank holding company, which could lead to higher capital requirements.

The FIO has the ability to make a recommendation to the FSOC to designate an insurer as “systemically significant,” subjecting the insurer to regulation by the Federal Reserve as a bank holding company, which could lead to higher capital requirements.

In addition, a number of federal laws affect and apply to the insurance industry, including various privacy laws, false advertising laws, anti-money laundering laws, the Fair Credit Reporting Act, or FCRA, and the economic and trade sanctions implemented by the Office of Foreign Assets Control, or OFAC.

OFAC has imposed civil penalties on persons, including insurance and reinsurance companies, arising from violations of its economic sanctions program.

Available Information

General information about Root, Inc., including our Corporate Governance Guidelines and our Code of Business and Ethics, can be found at ir.joinroot.com under the “Governance” tab by selecting “Documents & Charters.” We will post on our website any amendments to, or waivers from, our Code of Business and Ethics requiring disclosure under applicable rules within four business days of the amendment or waiver.

Charters for the Audit, Risk and Finance Committee, Compensation Committee, and Nominating and Governance Committee are also available at this location.

uses its website, ir.joinroot.com, as a channel for routine distribution of important information, including news releases and other investor communications.

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after the reports are filed with or furnished to the SEC.

These documents are also available in hard copy, free of charge, by contacting our Investor Relations office.

Additionally, the SEC maintains a website (www.sec.gov) that contains the reports, proxy statements and information statements, and other information regarding issuers that file or furnish electronically with the SEC.

In addition, our website allows investors and other interested persons to sign up to

automatically receive email alerts when we post news releases and financial information on our website.

Information contained on our website is not incorporated into this Annual Report on Form 10-K or other securities filings.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business