What changed in this filing

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Item 1. Business

2023-02-22 compared with 2022-02-23 · 89 added, 157 removed, 329 unchanged (43% of the section changed)

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

Root is a tech-enabled insurance company revolutionizing personal insurance with a pricing model based upon fairness and a modern customer experience, and an embedded experience that can be integrated seamlessly into tech-enabled platforms meeting the customer where they are.

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.

We are also focused on expanding our embedded insurance platform, where we acquire customers through strategic partnerships.

Our primary focus is on the U.S.

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

For centuries, traditional insurance companies have grouped people into risk pools and long relied on the ‘law of large numbers’ to produce acceptable pricing on an aggregate basis.

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The way we design and deliver insurance is not a simple tweak to the traditional insurance model—we are fundamentally reinventing insurance through technology, data science and a maniacal focus on the customer.

While our opportunity is expansive and our ambition is global, our primary focus is on U.S.

auto insurance.

We believe the $273 billion U.S.

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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.

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.

We leverage our technology to develop embedded products that can be integrated with our current and future embedded partners.

These are all uniquely integrated into a single cloud-based technology platform that captures the entire insurance value chain.

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.

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In practice this means we own and control an end-to-end insurance experience and have near complete operating autonomy, subject to regulation, to grow our business.

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 to increase the lifetime value of our customers.

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

As we mature as an insurance company a more significant portion of our premiums are expected to be earned from customer renewals.

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.

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 acquisition costs .

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.

Global property and casualty, or P&C, insurance premiums amount to $3 trillion annually.

Our primary addressable market today is U.S.

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Perhaps the most disruptive was the advent of the internet as a distribution channel in the late 1990s, which redefined the personal auto insurance market.

We believe the rise of digital distribution is the primary driver of the $50 billion market share shift that has accrued to direct models over the last 20 years.

Further, we believe the next technology-driven structural shift is underway—and this time the shift is not just distribution-related but a holistic change in the way insurance is priced and delivered.

We believe the next technology-driven structural shift is underway—a large secular shift in distribution with embedded insurance and a holistic change in the way insurance is priced and delivered.

We believe innovation has been slow within the P&C insurance industry, in part, because legacy systems are difficult to build upon and nearly impossible to replace.

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Our Business Model

Behavioral Data and Proprietary Telematics

We use technology to measure risk based on transparent collection and analysis of individual driving performance, which we believe is the most powerful predictor of accidents and the leading variable in our underwriting model.

By collecting and synthesizing massive amounts of rich, sensory behavioral data across thousands of driving variables, including distracted driving, we strive to price auto insurance based more on causality than correlation.

This allows us to price our customers’ policies more fairly—and in turn they pay premiums commensurate with their individual risk profile.

While the notion of telematics has been around for decades, only recently has mobile technology made the concept adoptable at large scale.

The pooled-risk pricing strategy employed by the majority of incumbents takes a more uniform view of risk absent the capability to segment on an individualized basis.

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

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.

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 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.

Our segmentation often allows us to provide better pricing to lower risk customers based on their driving behavior, giving us an advantage in acquiring new customers, as compared to traditional insurance carriers, and allowing us to build a more attractive book of business that contributes even more data to our flywheel.

Customer Experience

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• Engagement.

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

Many of our new customers come through our digital or embedded 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.

We believe meeting customers in the moment of need creates better customer engagement and yields better business results.

• Profile Creation.

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By simply scanning a driver’s license, a prospective customer can nearly complete a profile, part of an on-boarding process that is possible to complete in as little as 47 seconds and with no keyboard interaction.

Through our embedded channel, we seamlessly integrate our products with our strategic embedded partners, enabling us to offer our products at contextually relevant times.

Customers are able to quickly purchase policies with minimal additional effort or friction.

• Underwriting.

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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.

We are continuing to develop 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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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.

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.

We distribute largely through the mobile, web and embedded channels.

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.

Further, to meet our customers in the marketplace, we are continuing to develop our embedded product that can be integrated with strategic partners.

We believe that through a mobile, web and embedded customer acquisition strategy we can deliver attractive customer acquisition costs while meeting customers in the marketplace.

We build upon the 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 in contextually relevant third-party applications.

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

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

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We build consideration and drive intent through household-level targeted digital media channels such as YouTube and Hulu, as well as more traditional media channels such as billboards, regional TV and radio and direct mail.

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

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

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.

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

We continue to invest 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.

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Capital Management

As a 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-efficient” 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;

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

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

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

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We also utilize a wholly-owned, Cayman Islands-based reinsurer, Root Reinsurance Company, Ltd., or Root Re.

Our Growth Strategy

We are focused on the following growth strategies to continue penetrating the $260 billion U.S.

auto insurance market and ultimately the $3 trillion global P&C market.

Behavioral Data and Proprietary Telematics

While the notion of telematics has been around for decades, only recently has mobile technology made the concept adoptable at large scale.

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.

We are focused on the following strategies to continue penetrating the $273 billion U.S.

auto insurance market.

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

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.

In the longer-term, we plan to continue to develop additional growth opportunities through the expansion of product offerings.

• Execute the Auto Opportunity

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We will never stop working to improve our ability to segment risk by increasing the influence of behavioral factors in our underwriting and pricing models.

Our primary tool for improvement is to continue applying data science to our powerful flywheel, where each rotation sheds incremental light on the causes of accidents.

Our primary tool for improvement is to continue applying data science.

Over time, we hope that we can replace all correlation-related inputs to our pricing model, such as credit scores, with a fully behavioral pricing model.

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

◦ Expand embedded experience.

We will continue to leverage our technology to embed with strategic partners and engage prospective customers at contextually relevant times.

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

◦ Enhance marketing efficiency.

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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 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.

This strategy supports our unit economics by creating additional revenue with no incremental marketing spend.

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

• Insurance Product Expansion

◦ Invest in enterprise .

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

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.

◦ Pursue International .

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 and partnerships to accelerate any of our growth and profitability objectives or to improve our competitive positioning within existing and new products.

We may selectively pursue additional investments, 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.

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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.

As of December 31, 2022, we had five issued patents with four non-provisional patent applications and four continuation applications pending examination in the United States.

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

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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.

As a tech-enabled insurance company, we view talent as one of our differentiating factors.

We believe our employees’ knowledge, skills, and the way they work provide a competitive advantage allowing us to innovate, move with speed and bring subject matter expertise to 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.

These values form the basis of 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 of the employee lifecycle.

During the past two years, we have made fundamental changes because of the COVID-19 pandemic.

This includes moving to a “work where it works best” working environment whereby we allow 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.

As of December 31, 2022, we had 765 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.

In the first quarter of 2022, in response to inflation and loss cost trends and to further drive efficiency and increased focus on our strategic priorities we instituted an organizational realignment, including an involuntary workforce reduction affecting approximately 330 employees, which represented approximately 20% of our workforce at the time.

Most of the reduction was driven by optimizing certain sales and claims departments.

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.

In addition, in the fourth quarter of 2022, we initiated a company-wide involuntary workforce reduction of approximately 160 employees, which represented approximately 20% of our workforce at the time.

The majority of the impacted employees were notified on November 9, 2022.

The action was taken as part of our efforts to improve efficiency and operating costs, and prioritize resources to further strengthen our pricing and underwriting foundation and the continued development of our embedded products.

We believe this action will help extend our capital runway.

All the impacted employees from restructuring activities during the year were supported with financial and career placement assistance.

We have not experienced any work stoppages throughout the year.

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.

Our board of directors 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.

Ethics and Company Values

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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.

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

We strive to ensure our new employees know how and what to report.

We have an open-door policy that allows employees to reach out to leaders, our People team, our Legal team and/or Compliance/Internal Audit teams to ensure that their concerns are communicated and addressed.

Hiring and Retaining Talent

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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.

We have implemented a performance development process to ensure that employees receive timely and actionable feedback and can improve their performance and voice their career aspirations.

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

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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

We are subject to insurance regulation in the jurisdictions in which we transact insurance through our licensed insurance carriers and producer subsidiaries.

We are subject to insurance regulation in the jurisdictions in which we transact insurance through our licensed insurance carriers and producer subsidiaries in the United States.

Insurance regulatory authorities have broad administrative powers to regulate all aspects of an insurance carrier or producer’s business, including the powers to restrict or revoke licenses to transact business, and to levy fines and monetary penalties against insurers and insurance producers found to be in violation of applicable laws and regulations.

Regulations to which our licensed insurance carriers and producer subsidiaries are subject include, but are not limited to:

• prior approval of transactions resulting in a change of “control” (as such term is defined under the Insurance Holding Company System Regulatory Act of Ohio, or the Ohio Holding Company Act, and the Delaware Insurance Holding Company System Registration Act, or the Delaware Holding Company Act, and together with the Ohio Holding Company Act, the Holding Company Acts);

• prior approval of transactions resulting in a change of “control” (as such term is defined under the Insurance Holding Company System Regulatory Act of Ohio, or the Ohio Holding Company Act, and the Delaware Insurance Holding Company System Registration Act, and together with the Ohio Holding Company Act, the Holding Company Acts);

• approval of policy forms and premiums;

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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., or Root Re, domiciled in the Cayman Islands.

We have a reinsurance captive subsidiary, 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 Insurance Agency, LLC currently holds a resident insurance producer license in Ohio and a non-resident license in 44 states and the District of Columbia, which excludes California, Florida, Massachusetts, Minnesota 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.

Root Scout, LLC currently holds a resident insurance producer license in Ohio and a non-resident license in 46 states and the District of Columbia, which excludes Alabama, Hawaii, and Minnesota.

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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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.

filed its first ORSA summary report with the Ohio DOI on December 30, 2021 and its second ORSA summary report with the Ohio DOI on December 30, 2022.

Restrictions on Paying Dividends

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In accordance with NAIC’s property and casualty statement instructions, they must submit an annual Statement of Actuarial Opinion from a qualified actuary appointed by the Company, certifying that its reserves are reasonable.

Risk-Based Capital

Risk-Based Capital and Group Capital

Our domestic insurance subsidiaries are required to maintain minimum levels of risk-based capital to support their overall business operations and minimize the risk of insolvency.

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As of December 31, 2022, 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.

In addition, the NAIC has developed a group capital calculation covering all entities in our insurance company group for us in solvency monitoring activities.

The group capital calculation provides regulators with an additional analytical tool for conducting supervisory activities.

As of December 31, 2022, Ohio adopted the model legislation, which will become effective June 1, 2025 for those insurance holding company systems that do not write business outside the United States, like us.

Hazardous Financial Conditions

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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.

For example, Root Insurance Company is Ohio-domiciled and subject to a financial condition examination by the Ohio DOI at least every three to 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.

February 2, 2022.

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

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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 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.

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

The Virginia examination is expected to conclude in the first half of 2023.

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.

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

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.

Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, 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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From time to time, the personal lines insurance industry comes under pressure from state regulators, legislators, and special-interest groups to reduce, freeze, or set rates at levels that do not correspond with our analysis of underlying costs and expenses.

In particular, auto insurers have come under increasing pressure and in some states have been required to refund a portion of their premium to their policyholders due to decreasing auto claims arising from the COVID-19 pandemic.

Whether this pressure continues to exist depends on the persistence of COVID-19 generally.

In particular, auto insurers have come under increasing pressure because of inflation and other macroeconomic factors.

Whether this pressure continues to exist depends on the macroeconomic environment.

State regulators may interpret existing law or rely on future legislation or regulations to impose new restrictions that adversely affect profitability or growth.

We cannot predict with precision the impact on our business of possible future legislative and regulatory measures regarding insurance rates.

In addition, insurers are restricted in their ability to use telematics-based data to set premium rates in California.

Proposition 103, which was passed by referendum in 1988, limits the factors that insurers can use to set auto insurance rates to, in decreasing order of importance:

(i) the insured’s driving safety record;

(ii) the number of miles he or she drives annually;

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

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 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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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.

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.

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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, and the California Privacy Rights Act, or CPRA, which will become effective January 1, 2023.

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 took effect on 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.

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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.

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, Risk and Finance committee of our board of directors at each of its meetings.

Our incident response team, headed by our general counsel, reports material information security incidents to our executive officers, who in turn report them to our board of directors.

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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.

General information about Root, Inc., including our Corporate Governance Guidelines and our Code of Business Conduct 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 Conduct 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.

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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.

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