What changed in this filing

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Item 1. Business

2024-02-21 compared with 2023-02-22 · 144 added, 128 removed, 290 unchanged (48% of the section changed)

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

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

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

We are also focused on expanding our partnership channel, where we acquire customers using various means, including through embedded integrations.

Our primary focus is on the U.S.

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Fairness at the individual level has been largely ignored.

Root is different—we use technology to measure risk based on individual performance, prioritizing fairness to the customer.

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.

We believe the $273 billion U.S.

Root is different—we use technology to measure risk based on individual driving performance, prioritizing fairness to the customer.

We believe the more than $300 billion U.S.

auto insurance market is ripe for disruption.

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We believe Root is the innovator to drive this transformation.

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.

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.

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.

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.

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.

The Root advantage is derived from our technology-enabled approach to the customer lifecycle.

We engage with customers at a point of high intent across various channels, offer a product with significant ease of use and utilize data science to fairly price our policies.

As a full-stack insurance carrier, we have the infrastructure and flexibility to design products and distribute, underwrite, administer and pay claims.

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.

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

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.

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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.

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 .

As a young insurance company, our results are disproportionately weighed toward new customers.

Our data- and technology-driven approach allows for rapid response to macroeconomic trends through quick, appropriate rate actions.

This, paired with our ability to continually enhance underwriting and segmentation capabilities has contributed to improvement in our gross loss ratios.

Over time 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 with lower 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.

Our primary addressable market today is U.S.

personal lines insurance.

personal lines

This market exceeded $428 billion in 2022 premiums and has grown at a 4% compound annual growth rate, or CAGR, since 2016.

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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.

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

Also impacting the pace of innovation is institutional friction generated by the cost and perceived risk of a requisite ground-up technology rebuild, disruption of carrier-agent relationships and the business model implications of replacing broad pool-based pricing.

Our proprietary technology and business model allow us to avoid these pain points and aggressively pursue the opportunity to be at the forefront of this structural shift.

Our proprietary technology and business model enable us to bypass these challenges.

Our Business Model

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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.

This is the mantra that drives our user experience and our business model.

App installation and initial engagement are designed to be intuitive so that customers can easily identify the coverage they need.

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

• Engagement.

Many of our new customers come through our digital or embedded channels, which are largely mobile.

Many of our new customers come through our two distribution channels:

direct and partnerships.

We continue to diversify the ways we reach our customers.

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

We believe meeting customers in the moment of need creates better customer engagement and access to a differentiated customer base.

• Profile Creation.

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smartphone users.

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.

By simply scanning a driver’s license, a prospective customer can nearly complete a profile, part of an on-boarding process that takes mere minutes and minimal keyboard interaction.

• 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 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.

While telematics is core to our value proposition, some of our customers have an immediate insurance need, and as such, we are able to utilize traditional underwriting variables at policy origination, when needed.

With this approach, we are able to leverage both traditional underwriting variables and the power of our proprietary telematics platform to offer the best price to our best customers.

As more data is collected, the predictive power of our telematics scores increases, allowing for further segmentation advances.

For this reason, we view telematics as a better and more fair approach to 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, web and embedded channels.

We opportunistically distribute largely through the mobile, web and partnership 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.

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.

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.

To further differentiate access to our products we are continuing to develop our partnership channel.

The partnership channel emphasizes ease of use and minimal separation between intent and bind while leveraging the platforms of our strategic partners.

We believe that through a diverse and opportunistic customer acquisition strategy we can meet customers at a high point of intent.

seamless experiences driven by performance marketing and organic traffic connecting consumers directly to the product.

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

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

We deploy dynamic data science models to optimize targeting and bidding strategies across our digital platforms, aligning customer acquisition cost to expected lifetime value of the potential customer.

• Channel Media.

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 in new markets and to actively target customers in active states.

We encourage our existing customers to spread our value proposition.

Our referral channel compensates existing customers who refer new customers who subsequently receive a quote.

Our referral channel compensates existing customers who refer new customers who subsequently complete a test drive.

This channel facilitates community-based growth to those who value our fair and transparent approach to insurance.

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

◦ Channel Media .

We build consideration and drive intent through household-level targeted media channels including direct mail, billboards, and regional TV and radio.

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

• Partnerships:

a wide array of integrations, spanning early-stage marketing partnerships through fully embedded user experiences .

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

With varying levels of connectivity, including our proprietary and fully-integrated application programming interfaces, or APIs, we are able to engage high intent prospective customers in contextually relevant third-party applications.

While these partnerships take time to onboard and launch, over the long term, we believe our flexible technology stack offers a seamless bind experience, creating a differentiated customer experience in this channel.

We expect increased penetration of this channel over time as we seek to grow embedded relationships with other technology companies with relevant customer bases.

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.

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.

We developed an efficient quote and bind process through our agent platform that enables simplified distribution from agents to their customers.

The technology driven approach makes this an appealing platform for agents and 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.

We believe our distribution channels allow us to efficiently acquire customers in a contextually relevant, data-centric way.

Our marketing spend is grounded in a disciplined data-science approach, targeting customers that align with our lifetime expected returns.

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 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:

As a full-stack insurance company, we operate a “capital-efficient” business model which utilizes a variety of reinsurance structures.

These include excess of loss and quota share reinsurance.

Excess of loss provides us with volatility protection against a portion of large individual losses or an aggregation of losses from catastrophes.

Quota share provides, among other advantages, regulatory surplus relief for growing companies.

These reinsurance structures deliver three core objectives:

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

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

Together these strategies serve to maximize returns on shareholder capital as we grow.

Together these strategies serve to maximize efficient use of capital as we grow.

Reinsurance is a cornerstone of our capital management framework.

We have multiple strategic business partnerships with leading global reinsurers who offer us reinsurance solutions on both a proportional (i.e., quota share) and non-proportional (i.e., excess of loss, or XOL, coverage) basis for multi-year periods.

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

Behavioral Data and Proprietary Telematics

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

We also have multiple strategic business partnerships with leading global reinsurers who offer us reinsurance solutions.

Behavioral Data and Proprietary Telematics Models

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.

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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.

Our model revolves around using integrated data and technology to create a pricing advantage through segmentation and has allowed us to respond quickly to macroeconomic trends.

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.

This data advantage, combined with the machine learning approach to core elements of our technology stack, allows us to quickly identify loss trends and reflect this information faster in our rate filings.

The resulting segmentation benefit allows for a better risk profile of our book over time, while delivering consistent value to our customers.

We are focused on the following strategies to continue penetrating the more than $300 billion U.S.

auto insurance market.

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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.

Over time, we hope that we can replace most 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.

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.

We will continue to enhance the efficiency of our marketing spend through data science and dynamic bidding and targeting strategies.

◦ Expand partnership experience.

We plan to continue to leverage our technology to embed with strategic partners.

Integrating our auto insurance solutions into partner platforms allows us to engage prospective customers at contextually relevant times.

These arrangements involve varying degrees of integration, including our fully integrated embedded product utilized with some partners, such as Carvana.

Over time, we expect increased penetration of this channel as we seek to partner across automotive, financial services and additional affinity channels, offering access to additional customer bases.

◦ Grow national auto insurance presence.

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

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

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.

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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.

Treasury securities, corporate debt securities, mortgage-backed securities, municipal securities and other debt obligations.

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

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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.

In particular, many of these competitors offer consumers the ability to purchase multiple other types of insurance coverage and “bundle” them together into one policy and, in certain circumstances, include an umbrella liability policy for additional coverage at competitive prices.

In particular, many of these competitors offer consumers the ability to purchase multiple other lines of insurance coverage and “bundle” them together into one policy and, in certain circumstances, include an umbrella liability policy for additional coverage at competitive prices.

Moreover, as we expand into new lines of business and offer additional products, we could face intense competition from traditional insurance companies that are already established in such markets.

Competition is based on many factors, including the reputation and experience of the insurer, coverages offered, pricing and other terms and conditions, customer service, size, and financial strength ratings, among other considerations.

We believe we compete favorably across many of these factors and have developed a platform and business model based on behavioral data collection and machine learning that we believe will be difficult for incumbent insurance providers to emulate.

We believe that we compete favorably across many of these factors and have developed a platform and business model based on behavioral data collection and machine learning that will be difficult for incumbent insurance providers to emulate.

Intellectual Property

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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 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, 2022, we had five issued patents with four non-provisional patent applications and four continuation 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, 2023, we had eight issued patents, six 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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Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged.

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.”

People at Root

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.

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.

For additional information, see the section 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 a technology company, we view talent as one of our differentiating factors.

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

Our mission is to fundamentally reinvent insurance through a commitment to technology and data science.

We aim to empower better lives through better insurance.

Our team members achieve this mission with a focus on customer value, experimentation and invention, disciplined thinking, and operational excellence.

These four principles form the basis of our management approach and performance review model, ensuring clear expectations, meaningful mentorship and powerful growth.

We strive to create an empowering work environment and experience for each of our team members.

We understand that a team with diverse backgrounds and perspectives delivers better insights and outcomes, enables innovation, and fosters a greater understanding of our customers.

Our efforts to create a diverse and inclusive workspace, particularly in the tech sector, are focused on talent acquisition and development, education and training, feedback and collaboration, and strategic planning aimed at consistent growth.

As of December 31, 2023, we had 680 full-time employees.

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

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.

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.

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

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.

In 2023, we focused on retaining the talent required to execute our plan, improving our operating efficiency and operating costs, prioritizing our resources to further strengthen our pricing and underwriting foundation and continuing development and distribution of our insurance products.

Ethics and Company Values

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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.

We have an open-door policy that allows employees to reach out to leaders, our People team, our Legal team, our Compliance team and/or Internal Audit teams to ensure that their concerns are communicated 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 recruit nationally to attract the best talent to innovate and meet the needs of our customers in a multitude of ways.

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

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.

Our performance development process aims to ensure that employees receive timely and actionable feedback, enables performance improvement where necessary, and providing employees the opportunity to voice their career aspirations.

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 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.

We have set salary ranges, based on our defined competitive markets, and our annual short-term incentive and discretionary long-term incentive programs are 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.

We believe this strongly supports a long-term view and pay for performance that is aligned with our shareholders.

Our benefit offering includes 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.

Insurance Regulation

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.

Insurance regulatory authorities have broad authority 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, 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);

• approval of policy forms and premiums;

• approval of intercompany service agreements;

• approval of intercompany agreements;

• statutory and risk-based capital solvency requirements, including the minimum capital and surplus our regulated insurance subsidiaries must maintain;

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Unless the context otherwise requires, references herein to “state” include any of the 50 states, the District of Columbia and certain U.S.

These rules are subject to change as state legislatures and regulatory agencies update their laws and regulations to address real and perceived issues and concerns.

These laws and regulations are subject to change as state legislatures and regulatory agencies update their authority to address real and perceived issues and concerns.

These laws and regulations are also subject to interpretation by courts.

The National Association of Insurance Commissioners, or NAIC, and the National Council of Insurance Legislators, or NCOIL, are the principal organizations tasked with establishing standards and best practices across the various states, the District of Columbia and five U.S.

The National Association of Insurance Commissioners, or NAIC, and the National Council of Insurance Legislators, are the principal organizations tasked with establishing standards and best practices across the various states, the District of Columbia and five U.S.

territories, and from time to time promulgate model rules and regulations that often are the basis for insurance rules and regulations adopted by such jurisdictions.

We cannot predict precisely whether or when regulatory actions may be taken that could adversely affect us or the operations of our regulated insurance subsidiaries.

Interpretations of regulations by regulators may change and statutes, regulations and interpretations may be applied with retroactive effect, particularly in areas such as accounting or reserve requirements.

While we currently operate in 34 states, we would need to obtain regulatory approval, including with respect to the regulations described above, before offering our products in new markets.

We cannot predict precisely whether or when regulatory actions may be taken that could adversely affect us, the operations of our regulated insurance subsidiaries, or our ability to expand our operations into new markets.

Interpretations by regulators may change and laws, regulations and interpretations may be applied with retroactive effect, particularly in areas such as accounting or reserve requirements.

Required Licensing

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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.

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 Re, domiciled in the Cayman Islands.

Root Property & Casualty is also domiciled in Ohio and licensed in all 50 states and the District of Columbia to transact certain lines of property and casualty insurance.

Ohio is our primary state insurance regulator.

We also 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 44 states and the District of Columbia, which excludes California, Florida, Massachusetts, Minnesota and New York.

Root Insurance Agency, LLC currently holds a resident insurance producer license in Ohio and a non-resident license in the District of Columbia and 45 states, which does not include 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 46 states and the District of Columbia, which excludes Alabama, Hawaii, and Minnesota.

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

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.

In addition, we must obtain additional regulatory approvals before offering our products in markets where we do not currently operate.

Licensing of Our Employees

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Insurance Holding Company Regulation

As the ultimate controlling person in the “insurance holding company system” under the Holding Company Acts, we are required to file annual enterprise risk reports, corporate governance disclosures and own risk solvency assessments with our domiciliary regulators.

As the ultimate controlling person in the “insurance holding company system” under the Ohio Holding Company Act, we are required to file annual enterprise risk reports, corporate governance disclosures and own risk solvency assessments with our domiciliary regulators.

Moreover, in Ohio for example, any person divesting control of an insurer must provide 30 days’ notice to the regulator and the insurer.

Under the Holding Company Acts, all inter-affiliate transactions within a holding company system must meet the following conditions:

Under the Ohio Holding Company Act, all inter-affiliate transactions within a holding company system must meet the following conditions:

(i) the terms must be fair and reasonable;

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Change of Control

Pursuant to the Holding Company Acts, a person must seek regulatory approval from the superintendent of the supervisory DOI prior to acquiring direct or indirect “control” of a domestic insurer by filing a Form A Statement Regarding the Acquisition of Control of or Merger with a Domestic Insurer.

Pursuant to the Ohio Holding Company Act, a person must seek regulatory approval from the superintendent of the supervisory DOI prior to acquiring direct or indirect “control” of a domestic insurer by filing a Form A Statement Regarding the Acquisition of Control of or Merger with a Domestic Insurer.

As part of this Form A application, the entity acquiring control (as well as any controlling shareholders of such entity) will need to submit, along with other documents and disclosures, its financial statements, organizational charts and biographical affidavits for any officers, directors and controlling shareholders of each applicable entity.

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or (vi) the acquisition is likely to be hazardous or prejudicial to the insurance-buying public.

The Holding Company Acts provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of the domestic insurer.

The Ohio Holding Company Act provides that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of the domestic insurer.

A person may rebut this statutory presumption of control by submitting a disclaimer of affiliation with the supervisory DOI, disclosing all material relationships and bases for affiliation between the person and the insurer as well as the basis for disclaiming such affiliation.

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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.”

titled “Risk Factors—Risks Related to 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.

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

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

Restrictions on Paying Dividends

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In addition, insurance regulators have broad powers to prevent a reduction of statutory surplus to inadequate levels, and there is no assurance that dividends of the maximum amount calculated under any applicable formula would be permitted.

The Ohio DOI and the Delaware DOI may in the future adopt statutory provisions more restrictive than those currently in effect.

The Ohio DOI may in the future adopt statutory provisions more restrictive than those currently in effect.

Our domestic insurance subsidiaries are required to hold admitted assets as reserves to cover projected losses under its policies, in accordance with actuarial principles.

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As the ratio of an insurer’s total adjusted capital and surplus decreases relative to its risk-based capital, the risk-based capital laws provide for increasing levels of regulatory scrutiny and intervention.

Both Ohio and Delaware have adopted the model legislation promulgated by the NAIC pertaining to risk-based capital and require annual reporting by insurers domiciled within such states to confirm that the insurer is meeting its risk-based capital requirements.

Ohio has adopted the model legislation promulgated by the NAIC pertaining to risk-based capital and requires annual reporting by insurers to confirm that the insurers are meeting their risk-based capital requirements.

Insurers falling below a risk-based capital threshold may be subject to varying degrees of regulatory action.

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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 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 and Root Property & Casualty are domiciled in Ohio 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.

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

Root Property & Casualty, which was redomiciled to Ohio in 2023, was initially a Delaware-domiciled insurer, and 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 contain no formal findings.

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

Currently, Root Insurance Company and Root Property & Casualty are undergoing a financial condition examination led by the Ohio DOI.

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

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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 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.

As of December 31, 2023, Root Insurance Company is undergoing market conduct examinations conducted by the Maryland Insurance Administration and the Colorado Division of Insurance, with a market conduct examination conducted by the California Department of Insurance having recently begun in 2024 and a market conduct examination conducted by the Pennsylvania Insurance Department tentatively scheduled to begin in early 2024.

The Virginia Bureau of Insurance examination of Root concluded in 2023, and in addition to requiring the company to undertake remedial action, the Bureau fined the company for various market conduct violations for an immaterial amount.

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 typically every three to five years.

To date no inspection has occurred.

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Investment Regulation

Root Insurance Company is subject to Ohio’s rules and regulations governing the investment of its assets.

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

Root Insurance Company and Root Property & Casualty are subject to Ohio’s rules and regulations governing the investment of its assets.

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

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Under the insurance laws of most states, there is a limited exception to this prohibition on commission sharing for the payment of referral fees to unlicensed persons, provided that the fee is a flat fee that is not contingent on the purchase of insurance and the referral does not involve the discussion of the terms or conditions of the policy.

Data Privacy and Cybersecurity

The use of non-public personal information in the insurance industry is subject to regulation under the privacy provisions of the Gramm-Leach Bliley Act and the NAIC Insurance Information and Privacy Act, as adopted and implemented by the various state legislatures and insurance regulators, including through the California Financial Information Privacy Act.

Pursuant to these laws and regulations, among other things, an insurance carrier or producer must disclose its privacy policies to all of its applicants and policyholders and must also provide either an opt-in or opt-out, depending on the state, to the sharing of non-public personal information with unaffiliated third parties.

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 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.

Under these rules and regulations, insurance companies and producers must also establish a program of administrative, technical, and physical safeguards designed to address the security and confidentiality of customer information, protect against 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.

Certain collection and processing of personal information makes us 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 certain 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.

Cybersecurity

Additionally, in response to the growing threat of cyber-attacks in the insurance industry, certain jurisdictions have begun to consider and adopt new cybersecurity regulations.

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.

In addition, we are subject to multiple state requirements pertaining to how insurers handle their customers’ non-public personal information.

For example, similar to California, Virginia provides that their residents have, with respect to certain of their personal data, the right to access their personal data, request corrections or deletions, or make amendments.

Virginia law further requires us to notify their residents, which we do through our privacy policy, that personal information may be obtained from persons other than the individual customer, and that this information, as well as other personal information, may be disclosed to third parties without their consent.

Moreover, we must notify these individuals that their financial information may be disclosed to affiliates and non-affiliates as permitted by law.

We also, in a similar manner, provide residents of Montana notice that their state allows its residents to request a record of any disclosures of their medical information during the preceding three years and notice of information collected by our websites, including social media pages we control and through applications and software applications Root makes available for customers’ use.

In addition to these states, Nevada provides its residents with the right to request a website operator not to sell their information.

Further, in response to the growing threat of cyber-attacks in the insurance industry, several jurisdictions have adopted, or have begun to consider adopting, cybersecurity regulations that establish requirements and standards for safeguarding non-public personal information, including the New York Department of Financial Services.

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

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, 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.

Additional state laws impose notification requirements in the event of cybersecurity breaches affecting their residents.

Root takes steps to comply with applicable cybersecurity regulations, but the patchwork nature of the laws in this area currently can make it more costly and difficult to ensure compliance.

Federal Regulation

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What changed 10-K

Item 1. Business