(Editor’s Note: A previous version of this article referred to insurtech firm Lemonade as “Lemon”. Sorry!)
Today’s a big day for insurtech (AKA “insurance tech”), which ranks with “Brangelina” as one of the least likable portmanteaus out there.
Root — an auto insurer that has raised $500m+ — is slated for an IPO at a valuation of $6B+.
It’s the 2nd big insurtech IPO of 2020 (Lemonade went public in July) and shines a light on what the future of insurance might look like.
In his analysis of Root, finance writer Marc Rubinstein highlights that the insurance industry rests on 2 pillars:
Root’s S-1 filing essentially says that this mode of insurance is unfair to good drivers that have to pay high premiums to cover riskier customers.
The way the company delivers this service is equally simple. A user downloads the Root app, which tracks 200 factors including:
The insurer crunches these numbers and can offer relatively cheaper policies for those who drive like Miss Daisy.
Per Rubinstein, this personalized pricing is indeed “fairer, as Root highlights… [and] can influence behavior positively.”
Quoting the book Weapons of Math Destruction, Rubinstein shows how potentially damaging Root’s insurance model can be.
Instead of balancing society’s risks, personalized pricing can “pinpoint those who appear the riskiest customers and then either drive their rates to the stratosphere or, where legal, deny them coverage.”
If companies like Lemonade and Root are indeed the future of insurtech, we’ll have much more complex issues to deal with than an unappealing portmanteau.