Root, Inc. (ROOT) Earnings Call Transcript & Summary

Great. Hey, everybody. Thanks for being here with us today. I'm Nick Jones, the SMID Internet analyst here at Citi. If you need my disclosures, I believe they're below the window you're looking at. If they're not, e-mail me, I can send those to your house or have someone send them to you. We're really excited to have Root with us today. We have CEO, Alex Timm; and CFO, Dan Rosenthal, with us. I guess to kick it off, Alex, can you give -- for those who are new to the name, you recently IPO-ed, can you give a quick overview of Root and what your approach is to the auto insurance industry?

Yes, absolutely. Thank you, Nick, and thanks, everybody, for joining. I'm Alex Timm. I'm the Co-Founder and CEO of Root Insurance. And Root, what we are is we are really a technology-first auto insurance company. And what we do is we build basically mobile technology that meets consumers where they are, which is on the mobile phone, to better sell them insurance. And by doing business that way, we're able to actually use all of the really rich data off of the phone to build highly personalized and customized insurance products. So a consumer downloads our app. They scan their driver's license. From there, they basically drive around for a period of 2 to 4 weeks. If you're a good driver, we offer you a great quote. If you're not, then we tell you GEICO or Progressive might be better for you. And then at the end of that process, we can -- everything is handled in the app. So we are a full stack insurance carrier, really based on technology and modern data science.

Great, great. So I guess, let's touch on the mobile-first experience, leveraging a very easy-to-use consumer-focused mobile app. Can you touch on why this approach is more attractive than kind of a legacy approach where the incumbents, they were using agents?

Yes, absolutely. When you think about agencies, and I've never heard somebody say, "I'm excited to go in and talk to my insurance agent," right? It doesn't really happen. People -- I think there was, what, in Groundhog Day, the Ned Ryerson right, the annoying guy in the movie for those who have it seen it, right? What's his job? Well, he's an insurance agent, right? So they're not really a loved bunch, right? And why is that? Well, it's incredibly -- and when you look at the traditional solutions in the space right now, it's actually incredibly onerous for consumers to purchase insurance. They don't really know what they're buying. The products themselves aren't very transparent. They really don't even understand why they're paying what they're paying. There's this miss out there. Well, if I buy a red car or I buy, is my insurance going to be more expensive? So you have no idea really what they're buying. If they have to go into an agent, that's pretty old-school or I have to go online where it could take me up to 15 minutes just to purchase a product that, by the way, I don't really want to purchase. And so the consumer experience in this space is really horrible. When you talk to consumers and you ask them to describe car insurance, words like rip-off usually are the first things that come to mind. And it's a very old industry. The competitors that we're going up against, a lot of them are over 100 years old. And so that creates a lot of difficulty in actually creating new consumer experiences that meet consumers, again, where they are, which is on that mobile phone, creating an experience that's super slick and easy for consumers to understand that isn't a hassle, that still gives them confidence. That's huge. And then the other thing though is it doesn't just allow for that. We're also able then to use all of that behavioral data off of your phone, right? It's kind of crazy. All of these consumers are now walking around basically with supercomputers in their pocket. And what that does is it allows us to use all of this behavioral data. Are you texting and driving? Are you speeding? Are you tailgating? What are you actually doing in that vehicle? And we can get much better -- we basically can build a much better underwriting product than really any of our competitors, and that helps the consumer because it means that they get, one, a price that's more fair that they control. Good behaviors lead to good pricing. And two, a price that, on average, is going to be lower. If you're a good driver and you're doing the right things, then you also can save money. And so we believe you can build a much better experience via technology for consumers. And then by doing that, you actually even can leverage data that really allows you to even further differentiate. And so consumers get a better experience at a better price.

Great. Maybe kind of double-clicking on telematics specifically. Can you dive a little bit deeper into Root's data advantage and really what the differentiation is within telematics? How -- I guess, can you expand a little bit more on how this tech is used in determining individual premium? And how does the data improve over time? I guess ostensibly, as you get more data, your algos improve.

Yes, absolutely. So we actually use the mobile phone to collect all of our data. And that means -- and that's an incredibly complicated process because there's lots of different sensors on the phone that you have to talk to, an accelerometer, a magnetometer or GPS. And when you look at all of this data off the phone, it's incredibly noisy, right? I have to figure out, is this person a driver or a passenger in a given trip? I have to figure out what does the trip look like if the phone is in a person on the seat next to me? What does it look like if I'm on an Android phone versus an Apple phone? All of those things are incredibly complex. And so understanding and collecting that data and figuring out what are the actual physical events, underlying physical events that are occurring in that vehicle is incredibly difficult. And that's really where you need a lot of machine learning algorithms in order to actually understand what's going on. So we ping all of these devices on the phone. There's 4 major devices that we ping. We ping them multiple times a second, and then we filter that through pretty advanced machine learning algorithms that then let us know, "Hey, we think this is what was actually going on in that vehicle." And then what we do is we take those indications and we say, "Well, what does that mean in terms of price?" Does somebody who -- how bad is texting and driving, for instance? How bad is hard braking? What does that mean in terms of the probability that you're going to go get into an auto insurance asset. What we found is that this data is far more predictive than what the industry is using. If you have a clean record right now, the #1 variable really driving your rate between different companies is going to be your credit score. So it's not so surprising, right? Obviously, a bad credit score isn't actually going to cause accidents, right? So it's not so surprising to just measure how somebody actually behaves behind the wheel, that we can do a lot better. And the other thing that's very interesting is it's also much more complex, which means you can now actually start to compete based on the predictiveness of your algorithm. And as you alluded to, as we've collected more and more data over the years and continue to fine-tune our algorithms, what we've seen is that this becomes much more predictive. And we don't really know how predictive it can ultimately be. But I will tell you we're nowhere close to sort of the [ asset ] that we're about to ship a new version of our model. And we're seeing material, we're talking material improvements to -- from version to version. So as we collect more and more data, we get better and better at pricing, and that really is this nice virtual flywheel within the company.

Great. That's really helpful. Maybe a follow-up on telematics and then within the competitive landscape. So a lot of the incumbents have some kind of telematics presence. Can you talk about what the difference is between maybe what they're utilizing it for on a small portion of their business versus how Root utilizes across all of their business? And I guess how does that create either a competitive advantage or a differentiation?

Yes, absolutely. So the first thing to note is when you look at the telematics landscape in the industry, almost all of the data that has been collected to date is data based on -- they're called OBD-II devices or dongle devices. And these are little things you plug in under your steering wheel. You drive around for 6 months, you pull them back out, you put it back into the box and you ship it back to your insurance company after your 6-month policy is up, all in the hopes of getting a discount on your renewal. And that data is very, very different. It's very predictable. You basically just get basically wheel rotation off the vehicle. So it's very simple. The other thing though is that, that's a very difficult and onerous process for the consumer to go through. You have to now ship them this device, they don't know where to plug it in. Half the time, even when you do plug it in, it doesn't actually connect appropriately to the vehicle. So it's pretty hard. The other thing that I -- though, is when you look at the mobile solutions, most of our competitors -- almost all of our competitors have actually just outsourced this technology. And there's a big disadvantage to that. Because when you outsource this technology, now suddenly, I've sort of split apart my ability to predict claims. Because now if I don't have the data, the ability to collect the data in-house and the claims data in-house, it makes it very difficult to actually create a very predictive algorithm. And so we really aren't seeing any competitors come at this and do this fully in-house and fully integrated across their entire business. And what that means is that their algorithms, just quite frankly, aren't anywhere close to as powerful as what we've been able to develop. And again, it's core -- it's also a strategic principle, right? This is core to our business. This is what we built the business off of. And that's why we really strive to get this across our entire book of business versus just an interesting marketing bell or whistle that we might want to talk about in commercials. And so it's a very different approach that we've taken.

Great. Now that's really helpful. Thanks for diving into that. Maybe taking a step back and just looking at the auto insurance market as a whole. I think the personal auto market has around $250 billion in premiums up for grabs. How much of that is available? How much of that is in your wheelhouse, given Root's aversion to the worst drivers? And then maybe you could expand a little bit on how you -- I guess, the reasoning or rationale behind avoiding those worst drivers?

Yes. So the interesting thing is you talk to people and most people think they're better-than-average drivers, right? But the crazy thing is they're right. Because the worst drivers are so much worse than average. And by background, I'm an actuary. Most of these actuarial rating variables when you look at them, the really bad risks, they're causing most of the accidents. And so by getting rid of just the worst 10% to 15% of folks, you can underwrite out over 50% of all the losses. And so you can still target the vast majority of the population. We're talking well over 80% of that $250 billion market you mentioned are still actually subsidizing the very bad apples in that worst 10% to 15%. And we're actually the only company right now in the country that is adequately surcharging those drivers. The maximum surcharge of our competitors is roughly 20%, and that happens on renewal, right, when in fact, those bad drivers should really get a surcharge of like 300% or even more. And so by not insuring those folks and staying away from those folks, we can actually afford to discount the good drivers more so than anybody else because no one's actually charging the bad drivers the rates that they deserve. And then that allows us to compete and actually have a better price for those good drivers.

Great. So maybe then still kind of thinking about the addressable market and Root's ability to gain market share. The top 10 auto insurers, I think, at a slow pace have been kind of continue to gain market share over the last decade. So how should investors and we be thinking about Root's ability to approach the top 20, the top 10? After making great gains, you're still not quite at that top 20 or top 10 level.

Yes, absolutely. We're still a young company for sure. We're only in 30 states. We just purchased a 50-state [ shell ] and so you'll see us continuing to launch in new states throughout 2020 which -- or 2021, which you'll see will materially improve growth. And we're very focused on growth, and we believe that we haven't come anywhere close to the full potential. And we do believe that there's going to be a large market share shift to more direct competitors and carriers to those that actually can meet consumers in a digitally native sense and build product for consumers that they really love. And so we don't believe we're anywhere close to the full potential. We fully believe -- it's interesting because when tech companies enter into space and you ask how much market share they can get, often, you can look at Amazon as an example in retail, right? They don't take 10% or 20% market share, right? You see oftentimes tech companies can take 50%, 75% market share. And there's a reason for that because technology really allows folks to build a better mousetrap effectively. And so I'm not seeing any sort of ceiling on to our growth.

Great. So maybe switching gears a little bit to the competitive landscape. So the incumbents, the top 10s, they're very well capitalized. They see significant profits. How should we be thinking about the threat of these incumbents trying to replicate Root's technology? I guess what is the threat of that? And what are the modes that Root has?

Yes, absolutely. So the first thing is all of these competitors, although they're all giant companies, they're really not all created equal by any stretch of the imagination. Over the past decade, you've seen about a $50 billion market share shift from the agency channel into the direct channel. And what that's resulted in is really GEICO and Progressive growing very fast, while everybody else really trying to figure out what the Internet means for their business. And so when you think about our competitors like State Farm, for instance, which is the largest competitor in the space, right, they're still trying to figure out how to do the Internet. And so when you talk about doing a next-generation mobile application that's leveraging modern machine learning, we're talking eons ahead of that. So -- ahead of them. So in terms of those guys really waking up and becoming really innovative companies overnight, I don't think that, that's very likely. Now when you look at GEICO and Progressive and really where they're focused, right now, really where they're focused is on advertising. These guys are advertising machines. They spend billions of dollars on marketing, and that's something we're not going to do and we don't really aim to do. We don't really say we can go and compete against those guys and their billion-dollar marketing spend directly. So instead, we focus on product and we focus on building the best price and experience possible for consumers, and that's really how we want to drive growth at Root. So although some of these competitors -- so I guess we really haven't seen competitors really focus on how do I actually build the best possible consumer technology. And again, that's kind of how we got here, right? And there was such a bad consumer experience in the industry in general. But moreover too, if they woke up and they wanted to do business the way Root does it, it'd be very difficult. There's a reason why they're not surcharging those bad drivers. And the reason is there's a huge innovator's dilemma. If I go in and I try to take 10% to 20% of my book of business and surcharge them 300%, they all leave me. And then I take all the rest of my folks, and I have to reduce the rates on them. I mean I would substantially shrink the size of my business, which could be incredibly disruptive for one of these insurance companies where most of the profit and the market cap of the -- the value of these companies is tied up in the renewal book. So it would be massively disruptive for them even if they were able to actually conquer the technical hurdles that are associated with a product like this.

Great. Maybe just a follow-up on the technology, particularly in incumbents, I guess, to the best of your knowledge. I mean how does the tech stack compare at a legacy company to Root, who I guess is built -- it's vertically integrated, building tech for specific purpose versus companies that have been around much longer, maybe have legacy tech? Is that a meaningful advantage that, I guess, Root is essentially vertically integrated with telematics?

Yes, absolutely. When you look at the tech stacks of most of our competitors, most of them actually have outsourced even just the most basic functionalities like policy billing and policy management to companies like Guidewire, Duck Creek, who are now multibillion-dollar companies just built off the inefficiency inside of the insurance system due to outdated technologies, which means it's very difficult for these guys to move fast and move quickly. You talk to most of the insurance companies, and they're all in these periods of massive integrations of trying to get rid of these legacy mainframe systems. Believe it or not, there's still insurance companies out there hiring COBOL programmers, right? And so that amount of technical depth really is a massive -- it makes it very, very difficult to actually go in and reinvent something and build something like what Root has done. And that's an advantage that we have, both in speed and flexibility. For example, we've built our entire policy management system in-house, all of our claims management systems, all of our tooling is built in-house. And so we're able to do things very, very quickly where every week, we're shipping new product features, we're updating our claims system, and that has resulted and that's just moving much, much faster and really position much, much better for lots of different things in the future. And that is a key -- a huge strategic competitive advantage that I believe tech companies will have in a space that incumbents lost honestly probably at least a decade ago.

Great, great. Now that's helpful. I guess I want to switch gears a little bit. You talked to -- you touched on Progressive and GEICO spending aggressively in advertising. Can you talk about Root's customer acquisition strategy? How is it different? I think some would categorize Root as a digitally native vertical brand, really focused on acquiring people online. I guess can you touch on Root's customer acquisition strategy? And is it more kind of direct response brand advertising? How should we think about how Root wins the customers?

Absolutely. So although we don't necessarily and we still focus on product and our technology primarily, we still believe that having brand recognition in the space is important. And so we do advertise. And where we primarily focus our advertising though is on modern platforms like Facebook or Google or some of the over the top like Hulu, TV networks. And what we can do on those networks is we're able to really understand exactly who we're showing an advertising to. And we're able to use -- we actually have a data scientist that runs most of our marketing programs, actually, because they're able to actually target based on all sorts of demographic data, who we show an ad to. And we can actually optimize for the LTVs then. So we'll basically look at a customer, we'll come up with an estimated LTV of that customer. We figure out what advertisement works best to attract that customer. We'll understand the bid price that we should pay for that customer relative to that LTV. And then we even will create what we -- they basically have a personalized experience within the app. So even once you're in the app then because of what we know about you, you'll actually have a unique experience. You might, for instance, have a longer test drive or shorter test drive because we know exactly what product that you want. And so that's really how we've done it in order to really optimize both the unit economics as well as propel growth.

Great. So I guess looking maybe into 2021 and beyond here. I mean how should we be thinking about Root's plans of maybe increasing brand awareness versus kind of lower funnel advertising to the extent that you can kind of provide color around that?

So we certainly will increase our brand awareness in 2021, and we do believe, again, that brand is meaningful in this space. And we actually see a lot of white space to create brand. When you look at most of our insurance competitors, the brands are very similar. They're very gimmicky, right? We're not going to have a talking gecko, we're not going to have anything like that. And we've actually launched our first -- so we want to build a meaningful brand to current consumers. And what we've really done is we focused on the fairness message, and this shirt actually is part of this. It's the Unapologetic campaign. If you get a chance, you should Google Bubba Wallace and Root Insurance to check out the advertisement. But what we do is we're actually really focused on a fairness message. When you look at insurance and car insurance and the way that it's priced today, it's -- consumers have no control and it's effectively attacked on the poor. You have a lower credit score, you pay a higher rate. You live in the wrong neighborhood, you pay a higher rate. You have the wrong occupation or education, you pay a higher rate. And particularly right now, consumers are kind of sick of consumerism. And so what we're seeing is that through this messaging, we're able to actually differentiate ourselves in a way that's meaningful to the consumer and that ties back to our product. And so you'll see us do some of that. We're doing that right now actually. It's still live through Q1. It also was live in Q4, is really when we started experimenting with that. And you will see us push more into those areas. However, it will never be -- we do believe that the day of just mass media advertising, slamming consumers over the head with car insurance, car insurance, car insurance is kind of over. TV is becoming less and less effective. And so although we will be experimenting in doing this, you won't see us necessarily need to pour hundreds or tens of billions of dollars into those kinds of channels.

Got it. That's helpful. So I guess the question -- if we're talking about customer acquisition, the next question is retention. How does Root's retention differ from incumbents? Is it about in line? How should we be thinking about that over time? And then I guess the second question is, you kind of mentioned now maybe insurance isn't necessarily a sexy product that consumers are excited about. As companies like Root make auto insurance easier, does that potentially increase churn and increase people swapping services?

Yes, that's -- those are great questions. When you think about retention, really, there's a few things. One, when Root -- when we enter into a market, a new market or we enter into a new customer segmentation -- segment that we haven't priced before, we don't have any data. And so we usually get it wrong. And when we get it wrong, we have to change prices. And not so surprisingly, when you change prices on consumers, the #1 reason consumers shop in this space is because of a price change. So not so surprisingly, when you change prices on consumers, you see short-term churn pressures. And that's natural, and it's something that we see. And as sort of the models start to refine in those customer segments or in those new markets that we launch in, you sort of see churn or retention come back up really to the expected industry levels. The other thing that's important to note is, obviously, churn -- or retention gets better as the customer's with you longer, right? A 5-year customer is much more likely to make it to year 6 than a 2-year customer to year 3. And so as the book ages, we're also seeing retention naturally come up. Now on the other aspects though of this is that customer segmentation is also a very big driver of retention as well. And so some customers are more likely to consistently shop whereas some customers are very unlikely to shop. And that's okay. We actually predict that upfront, and we bake that into the pricing. And so for instance, if you're going to stay with Root for a very long period of time, we're okay, probably running a little bit higher of a loss ratio. So that will inevitably have the same LTV to customer acquisition cost for the same ROI on that customer as we do a lower retaining customer. So it's really not -- there's not bad customers, so to speak. You just have to not be surprised. If you know your -- the customer is going to be churnier, you just have to price them and treat them a little differently. In terms of are we going to start to see more people shopping more frequently for car insurance, there, I think the answer is absolutely yes. The long arc of the, we believe, the world kind of points towards the benefit of the consumer. And as you continually add benefits to the consumer, soon, you won't be able to get away with the game that a lot of insurance companies play, which is basically penalizing their most loyal customers, whereby they raise rates 2%, 3% on them every single 6-month period. That game is going to be limited though because you're treating your best customers sort of the worst. And we don't believe that that's long-term tenable. And as basically shopping for insurance becomes easier, we do believe that, that will promote more fairness and will actually demand folks to treat their long loyal customers better.

Got it. That makes sense. Thanks for that explanation. I guess you mentioned loss ratios. I'm going to use that as an opportunity to pivot to Root's loss ratio today. Can you touch on why Root's loss ratio is higher than competitors today? And how should we think of that over time?

I can jump in here, Nick. Dan Rosenthal, the CFO. Great to -- Happy New Year to everyone on the line. And I usually enjoy this point in the conversation where Alex gets to talk about all the sexy stuff and the exciting technology and telematics. And now I come in for what growth investors find riveting around loss ratio and some of the other topics. But happy to address it. Look, I think it's actually -- I said this on our earnings call for Q3, that there's a lot of different terminology out there around loss ratio and can be particularly confusing for growth and technology investors. One loss ratio doesn't equal another. I gave a couple of examples in Q3 of sort of you can't compare loss ratios in businesses that are like steaks to yogurt to penne. And it's -- I think that's a really important thing. We are in the core auto insurance space, required purchase, $266 billion market. Within that, we actually are very pleased with the trend of our first term loss ratio. Where you see our loss ratio continuing to trend down is for a couple of different reasons. And the first is we have more new business than renewal business in our book. So when you compare our loss ratio, particularly first term at Root, compared to a company that's been around for decades or even centuries, it's really tricky. Some of those companies have been -- have roughly 80%, 85% of their overall premium coming from renewal customers, which have much lower loss ratios. For us, it's about 50-50. So one function or one cause of our loss ratio being where it is, is really just a function of time. And the fact that we have more new business coming in today because of the massive growth opportunity in front of us, that will continue to trend in the right direction as the book seasons. And as Alex just talked about, what we're doing around retention. The second thing is part of our business model is to underwrite customers out. Nick, you talked about it at the top. We've got roughly 10% to 15% of drivers that we don't want to have as customers because we think they make up close to half of auto insurance costs. So utilizing our telematics, part of the goal is to underwrite those customers out. Now we do have a phase for one of our product lines that we call the pre-telematics phase, where a customer comes in, binds with us, becomes a customer, drives for a couple of weeks. We evaluate their driving and then do 1 of 3 things. We either offer them a lower price based upon their driving, a higher price based upon their driving or we underwrite them out. We -- that hurts our retention by underwriting them out. It also hurts our loss ratio because we have a pre-telematics period that necessarily runs hotter. As the CFO, I think of that as customer acquisition cost. That is not enduring. That's not going to be lasting forever. We're doing the right thing to take in those customers through the funnel and then underwrite them out. And what we're trying to do around it is speed up the time of the test drive. So rather than spend 2 to 4 weeks doing the test drive, if we can measure that using our data science capabilities in a much shorter time period, that will be effective in reducing our pre-telematics loss ratio and ultimately reducing our overall loss ratio. That work is well in progress, and we'll be excited to come back and talk about that in the future. The third thing is what Alex talked about related to state expansion. We're in 30 states today, and we are going to be growing nationally. And that's something, as Alex talked about, when we enter a new market, we don't have data. We work on our pricing, we gather data, and it helps our flywheel spin faster and faster. So what we are focused on right now is our loss ratio, as you're entering a new state, is going to be a little bit higher than when you're in a mature state and have that data. So I think the combination of a higher percentage of new business, the fact that we have a pre-telematics period that drives a higher loss ratio and the fact that we are continuing to expand into states is impacting our loss ratio today. Now as we move towards steady state, as we talked about in the third quarter earnings, if you look at our existing state footprint, the loss ratio is improving quite significantly. A bit of that is due to COVID, but actually quite significantly, if you look at the -- we release all of our driving data on our website. And so you can come and look. You can see exactly how our customers have been driving mileage-wise versus what they were doing pre-COVID period. You'll see the impact. We think we still have significant loss ratio improvements year-over-year outside of the COVID impact. So we're very excited about that trend. And frankly, as we approach our next earnings call and subsequent earnings calls, we look forward to disclosing more data around our loss ratio trends.

Great. So maybe then pivoting, and this is probably for you as well, Dan, let's talk about Root's reinsurance strategy. Root leverages the reinsurance market at a much higher level than the large incumbents. So can you kind of expound on what the strategy is today? And how should we be thinking of that over time? Is that kind of the way we should be thinking about it kind of in perpetuity? Or over time, are you going to leverage the reinsurance market less?

Yes. Our balance sheet is not the balance sheet of a company that's been around decades or centuries. I mean I'll acknowledge that. We have some real advantages in the tech stack, in the telematics, in the ability to move nimbly, but we don't have the balance sheet of companies that have been around that long. So part of what we do with reinsurance is access lower-cost capital from reinsurance to fuel our growth. And as you referenced, Nick, approximately 70% of our premium today we cede to reinsurers. We have a great group of reinsurers on our different treaties, 5 of the top 10 in the world, it's really a who's who list, that continue signing up with us from treaty to treaty. And so just from the first standpoint, it's lower-cost capital than equity, certainly, that helps us fuel our growth through the way that the ceding commission is paid. The second thing is, and again, equity investors should like this, it derisks the overall portfolio. So it has the benefit of providing that upfront capital while also providing risk protection. And then, Nick, to your question around timing, I think the third thing that's important for investors to know is we really have established a very flexible structure. Our goal is to have that structure evolve over time. As our book seasons and as that becomes a higher percentage of renewal premium and as renewal premium runs at a lower loss ratio, as I already talked about, a more profitable book of business, we will retain more and more of that premium and cede less of it to reinsurers. So that is the strategy that will evolve over time.

Great, great. So then another one for you, Dan. I'm going to pivot to the capital requirements. You pointed out that your balance sheet does not look like an insurance company that has been around for a decade. So how should investors think about Root's capital needs over the next several years? How should we think about maybe ongoing capital raises or accessing debt markets to fund the growth?

Yes. I think you can see this in my own experience in structured finance. We're not putting all the eggs in one basket. We have actually a really exciting capital strategy that utilizes certainly equity in the IPO that we just raised, the financings that we had done prior. Debt through the 2 facilities that we have in place today, one with a series of [ 8 ] banks, which includes both a funded term loan as well as a $100 million revolving credit facility that we have not drawn on, again, provided that out of protection. We also have an institutional facility that has about a little under 4 years remaining in duration and then the reinsurance capital that I referenced earlier. So this mix of equity, debt and reinsurance, you will continue to see us evolve in order to extend the capital runway dynamically. Now overall, the capital that we have in place, the equity, the debt and the reinsurance, will take us out several years. That said, we think the growth opportunity here is massive, as Alex talked about towards the top. So we're going to continue innovating, continue raising the right pools of capital to allow us to execute on the strategy and continue to grow the business. There's also the potential of merger and acquisition that we could look at in the future that we always keep in mind as well, in addition to the organic growth that we're successfully seeing. So I never like to make promises around this time period or that time period. I think we're in a very dynamic industry, and we have a really dynamic business. But we do feel like we're well set up for the future with the capital that we've raised.

Great, great. So then, Alex and Dan, you both have touched on the national expansion strategy. So looking into 2021 and beyond, how should we be thinking about Root's national footprint or driving population coverage? Will more growth in the business kind of happen organically in the current footprint? Will more of it come from entering new markets? Is it kind of split? How should we kind of think about the growth from here this year and maybe beyond in how the growth comes?

Maybe I can start that, Alex, and feel free to jump in. Look, I think Alex and I talk multiple times a day, and we talk with our entire leadership team about balancing growth and profitability. That's a constant discussion, and I think a really thoughtful one. And as prudent stewards of capital, when we enter a new state, we dip our toe in. And that's for the reasons Alex talked about earlier. We want to develop the data. We want to understand the dynamics of the state, make sure we have the right team members in place from an underwriting and a claims perspective to manage that specific state. So I talked about in our Q3 earnings call, we have closed this 50-state shell, which allows us to basically go national in auto. But we're not looking to flip the switch and immediately do that. If all we cared about was growth, that's what we would do. We care about growth significantly, but we want to balance it in the right way and be thoughtful about it and use our capital wisely. So for us, as I said on the earnings call, it's not a matter for us of when we enter a state, it's how we enter a state. Let's put in place the right building blocks. We have, I think, a remarkable VP of Product and Pricing running our auto business, who joined us most recently from McKinsey, but prior to that was at Plymouth Rock and Allstate and Progressive. Really strong career in a number of the states actually that we have not yet entered. So he's got great experience. And now what we're doing is putting in place the building blocks to enter each of those states thoughtfully, work with the local regulators in the right way, continue growing our existing footprint at the same time and dip our toe into state expansion in a thoughtful way. So state expansion will come in 2021. We're excited about it. It will help augment the growth in our existing footprint, but we're going to do so thoughtfully.

Great, great. Now that's helpful. Maybe switching to data. Root collects a lot of data, and there's been a lot of recent headlines around auto data. And some of it has been coming from the OEMs leaning into telematics or vehicle data to help price insurance. So I guess a couple of questions around auto data. One, can Root access some of the same data the OEM is maybe pulling straight from the vehicles? And then a separate question is can Root potentially sell its data and kind of be a third-party data provider to, I guess, various entities?

Yes. Those are great questions. So first, I think it's important to understand OEM data and where that is and where we are really in the -- in a macro sense in that cycle. First, OEM data is not new. OnStar is, I believe, around 20 years old, maybe 15, 20 years old. And those programs have been in place with other major carriers for quite a long time, and they really have never taken off. And that's really because they've never been able to actually deliver experience to the consumer that makes sense for the consumer. You can imagine if you -- if your insurance is suddenly attached to each one of your vehicles, most households have different makes and models of vehicles. And so it would be very difficult to have multiple insurance -- different insurance companies that are associated with each vehicle. You imagine having to switch insurance companies each time after you sell your vehicle. It's also very difficult to actually seamlessly create an experience for a consumer where the insurance data collected off of a vehicle is very seamless. However, we have done that. We are the -- we call it skip drive, where if you actually download the Root app and you have a vehicle, a certain year, make and model, we will actually -- we check a server and we say, "Okay, it looks like we actually have vehicle data, driving data from this vehicle." And what we do then is we actually incorporate that data in the quote right up front. And so you get that driving data immediately, and you do not actually have to go through a test drive period. However, and this is super important, the OEM data isn't where it stops. You still really want cellphone data, and there's a few reasons for that. One, you get distracted driving data. And that is arguably the #1 cause of accidents. We see it as 1 or 2 -- it's either the first or second cause of accidents. And so it's material in terms of predictive power. The second though is that you can't really get closer to a consumer, in a digital sense anyways, than a smartphone. And what that means is that you also can collect a lot of other behavioral data off of the smartphone that is actually incredibly correlated with risk. And you don't get that from the vehicle data. So the vehicle data, it's not new. Other incumbents have been trying to sort of make a stab at that for over a decade. We haven't really seen it take off. I don't necessarily see any big change right now on that front. We are using it because we want to be very data agnostic, and we'll take data from just about anywhere and use it for predictive modeling. But it's also not a substitute for cellphone data. You need the cellphone data.

Great. And I guess just the follow-up, and I know we're about out of time here, is there opportunities for Root to sell its data outside of using it for its own policies?

So there certainly are those opportunities. We never sell data of an insured or of a customer without either very explicit consent. So for instance, you come through Root's funnel, maybe you're not a perfect match for Root because you're not a great driver, we'll actually ask you, "Hey, can we actually use your data to try to get you a quote at a different carrier." But it's all explicit. It's very transparent for the consumer. In terms of just selling, outright selling the data, we don't do that. And we won't do that. We think that, that's a pretty risky premise to go down, and we don't necessarily want to do that. So we do not sell individualized consumer data. That being said, what we will do is we do leverage the algorithm and the insights that we collect from that data to help other companies. And so for instance, you can imagine a rideshare company, they want to know which one of its drivers are good and which ones are bad. Well, we can use our algorithm and actually help them figure that out. And so although we don't necessarily sell the data itself, we will actually productionize and productize the algorithm into a business, and we've done that.

Great. Well, Alex, Dan, we're out of time here. I want to thank you both for being here with us today. And everyone who listened in, thanks for joining and take care. You can all sign off now.

Thanks, guys.

Thanks for having us, Nick.