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Illustration: Aïda Amer/Axios

Root Insurance, a tech-enabled auto insurance upstart that lives among the legacy giants in Columbus, Ohio, recently raised around $350 million at a $3.5 billion valuation, Axios has learned from multiple sources.

Why it matters: VCs are valuing Root more as a tech company than as an insurer, arguably more because of high growth rates than the actual tech component. We've seen this elsewhere in the insurance sector (e.g., Lemonade), and in all sorts of other consumer-facing areas (eyeglasses, razors, mattresses, etc.). The the jury remains out on the sagacity of such classifications.

  • Context: Coatue Management and DST Global co-led the Series E round. Root previously raised $177 million, including a $100 million Series D round last summer at a $1 billion post-money valuation. Existing backers include Drive Capital, Redpoint Ventures, Ribbit Capital, Scale Venture Partners, and Tiger Global.

The bull case is that Root can get a lower-risk user pool than can traditional insurers, because in most states it uses a "try-before-you-buy" mobile app that leverages telematics to gauge driving style. This lets it offer below-market rates which, in turn, lowers churn. The company also has moved its claims infrastructure in-house, which should give it better control of user experience.

The bear case is that Root has a higher loss ratio than do incumbents like Progressive and Geico, per statutory filings, and its single product line doesn't help offset customer acquisition costs via bundling. Plus, even the most generous VC backers can't help Root compete on balance sheet with a rival like Geico, which is part of Warren Buffett's Berkshire Hathaway.

  • CEO Alex Timm, who declined to discuss the fundraise, argues that startups will always have higher loss ratios as they works out some of the kinks (including Root's apparent under-pricing in its key Texas market, which it has since corrected). And, to be fair, it's Q4 2018 loss ratio fell 50% year-over-year after a Q3 2018 increase.

Go deeper

Federal judge says Florida ban on "sanctuary cities" racially motivated

Florida Gov. Ron DeSantis. Photo: Joe Raedle/Getty Images

A federal judge on Tuesday struck down parts of a Florida law aimed at banning local governments from establishing "sanctuary city" policies, arguing in part that the law is racially motivated and that it has the support of hate groups.

Why it matters: In a 110-page ruling issued Tuesday, U.S. District Judge Beth Bloom said the law — signed and championed by Gov. Ron DeSantis (R) — violates the Constitution's Equal Protection Clause because it was adopted with discriminatory motives.

Biden steps into the breach

Sen. Joe Manchin heads to a meeting with President Biden today. Photo: Kevin Dietsch/Getty Images

President Biden ramped up the pressure on his fellow Democrats Wednesday, calling a series of lawmakers to the White House in the hope of ending infighting and getting them in line.

Why it matters: Divisions within the party are threatening to derail Biden's top priorities. After several weeks of letting negotiations play out, the president is finally asserting his power to ensure his own party doesn't block his agenda.

2 hours ago - Politics & Policy

Scoop: Dems seek new green deal

Rep. Stephanie Murphy. Photo: Chip Somodevilla/Getty Images/Bloomberg via Getty Images

House Democrats discussed with President Biden on Wednesday a plan to exempt billions of dollars of new climate spending from his requirement that his $3.5 trillion "soft" infrastructure plan be offset with additional revenue.

Why it matters: The accounting proposal — a version of "dynamic scoring" — would dramatically lower the amount of taxes Democrats would need to raise while creating wiggle room to increase the ultimate size of the package.