During an investor conference last week, Progressive’s leader revealed some subtle wording changes to the company’s purpose and vision. Unchanged, however, are four pillars of Progressive’s strategy, including one pillar labeled “competitive pricing.”
“Segmentation is a key facet of our competitive prices pillar, and nowhere is that more evident than in our investment in usage-based insurance products,” said Progressive CEO Tricia Griffith, introducing the topic of the day: telematics.
During the investor call, which took place in conjunction with the publication of Progressive’s 2022 annual report, Griffith, Jim Haas, head of personal lines telematics, and Cory Fischer, who recently led commercial lines product development, took turns reviewing a history of progress in telematics for personal and commercial auto.
First, the CEO gave a brief summary of 2022 underwriting results, Progressive’s reworded vision and expanded purpose, and some highlights of the carrier’s 27-year journey to drive forward with telematics. (Related articles: Progressive Puts Targeted 96 Combined Ratio in the Books for 2022; Progressive CEO: Early Rate Actions Helped Growth)
“Throughout our history of usage-based insurance, we have collected billions of miles of data and invested in a process of continuous improvement in our UBI products,” Griffith said, introducing the two telematics leaders. “Today, UBI is our most predictive rating variable and it provides unparalleled rate accuracy to our customers.”
Griffith started the telematics presentation with some facts about the history of Progressive’s usage-based insurance innovations:
- Progressive made its first move into UBI almost 30 years ago—back in 1996 with a product called “Autograph,” Griffith said. A slide displaying the piece of equipment that has to be installed by a professional mechanic “at a considerable expense” depicted a large gray box that looks something like a video projector.
- The first improvement in technology came in 2004, when Progressive launched “TripSense,” the company’s first option that could be self-installed by the customer. This evolved to “MyRate” in 2008, when Progressive first employed cellular technology to upload data to its systems, and finally to Snapshot in 2010, which Griffith described as “the start of our modern UBI program.”
- While “MyRate” was a discount-only model, Progressive’s Snapshot program has included the possibility of a surcharge since 2014—a key aspect of the program that increases profitability and distinguishes Progressive from competitors, Haas and Griffith noted throughout the conference.
- In 2016, Progressive launched the Snapshot app, allowing customers to use a mobile phone app instead of having to plug in a Snapshot device.
“Our most recent edition is continuous monitoring, which began its rollout in the summer of 2022,” Griffith said, highlighting another feature that distinguishes Progressive’s UBI program from competitors.
Where Progressive Is Headed
According to Haas, even though continuous monitoring has been rolled out in 12 states, fourth-quarter 2022 telematics take-rates were up 40 percent over the January 2019 take-up rate. According to a line graph showing the share of new applicants enrolled in Snapshot for each quarter of the last four years, compared to that January 2019 base date, the 40 percent compares to just 15 percent for second-quarter 2020 through second-quarter 2021, and a 20 percent jump recorded in second-quarter 2022.
“Today, more people participate in Snapshot than ever before, providing data for longer periods of time that we can use to price more accurately than ever before,” Haas said.
Similarly, when Fischer started his presentation on commercial lines telematics efforts at Progressive, he repeated Griffith’s assertion that “telematics is ‘the’ most predictive rating variable we have by a lot,” as he displayed a bar chart indicating the predictive power of several unidentified rating variables. The one labelled bar—”telematics”—was more than three-times bigger than the second and third most predictive variables, with the other eight barely showing up with small fractions of predictive power compared to the towering “telematics” bar.
Both Griffith and Fischer described how the company is leveraging from its learnings in personal lines to develop UBI for commercial auto products. The first commercial offering was Smart Haul, a program started up in 2018. That program doesn’t use Snapshot but instead accesses similar data from truckers’ electronic logging devices, with their consent, to generate a UBI score. In 2020, Progressive also expanded a program using Snapshot—Snapshot ProView—which includes fleet monitoring services to small businesses.
The telematics part of Progressive’s top-ranked commercial auto book would rank as a top 15 commercial auto insurance carrier on its own.
According to Fischer, Progressive is the largest commercial auto insurer in the nation, and the commercial auto telematics book overall (enrolled in Smart Haul or Snapshot ProView) would rank as a top 15 commercial auto insurance carrier on its own.
Progressive’s attention on the commercial insurance segment (even beyond auto) was also evident when Griffith started the conference with a reference to a change in the wording of the vision of the company. The vision is “where we’re headed,” she said, noting that the prior wording of the vision, “Become consumers’ and agents’ #1 choice and destination for auto, home, and other insurance,” is now, “Become consumers’, agents’, and business owners’ No. 1 destination for insurance and other financial needs.”
Said Griffith: “We expanded our vision to include business owners, so it now provides a more holistic view of all the customers we are privileged to serve.”
Why We’re Here: Accident Response
Also changed for 2023 is the company’s written statement of purpose—a statement of “why we’re here,” according to Griffith.
Previously written as, “True to our name. Progressive,” the new wording of the purpose is, “We exist to help people move forward and live fully.”
“Today, UBI is our most predictive rating variable and it provides unparalleled rate accuracy to our customers.”
Explaining the change, Griffith referred to an intention to build on Progressive’s “history of challenging the status quo to accelerate progress and equity.” But Haas offered very concrete examples of how Progressive is making good on its promise to “help people move forward and live fully”—in 12 minutes or less after an accident.
Without specifically referencing the purpose statement, Haas described a go-forward initiative that involves offering no-cost accident response services to personal auto insurance customers.
Going through one response example—to a vehicle skidding on ice and hitting multiple barricades on an urban boulevard—he said that Progressive sent a push notification to the customer within two minutes of impact, following up with a live call from an agent five minutes later when the customer didn’t respond. The agent dispatched an ambulance and a tow truck to the scene a few minutes later, and the claim was in Progressive’s system within 10 minutes.
“In March, we plan to start making accident response available to all of our auto customers, not just those who are in Snapshot.”
A second example involved a customer who had an accident two days after buying a Progressive policy—a scenario that would otherwise delay claims processing because an insurance company would have to verify that the accident didn’t take place before the policy was purchased. Here, instead, the accident was detected, the tow truck was dispatched and the claim was filed within 12 minutes of impact.
“We could see from the telematics data that the crash happened where, and importantly, when our customer said it did,… which let us move forward more quickly with getting the customer back on the road,” Haas said.
“In March, we plan to start making accident response available to all of our auto customers, not just those who are in Snapshot,” he reported, noting that phone sensors will detect when a serious crash is likely to have happened.
Conceding that other accident response services exist, he said, “Ours will come included in the policy. There is no additional charge.”
“This adds value to the customer’s relationship with us and can become another reason to choose and to stay with Progressive,” he said, also stressing again that it is not just UBI customers.
Progressive + GM + Toyota
Another evolving Progressive initiative involves new business quoting using telematics data collected by others. Among the others are General Motors and Toyota, two partnerships with automakers that Progressive has in place already, Haas said, reporting that other automakers have been increasingly equipping vehicles with technology to collect driving data.
“When a customer comes to us to quote and their driving data is available, we ask if they’d like us to use it to determine their price. [If] they say yes, we bring that data in and apply the UBI discount or surcharge to their quote immediately, pushing rate accuracy to where it matters most—the new business quote,” he said, cautioning that since it takes a while for fleets of new cars to take to the roads, this is a longer-term initiative.
A related initiative involves lead-generation programs with partners like Credit Karma, which can invite their customers to opt into collecting driving data to see if they can save money on their car insurance.
Before highlighting Progressive’s “first-mover advantage” in telematics, Griffith led off the conference talking generally about the insurer’s expertise in matching price to risk, suggesting competitors may actually be overshooting inflation-driven loss cost trends.
“We’ve now actually seen some competitors surpass our post-COVID rate take.”
“Competitive prices means not just offering the best rate but also the most accurate rate driven by pricing accuracy, expense discipline and industry leading segmentation,” she said. “We’ve now actually seen some competitors surpass our post-COVID rate take,” she said, adding that Progressive has seen its “relative competitiveness improve,” pushing up its retention and growth rates.
Reiterating remarks she made during a third-quarter earnings call indicating that Progressive is done with any major personal auto rate hikes, she reported that the company also finished 2022 with the best fourth quarter for personal auto new application volume in its history. A slide displaying a U-shaped line graph depicting year-over-year personal auto new application growth for the last eight quarters showed a trough in first-quarter 2022, followed by an upward surge toward a new high at year-end. A similar graph of in-force policies showed a low point in June and July for direct and agency business, again followed by upward sloping lines—more pronounced for direct than agency business. (Related articles: Progressive Easing Up on Rate Hikes; Flo Coming Back to a State Near You; Progressive Puts Targeted 96 Combined Ratio in the Books for 2022; Progressive CEO: Early Rate Actions Helped Growth)
“We’re continuously evaluating our media budget and will continue to use media efficiently as we enter 2023. And we’ll look to capitalize on this hard market,” Griffith said, explaining that a higher direct acquisition expense ratio recorded in January is indicative of Progressive’s “opportunistic stance” and its confidence in current rate levels.
While growing policies and premiums, Griffith was able to make its target of achieving a 96 combined ratio in 2022. In addition, one analyst noted that the carrier’s personal auto accident frequency levels are trending better than the rest of the industry, requesting an explanation.
Chief Financial Officer John Sauerland pointed to the impact of telematics discounts and surcharges, referring to a graph presented by Haas earlier in the event that showed higher retention for customers earning discounts. Specifically, the graph showed that renewal rates for drivers who are earning the biggest discounts are 6 percent higher than average, while they are 16 precent lower for drivers getting no discount or surcharges.
“That’s segmentation at work,” Sauerland said. Drivers getting a surcharge are going to be the riskier, higher-frequency drivers, and those getting discounts have lower accident frequencies. “Obviously, in the marketplace, as that continues to play out, it will help drive our frequency more favorable than our competitors.”
During his presentation, Haas noted that Progressive, too, started with a discount-only program in its earlier telematics pricing iterations. “Customers could receive a discount of up to 30 percent, but the rate couldn’t go up no matter how risky their driving looked…Of course, no rating variable in insurance only suggests giving discounts. It’s about segmentation and matching rate to risk,” he said. While discount-only programs encourage greater participation, “it makes the economics a lot more challenging and limits the accuracy of the overall pricing. And we all know that pricing accuracy is critical in auto insurance,” he said, going on to explain the evolution of participation discounts, driving discounts and driving surcharges from a maximum of 10 percent back in 2014 to 40 percent in 2019.
While these changes improved Progressive’s pricing accuracy, “there was still a limitation to our approach. We only used data from a single term—typically four to five months—to set the price for the life of the policy. This made it so we wouldn’t know about material changes in an individual’s driving behavior [that] would lead to less accuracy over time,” Haas said.
The move to continuous monitoring, starting in 2022, was accompanied by increases in the participation discount (up to 15 percent from 10 percent) and maximum surcharge (now 60 percent), Haas said, reporting that the continuous model was up and running in 12 states at year-end 2022 and that plans are to roll this out to most of the rest of the country during 2023.
Despite repeated references from Progressive executives about its first-mover advantages in telematics, at least one analyst wasn’t convinced that other carriers could not copy its success. He pointed specifically to the fact that a high percentage of personal lines insurers, including Progressive, partner with Cambridge Mobile Telematics. “Competitors can see all that,” the analyst suggested, referring to Progressive’s robust data and analytics used for segmentation. “What makes it so hard to replicate given that you’re all using a similar platform?” he asked.
Griffith said that a similar platform is not synonymous with “using the same data or the same models—or using the data in the same way,” pointing to other segmentation variables including urban and rural distinctions.
Haas provided more detail. Cambridge provides the data collection mechanism that gets embedded in the app. “So, we do get that data from them. And you’re right, most people use them in the industry,” he confirmed. “What’s different is [that] we own our own algorithm. We use that data the way we want to, and we’ve learned a lot over the years about how to make the most out of that data.”
In addition, Haas said the analyst’s assertion about competitors being able to see what Progressive is doing was not accurate. “Most algorithms for UBI are filed confidentially in the states. So those are not shared with all of the competitors. We can’t see another company’s algorithms; they can’t see ours.”
“We think we’ve developed an advantage there and we can maintain that. We also have an OBD [on-board diagnostics] device, which we offer and some of our customers pick. That gives us another source of data,” he added.
“One truck alone might generate over a million records per year.”
During his presentation on commercial auto, Fischer, who now leads Progressive’s agency distribution group, referred to the challenges of agent support and training, hardware issues and data management that face entrants into the commercial telematics arena, also highlighting the big advantage of leveraging off the company’s 20-plus years of investments on the personal lines side.
“With telematics, we’re now dealing with hardware and data transmission. We’re also in the logistics business—sending out devices, tracking inventory levels and recently dealing with global supply chain issues. That’s a different set of vendors, technical challenges, systems and business processes that we’ve had to work through,” he reported.
Data management, however, is the biggest challenge. “One truck alone might generate over a million records per year,” he said. Noting that the Snapshot ProView program uses the personal auto Snapshot device, he added, “We have a very competitive cost per device, and that device is already set up to transmit data back to our secure storage solutions.”
Personal auto helped the commercial side move to its storage solution, “essentially a highly scalable cloud-based data storage and analysis service. This significantly reduces our processing time to analyze data and at a much lower cost than traditional alternatives,” he said, also highlighting the support the personal lines team has provided in upskilling the commercial lines team in the use of telematics tools and data.
Looking ahead, Fischer said Progressive is looking at new data sources, such as dashcams for the claims process, and also aims to integrate telematics more deeply into the underwriting model. Telematics data, for example, might reveal that a truck garaged in Elizabeth, N.J., actually made 75 percent of its trips into New York City, suggesting a different risk profile than just the business ZIP code would otherwise indicate.
“I don’t see a time when we have a telematics-only model. We know we get valuable segmentation from non-telematics variables, but there are variables like garaging address and radius that proxy driving location, and with the actual telematics data would be a superior solution,” he said.