Innovation at Progressive Case

INNOVATION AT PROGRESSIVE CASE (A): PAY-AS-YOU-GO INSURANCE

Autograph: Non-traditional method of calculating premium for auto-cars (Pay-as-you-go)

* Used GPS technology instead of regular metrics

* 18 month Texas pilot - drawing positive response

* From pilot (1100 cars) to national level

* Whether should be launched in few states before going national?

* Worried that Progressive was losing sight of the insurance business - technology

Progressive Group:

* Founded in 1937, Cleveland, Ohio - Joseph Lewis

* Started out as a maverick company

* 1956 - Company wrote insurance for high-risk drivers (20 % of insurance market)

* 1971 - Company went public, moved headquarters to Mayfield Village , Ohio

* 1987 - $1 billion in premiums

* P/C insurance industry dominated by handful of companies (State Farm Group , Allstate Corporation - 1/5th of the market)

Insurance Business

Revenues:

* Set aside portion of premiums collected from policy holders to cover losses ( Earned premiums) - primary source of revenues

* Second source of revenue: Revenues from Investment income

Expenses:

* Commissions paid to agents and salespeople

* Under-writing related expenses (salaried staff)

Auto liability and auto damage accounted for 40 % of the premiums written

Auto insurance: Dedicated companies, Single companies and telephone and internet

Progressive wrote 80% of the insurances through independent agency system

Auto insurance premiums were initially rated on attributes of vehicle, customer, coverage and type of deductibles selected. Used to arrive at a driver -vehicle class and loss experience with the class to determine the rate.

Formation of Progressive Casualty Insurance Company

* 1956

* Quick to become dominant player

* Strength lay in segmenting customer base

* New ways to use information to segment prices - data mining and extensive statistical analysis

* Example of moving violation ( Failure to Yield v/s speeding)

* Advanced software - looked for correlations between drivers, 12 vehicle characteristics, risk and 16 variables in credit scoring model.

* In 1993, after growth in non-standard drivers leveled moved to standard and low-risk sectors.

* 1995-1999 - became half of the business

Proposition 103 was passed in 1988, referendum designed to regulate auto insurance companies and roll back escalating rates - company paid out $60 million in refunds. Progressive reduced their workforce by 19%.

Immediate Response

* Major innovation : Implementation of fast service

* Faster - better service

* Faster to the losses - Less the lawyers get

* Two years after Proposition 103 - round the clock service - Immediate response - handled claims 24 hrs. a day - received skepticism from employees

* 1994 - Immediate response vehicle - Ford Van

* Call 800 number - >Telephone agent -> Took down the information -> handed claim to one of 350 local claims offices (centralized database) -> office sent one of 1400 IRV vans along with a claims representative who did claim processing wirelessly

* Claim handling - experience based assignment

* Hire the best - pay the most

* For Immediate response to work customers had to report claims timely - Claims reporting Index , Gold Card

* Claim Representatives 3093 to