Destination Progressive… or One of These Other Carriers

Commissions are more certain than insurance losses.

Those were not exactly the words that a Progressive executive used when he described the work the insurer has been doing to help customers meet all their insurance needs—sometimes through the policies of other insurance carriers. But the idea did emerge during a two-part presentation of Progressive’s 2023 results yesterday.

The second part of the Investor Relations event focused on analysts’ questions about how the insurer managed to grow written premiums, in Progressive’s case by 20%, and achieve its combined ratio target after a disappointing start to 2023

Customer relationship team leaders described the growth of Progressive Advantage Agency (PAA) and a soon-to-be-introduced online tool through which customers can buy competitors’ auto insurance policies—all designed to meet customer needs whether that’s through Progressive policies or another carrier.

This story originally appeared in our sister publication, Carrier Management.

“Commission revenue is a predictable annuity and has minimal exposure to the loss and cat risks that come along with underwriting insurance policies directly,” said Sean Freeman, business leader of the Direct Progressive Agency Experience team. “As agency compensation is rarely directly impacted by these risk exposures, this serves as a complimentary source of revenue to our standard underwriting operation,” he said, referring to commissions earned from other carriers by PAA, a digital agency for customers who shop for auto, home and business insurance online.

The agency currently delivers quotes and policies through Progressive’s digital platforms known as Home Quote Explorer (HQX) and Business Quote Explorer (BQX), according to Kathy Lemieux, business leader of CRM Sales Experience, who described the evolution of Progressive from the days when it simply told customers which auto insurers delivered the lowest prices to the current times in which Progressive has emerged as a provider of a broad product suite to customers that need more than one type of insurance policy—a group that Progressive refers to as “Robinsons.”

She also talked about Progressive’s next step, which will be to launch an Auto Quote Explorer (AQX) this year.

The commissions that Freeman referred to, called “service revenues” on the company’s financial statements, amounted to only $310 million in 2023—seemingly small in comparison to $58.7 billion in total company net earned premiums or $25 billion in direct personal lines net earned premiums for the year. But there are benefits of the digital agency beyond commission revenue that are huge, Freeman and other leaders said, referring to the benefits of strengthening the brand by meeting the broad needs of customers as they change, and ultimately driving more bundling Robinsons to buy Progressive-underwritten policies.

In fact, the benefit of stable commission revenues was the last one he mentioned, spending more time on customer retention benefits and a cycle of brand strengthening that allows Progressive to leverage—and increase—its advertising spend (discussed further below). Still, the statement about this small but growing amount of “certain” revenue seemed timely given that Progressive’s Chief Executive Officer Tricia Griffith chose “uncertainty” as the theme of her annual letter to shareholders, released in conjunction with the event.

Admitting that the theme is an unusually downbeat one for Progressive, the letter described the ebbs and flows of 2023—a year when Progressive initially thought that auto insurance was correctly priced and sought to grow, but later had to double-down on profit goals when inflation, loss severity, weather and macroeconomic trends all emerged to prompt a rethink of Progressive’s overall growth plans.

“We embraced the uncertainty and did what we do best and faced the challenges head on,” Griffith wrote. Progressive ended the year with a 94.9 combined ratio—meeting the carrier’s oft-stated profitably goal of 96 or better—even though the combined ratio had been 99.7 during the first six months of 2023.

Strategic Pillar: Meeting Broad Customer Needs

“Picture over 60,000 employees working tirelessly hand-in-glove in order to achieve our goals and you can get a sense of our strong ‘get it done’ culture,” she wrote, describing the first of four pillars that guide Progressive’s strategy: People and Culture, Broad Needs of our Customers, Progressive’s Leading Brand, and having Competitive Prices.

During last year’s Investor Relations event, company representatives focused on the pricing pillar and how telematics helps Progressive match rate to risk. (See related article, “Telematics Master Class: How Progressive Offers Competitive Prices,” March 7, 2023.) This year, the focus was on the customer pillar, with Lori Niederst, president of Customer Relationship Management, leading off.

“This pillar is synonymous with our strategy to become a destination company,” said Niederst.

The annual report described Progressive’s “Destination Era strategy” in personal lines, noting that it encompasses efforts to “form deeper and longer-term relationships” with customers through both Progressive’s direct channel (via PAA and the Explorer tools) and the agency distribution channel—in particular, bundlers who stay longer and generally lower claims costs.

Bundling “Robinsons” represent just under half of the personal insurance direct written premium in the United States, by Progressive’s estimates, and the carrier itself now has these “Robinsons” accounting for almost 13% of its direct written premium.

“Even before the introduction of the Destination strategy, in 2006, we began offering homeowners insurance from other carriers in our Progressive Advantage Agency or PAA,” said Niederst, revealing the first effort that fueled the growth of multiproduct customers. She went on to preview Progressive’s development of HQX and BQX, and its decision to buy at stake and later acquire property insurer American Strategic Insurance, now branded Progressive Home, among others.

“Customer bundling doesn’t end with home and personal auto or commercial auto and BOP [businessowners policies]. We have a whole suite of offerings, which includes Progressive-underwritten, special lines, renters, and umbrella products,” she said, also noting that efforts to expand the product portfolio have resulted in almost one-fifth of U.S. households (19%) having “at least one Progressive-sold product.” That household penetration figure in the personal lines (auto and special) and product segments has increased 80% in the last 10 years, she said.

“The top-line growth from increased sales of Progressive-underwritten products and commissions earned from sales of partner products is just the beginning. The more products a customer purchases from Progressive, the stickier the customer becomes, leading to higher lifetime profits and lower per policy acquisition costs fueling the virtuous cycle that results in greater market share,” she said.

Freeman later gave details of the “virtuous cycle” that ultimately allows Progressive to spend more on advertising, further strengthening the Progressive brand and attracting more carriers:

• “With access to a multi-carrier model, we can offer consumers more choice that meets their needs.”
• “In doing so, this elevates our sales yield per visitor to Progressive.com or into our call centers.”
• “Getting a more efficient return on every visitor to Progressive allows us to increase our media spend while still hitting our target economics. This increased spend drives greater awareness of Progressive’s offerings, driving traffic to Progressive.com, our call centers as well as our appointed independent agents.”
• “This in turn increases the volume available to Progressive and the carriers within our network, incentivizing more carrier participation within our agency, strengthening the multi-carrier model further.”

Freeman reviewed the ways in which the PAA operation benefits Progressive’s top line. Directly, net earned premiums include premiums from Progressive-underwritten products and the top line is further “impacted by the agency’s brand and consideration lift, the household retention improvements, increased additional protection sales, and the increased media spend associated with the PAA operation.”

“Our success in penetrating the Robinson customer segment rolls up within these figures,” he added, indicating that as Progressive has expanded the PAA’s product offerings, it has also seen premiums for ‘Robinsons’ outpace other customer segments. An accompanying slide showed that the compound annual growth in auto premiums for Robinsons was 19.9% over the last five years, and only 14.9% for non-bundling “Wrights.”

If Our Rate Isn’t Lowest…

Lemieux reviewed Progressive’s history of offering comparative rate information of competitors, predating the development of both. Looking back to the days when the carrier told auto insurance customers in the 1990s, “If our rate isn’t the lowest, we’ll tell you whose is,” she explained how the “industry-altering idea” resonated with customers and helped build a brand around comparison rates, setting the table for the development of quote-and-bind tools.

During the course of her presentation, she described enhancements to HQX (including a prefilled data capability from a third-party provider that cuts quote time by 20 percent), and the standards that carriers have meet to be on the HQX and BQX platforms. (See related sidebar, “How Network Carriers Benefit from the Progressive Advantage Agency.”) She went on to show screenshots from a pilot of AQX that’s been going on since third-quarter 2022.

“You’re almost there,” announced the words of one image of an AQX display, prompting the customize coverage under a policy from Nationwide priced $30 less than a Progressive offering.

“Early results give us confidence that the comparison quote and purchase experience with a reputable set of carriers will give us the opportunity to better meet consumer needs—starting new customer relationships in those cases where insurance shoppers would not purchase a Progressive policy, getting their auto insurance needs met elsewhere,” Lemieux said.

That scenario is the opposite of one that Lemieux referred to when she began her presentation. She started off highlighting the insurance buying journey of a real insured, a single man, who originally bought an auto policy from Progressive, later getting married and seeking motorcycle insurance, renters insurance and ultimately homeowners insurance. This insured bought “a home policy underwritten by one of our network carriers several years after acquiring their Progressive auto insurance and built a bundle, becoming one of the more than a million Robinsons we insure through the PAA,” Lemieux said.

Freeman noted that selling each additional policy doesn’t just increase sales and potential profits but also improves the expected retention of the original policy dramatically. “Across all products within our portfolio, the policy life expectancy grows meaningfully as you add products to the relationship and by a magnitude of up to 2X or more.”

“It is important to note that we see this retention improvement, whether they are Progressive-underwritten policies or network carrier policies,” he added.

“In the current environment, while rates are rising and underwriting is more restrictive, the ability to shop several carriers across the same product produces significant value to the customer, and in turn, Progressive,” Freeman said at one point.

Freeman used much of his time to underscore benefits of the PAA to customers, such as gaining confidence that they getting good coverage, service and rates and feeling in control of their insurance decisions, going on to describe the “virtuous cycle” media benefit to Progressive and network partners.

“As we have especially seen in recent years, marketing spend is an important tool to stand out in the crowded insurance marketplace. This virtuous cycle is valuable to ensuring Progressive can rationally be in the top tier of marketing spenders and further widens the financial moat with lesser known brands,” he said.