Just as a skilled mechanic can tune a vehicle's engine to perfection, Progressive's Dan Lewis says his company fine tunes its insurance products to meet the needs of all drivers.
When you hear the name Progressive, do you automatically think "nonstandard auto"? If so, you're not alone--but you're definitely behind the times. Widely admired for its data-driven business model and sometimes eyed with distrust for selling direct via phone and the Internet, Progressive Insurance is aggressively expanding its product portfolio and making no apologies for its use of alternative distribution channels. To find out what's behind the company's move into the larger personal lines arena and how it's extending its powerful franchise, we'll talk with Daniel Lewis, Progressive's agency general manager for the Gulf division, who served as agent business leader from January 1999 to April of this year and spearheaded many of the company's Year 2000 initiatives. Then Bob Williams, a 20-year Progressive veteran who recently was named agent business leader, will present his perspective on the company's future direction in the rapidly changing personal lines marketplace.
Founded in 1937 by two lawyers as Progressive Mutual Insurance Company, the insurer wasted no time in establishing itself as an innovator, introducing the first time-payment premium plan for auto insurance and offering drive-in claims service. Peter Lewis, the son of co-founder Joseph Lewis and the brother of Daniel, joined the company in 1955 and today serves as its plain-spoken chairman. In 1956, under Peter Lewis's direction, Progressive Casualty Company was formed to write nonstandard auto insurance. Progressive Corporation was organized as a holding company in 1965, and it went public in 1971.
Today Progressive is the nation's fourth largest auto insurer, not only offering nonstandard auto but also competing aggressively in the standard, preferred, and ultra-preferred markets. Since 1992 it's been the #1 writer of private passenger auto insurance through independent agents. It's also the leading writer of motorcycle insurance, and it insures mobile homes, recreational vehicles, small fleets of commercial vehicles, and boats and personal watercraft. Progressive now is moving purposefully into new personal lines territory with both homeowners and umbrella products. It's represented by some 30,000 agents in 48 states and in 1999 posted net written premium of $6.1 billion. It's significant to note that between 1990 and 1999, Progressive recorded compounded growth of 23.3%, vs. 4.7% for the industry as a whole.
A simple strategy
What drives this unconventional insurer, and what accounts for its stellar performance in a market that many insurers find baffling and frustrating? Progressive's winning strategy is multifaceted but simple, and it's based on a powerful combination of next-generation technology and old-fashioned common sense. "Our formula for success is to offer competitively priced coverage for all drivers, from nonstandard through ultra-preferred, and to provide outstanding agent and policyholder service 24 hours a day, seven days a week," Daniel Lewis explains. "In 1989 we achieved a real breakthrough when we introduced Immediate Response® claims service. We get to the accident scene fast, and we take care of everything as quickly as possible. Superior customer service gives us better control of our loss costs. The company that does the best job in claims wins."
Another key ingredient in Progressive's success, Lewis notes, is ease of access. "We want to be the easiest, lowest-cost company to do business with," he declares. "Technology is an important piece of this commitment. In our point of sale system, while the agent is requesting a quote, he or she can immediately order an MVR, CLUE, or financial responsibility report on line, and coordinate this information with the application." This system, he notes, significantly reduces the possibility that a policy will be issued at a higher price than was quoted. "Accurate quotes at the point of sale save agents work and reduce the incidence of bad customer experiences," Lewis observes. "This translates into improved retention."
As part of its commitment to enhance agent productivity with technology, Progressive recently introduced Client Profile for Windows, a proprietary agency management system that's available to agents at no charge. "It's slick and easy to use, and it addresses all the objections agents have raised about going paperless," Lewis says. "At the end of the process, we'll be downloading policy information via the Internet, so we can eliminate paper and save our agents time and money."
Net savvy
Speaking of the Internet, Progressive views its Web site (www.progressive.com) as a quick, efficient way to interact with customers. A Web site feature called Personal Progressive (also accessible directly at http://personal.progressive.com) allows policyholders to access policy, claims, and billing information online, make payments, and update personal information. Such online access "meets a significant and increasing consumer demand," Lewis asserts. He cites a recent survey in which only 6% of agents said their customers wanted online access to policy information--but such access in fact was desired by almost 60% of customers. "There's a big disconnect between what customers want and what agents think they want," he remarks. "When customers can access information directly, both we and our agents save money, and that helps us be more competitive."
"In the non-standard market, we were recognized as a leader in service, and we're confident we'll achieve that distinction in the standard and preferred markets as well."
Dan Lewis, a 20-year veteran of Progressive, has spearheaded many of the company's agent-focused initiatives.
Agents can monitor their performance statistics in key areas by visiting a Web site designed just for them (www.foragentsonly.com). By allowing agents to view their individual numbers, Lewis says, "this site will become an important conduit for just-in-time training."
Drive for growth
As noted earlier, Progressive is best known for its highly successful penetration of the challenging market for nonstandard private passenger auto insurance. Why did the company move beyond that lucrative specialty niche and enter the broader personal auto market? "It's a drive for growth," Lewis responds. "Nonstandard auto represents 15% of the auto insurance market. Standard and preferred risks are 85% of the market, and that's where we've been experiencing our most significant growth. In 1999 we wrote $2.1 billion in standard and preferred auto business through independent agents, and we're close to being the largest writer of this business through independents. The future is extremely bright." Progressive has good reason to be pleased with the results of its personal lines market expansion. "In 1999, our personal lines net premium grew by 16% to $5.7 billion, and we wrote $4.75 billion of that through independent agents," Lewis notes. At the end of the first quarter of this year, 51% of the company's private passenger auto volume was in standard, preferred, and ultra-preferred business.
Progressive not only offers products for all segments of the private passenger auto market; it's also expanding into the homeowners arena. "Many consumers and agents like to package auto and homeowners," Lewis comments. "There's a significant portion of the preferred market we haven't penetrated because we had no homeowners product." In March of this year Progressive introduced its homeowners policy in Arizona, initially offering it through 50 independent agents in the state, with plans to roll it out in five additional states later this year and also to sell it direct. To help consumers determine how much coverage they need, agents use a replacement cost estimator that takes into account such factors as number of fireplaces, types of flooring, appliance and fixture grades, and other unique features of the residence. The company plans to make the replacement cost estimator available to all consumers on its Web site as the launch progresses.
To what extent does Progressive's experience in writing nonstandard auto help the company market, underwrite, and service its newer personal auto products? "Our two most critical skills and greatest strengths, accurate pricing and outstanding claims service, absolutely work for standard and preferred business," Lewis asserts. "In the nonstandard market, we were recognized as a leader in service, and we're confident we'll achieve that distinction in these new markets as well."
Multi-channel marketing
Progressive is represented by some 30,000 agents nationwide, and it also produces business on a direct basis via phone and the Internet. How does the company's direct-written business compare with its agent-produced business with respect to coverage, price, service, and profitability? "There's no difference in coverage or service," Lewis responds. "What is different is cost. In a number of markets, prices are somewhat different. Our intent is to price all business at a four-point underwriting profit. Our pricing isn't designed to favor one distribution system over another."
Although the vast majority of its business is written through independent agents, Progressive's direct sales via phone and the Net are a thorn in the side of many producers--a fact Lewis readily acknowledges. "Progressive is a large, innovative, multi-channel insurer. From time to time, this causes some agents to think we're a threat," he observes. How does Lewis characterize Progressive's relationship with its agency force, especially in light of the fact that the company competes with agents as a direct writer?
"One of our core values is to be open and honest," he responds. "We're good communicators, and we're in close touch with our agents. We have more than 200 field salespeople and 30 general managers of our regional business units who are bottom-line decision makers. They're in constant contact with our agents and know what they're thinking." What's more, "The evidence suggests that we're the best auto insurer for independent agents. That wouldn't happen if we weren't doing a good job of understanding the agent and the consumer and meeting their needs." Clearly this is one insurer that believes it has nothing to fear from its competitors: At both the 800 number and the Web site, prospects can obtain quotations not only from Progressive but also from competing carriers--even when they're lower. Progressive says it's the only U.S. auto insurer to offer such "apples to apples" comparative quotes.
"The more successful our agents are, the more successful we'll be."
It's not Progressive's intention to pit one distribution system against another, Lewis emphasizes. "We try to make everything we do work for all distribution channels," he explains. "We ask prospects who call our 800 number if they want to deal with an independent agent, and the overwhelming majority say yes." Some 400,000 calls a year to (800) AUTO-PRO® are referred to independent agents, Lewis says. "With AUTO-PRO, we can identify opportunities for process improvements throughout our organization. For example, our underwriting accuracy in AUTO-PRO is better because we've trained our sales counselors to probe the caller and obtain accurate information. This allows us to price our products more appropriately and thus achieve lower loss ratios. Now we're giving our agents the tools to improve their underwriting accuracy. We can then reduce prices and help our agents be more competitive."
The insurer's Web site also offers prospects the opportunity to deal with an independent agent. "Sixty thousand people a year use our Find an Agent feature to connect with a local agent via hyperlink," Lewis notes, adding, "Our Web site draws more shoppers than buyers. Most customers want to buy insurance in person."
Rewarding top agents
Like many of its peers, Progressive recognizes and rewards agents who consistently produce profitable business. To qualify as a Vanguard agent, Lewis explains, a producer must meet two primary criteria: demonstrate outstanding accuracy in underwriting and make a volume commitment that exceeds the norm. Some 2,000 agents in 24 states currently enjoy Vanguard status; Lewis says the program eventually will be rolled out in additional states. "Our objective is to provide the most competitive products and services to agents who meet or exceed our expectations for profits and growth," he says. "Our experience shows that these agents have lower loss costs, and we want them to be partners and grow with us."
Building the perfect brand
Insurers, like their counterparts in other industries, are no strangers to the concept of branding: building and reinforcing a recognizable identity in the markets they want to reach. Progressive is no exception, and the insurer is devoting substantial resources to its branding effort. Its strategy is based on three principles: the need to increase awareness of Progressive; the fact that agents grow faster when the company advertises; and the knowledge that signs (featuring Progressive's name and the agency's name) attract consumers to agents' offices.
To reinforce its identity as an agent-focused company, Progressive has signed on as a Gold Partner in IIAA's National Communications Program, making it one of only eight insurers to undertake a commitment at this level. How does participating in this program at the highest level benefit Progressive, its agents, and its policyholders? "We're in it because of IIAA research that's being conducted to understand what's important to consumers in doing business with local agents, and to develop a brand for independent agents that responds to those values," Lewis replies. "Our brand needs to provide a consistent, consumer-valued identity locally so our agents can compete with captive agency companies in a fiercely competitive market. The more successful our agents are, the more successful we'll be."
Progressive advertisements have appeared on such high-profile television events as NFL football games and the Super Bowl--a clear statement of the insurer's intent to establish a strong national brand. It offers its agents a choice of cooperative advertising opportunities, including television ads and street signs. The company's new flight of co-op TV ads emphasizes the independent agent's commitment to the local community and identifies Progressive as an innovative partner in meeting customer needs.
Year 2000 agent initiatives
What agent-related initiatives will Progressive pursue for the year 2000, and how does the company see the personal lines market evolving over the next few years? Bob Williams, who in an April realignment of senior management was named agent business leader, offers his perspective on Progressive's key agent initiatives for 2000. Commenting on the first initiative, to improve underwriting accuracy from 55% to 95%, he says, "Accurate and complete underwriting drives loss costs, which in turn goes to lower rates. We're working to improve quoting technology in our point of sale system, and ultimately to have final underwriting take place at the agent's desktop. Our goal is to provide a guaranteed quote at the point of sale." Other key elements of this initiative, Williams explains, are to provide agents information on their performance relative to accuracy, and to train agents and customer service representatives to improve their accuracy. "Our goal is to offer lower prices by means of superior underwriting," he says.
A second agent initiative for 2000 is to build primary relationships with top-performing agents through Progressive's Vanguard program. "Progressive started out as a niche player," Williams says. "When we broadened our product offerings, it made sense to broaden our distribution system. As agents grow with our company, they expect a different relationship with us. Many agents perform well in terms of both profit and growth because of differences in the way they do business. In the Vanguard program, we attempt to offer something special to our star performers."
A third year 2000 agent initiative is Progressive's launch of its homeowners product, described earlier in the article. "We intend to make money on homeowners, but that's not really why we're doing it," Williams remarks. "We're offering the product for two reasons: first, to attract customers who want both auto and homeowners; and, second, to help us retain our customers longer. The demand for a homeowners product both internally and externally is driven by agents. I'm excited about this initiative. It's an opportunity for us to build stronger customer relationships and help our independent agents."
The emerging market
How does Williams view current conditions in the personal lines marketplace, and where does he think the market is headed in the near and longer term future? "It's pretty competitive out there," he comments. "Advertising expenditures are up, and there are new entrants all the time. It seems to us that a lot of excess capacity has been washed through the system; we see a decline in profits coupled with higher losses. We don't think the insurance cycle is dead; it was just inactive for a while." Pointing to a trend toward increased prices, Williams says, "Near term, we think we'll see a difficult marketplace, and we expect it to harden over the next three years. Progressive and independent agents will be nicely positioned to deal with both the near-term market challenges and the longer term hardening."
In this changing market, he believes, two factors will give Progressive the advantage. First, "Brand will be key. We'll continue to build on the success of our brand components like choice and service." Second, "We're actively working to bring state-of-the-art technology to agents, including Net-based technology. Our intention is to help agents provide better service to customers at lower cost, and to give customers online access to us in ways that recognize their preferences."
The bottom line? "We've always benefited from turns in the cycle, and so have our agents," Williams observes. "If the market turns as I believe it will, I think agents will find it handy to have a stable company with a take-all-comers philosophy in their shop." *
For more information:
Progressive Casualty Insurance Co.
6300 Wilson Mills Road
Mayfield Village, OH 44143
(440) 446-2361
www.progressive.com
©COPYRIGHT: The Rough Notes Magazine, 2000