Huge And Smart Progressive Case
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Transcript of Huge And Smart Progressive Case
Automobile Insurance Industry Analysis
Chace Estes, Benjamin Fieman, Greg Holt, Anthony Kohrs, Jasmine Olkh, Natalie-Rosanna Rebot
Car Ownership Growth
Number of registered vehicles increasing at stead rate, translating into growth of auto insurance industry.
PEST Analysis
NoneIncreased EfficiencyAllowed for faster communication between agents and headquarters & shorter claims processing times
Installed $28 million computer system
TechnologyChange
NoneAllowed for a more refined pricing system
Smart pricingPicking “better risks”Social Change
CompetitionGreater demand for auto insurance
Led to increased car ownership
Purchasing power increased steadily
EconomicChange
Long Haul Truck Insurance industry was a risky market
Forced Progressive to attack other markets.
Retroactive price roll-back of 20% and profit-cap. Caused Progressive to move partially out of CA market
Prop. 103 &Long Haul Truck Insurance
Political Change
ThreatsOpportunitiesImpact of Change
Nature of Change
Auto-Insurance Industry Analysis
• NAICS 52412: Direct Insurance (except Life, Health, and Medical) Carriers
• This industry comprises establishments primarily engaged in initially underwriting (i.e., assuming the risk and assigning premiums) various types of insurance policies (except life, disability income, accidental death and dismemberment, and health and medical insurance policies).
Auto-Insurance Industry Analysis
IndustryDetail
NAICScode
NAICS Title(and link to definition)
Establishments Revenue ($1,000)
Annualpayroll($1,000)
Paidemployees
52 Finance & insurance 395,203 2,197,771,283 264,551,401 5,835,214
524 Insurance carriers & related activities
172,299 1,072,784,074 92,230,010 2,327,306
5241 Insurance carriers 38,739 995,511,823 65,858,315 1,588,015
52412 Other direct insurance carriers
23,561 307,694,978 30,374,111 683,119
524126 Direct property & casualty insurance carriers
20,903 299,236,173 28,655,057 639,751
Auto-Insurance Industry Analysis
Auto-Insurance Industry Analysis
Auto-Insurance Industry Analysis
DescriptionMarket
Cap P/E ROE %Div. Yield
%Price to
BookNet Profit
Margin (mrq)
Price To Free Cash Flow
(mrq)
Financial 5367.76B 6.503 16.284 6.888 1.372 13.259 3.116
Property & Casualty Insurance 320.34B 2.3 13.2 2.958 0.91 10.8 4.8
Allstate Corp. 11.54B 56.958 1.089 7.5 0.913 -17.187 NA
Hartford Financial Services Gr 3.77B NA -8.557 1.5 0.3 NA 2.471
Mercer Insurance Group Inc. 90.16M 8.492 8.013 2.1 0.713 4.496 -10.947
Mercury General Corp. 1.83B NA -1.648 7.1 1.082 -30.616 19.896
ProAssurance Corporation 1.69B 11.288 12.074 NA 1.265 18.531 -2179.25
Progressive Corp. 8.89B NA -1.53 0 2.109 4.545 NA
State Auto Financial Corp. 888.05M 79.61 1.328 2.7 1.126 -4.89 -45.136
21st Century Holding Co. 31.49M 3.739 10.555 18.1 0.395 -9.537 -2.916
General Flow of Automobile Insurance Industry
Channel of Policy Sold Underwriter
Internal sales forceIndependent agentsRemote selling methods
Background checkPremium determinedPolicy writtenPremium paid
Invest
ROE of 9%
Liability Coverage
Claims and OperationsImmediate Response System
$100
$9
$6.40 {File Claim
Call 1-800Fault
Action
Tow truckRental carAppraiser
Repair
EstimateBody shop
Return
Return carAdjust premium
Channel SalesAnd Service Rate/Quote Underwriting
Policy Issuance
Claims Processing
General Flow of Automobile Insurance Industry
Channel of Policy Sold Underwriter
Internal sales forceIndependent agentsRemote selling methods
Automobile Insurance Industry Value Chain
Background checkPremium determinedPolicy writtenPremium paid
Invest
ROE of 9%
Liability Coverage
Claims andOperationsImmediate Response System
$100
$9
$6.40 {File Claim
Call 1-800Fault
Action
Tow truckRental carAppraiser
Repair
EstimateBody shop
Return
Return carAdjust premium
Channel SalesAnd Service Rate/Quote Underwriting
Policy Issuance
Claims Processing
Progressive Value Chain
Inbound Logistics Operations Outbound Logistics Marketing and Sales After-Sale Service Customer
Premium paid by customer
Data Gathering
Customer satisfaction
Profit
Value Added
Better Bets
Rating, Underwriting and Investing
Competitive Premium
Policy issuing, billing and collections
New policy sales, policy renewals, advertising
Increased awareness and direct sales
Time value of money
Claims, train, recruiting, immediate response system
Inbound Logistics
After-Sale Service
Marketing and Sales
Outbound Logistics
Operations
Value Creating ActivitiesGeneral Flow of Progressive’s Value Creating Activities
Inbound Logistics Operations Outbound Logistics
Marketing and Sales
After Sales Service
Satisfied Customers!
Number Crunching
Billing andCollections
DataGathering
Value Creating Activities
• Inbound Logistics:
– Data gathering.
– Collecting and analyzing accident data.
– Personalities, lifestyles, and driving habits of risk groups.
– Extensive data gathering resulted in 11 age categories and 14,000 different premium options.
– Conservative investment strategy: most liquid portfolio of all major auto insurance companies.
Value Creating Activities
Operations
• Actuary Training
• Actuarial Methods & Investment Practices.
• Information Technology
• Rating, Underwriting, & Investing
Value Creating Activities
Outbound Logistics
• Policy Issuing
• Billing & Collections
Value Creating Activities
Immediate Response System
• Personal contact was made within 24 hours with over 75% of claimants.
• 56% of all claims were settled within 7 days.
• A toll-free 24 hour number was set up.
• Claim adjusters could write checks at the scene of the accident.
Value Creating Activities
Marketing and Sales:• Agent Training
• New Product Development & Market Research
• Communication Technology
• New Policy Sales
• Policy Renewal
• Policy Repricing
• Create Network of Independent Agents/ Build up Internal Sales Force
• Agent Management
• Advertising
• Introduction of the Express Quote Service in California in 1992
Value Creating Activities
After-Sale Service
• Adjuster Training
• Settlement Procedures
• Claims Response
• Loss Settlement
• Loss Control
Value Creating Activities
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Loss ratio Underwriting expense Salaries and feesexpense
Net income/surplus
Progressive
0.00%10.00%20.00%30.00%40.00%
50.00%60.00%70.00%
Loss ratio Underwritingexpense
Salaries and feesexpense
Average netincome/surplus
Industry