Innovation: Pay-As-You-Go

Insurance

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Outline

• Progressive Company and History

• Innovations

• Autograph

• Future

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ProgressiveShort Overview

• Auto insurer founded 1937 • was the first insurer

o to enter the high risk market o offered high service for customer

• does things different compare to other insurer when setting a premiumo price (on finer level)o drivers historyo continuously search of new opportunities

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History• 1937 Joseph Lewis founded Progressive

Insurance Industry in Cleveland, Ohio offering

drive-in claims service with the ability of

customers to pay over time

• 1956 Progressive started to write auto insurance

for high risk drivers and became dominant player

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History• 1988 Son of Lewis, became the CEO and got the

idea of dealing with insurance in a more

innovative way

• The next years Progressive achieved in

technology introducing:

IMMEDIATE RESPONSE SERVICE available 24/7

• 1993 Give Comparison Quotes to people

Reasons for Differentiation

• Proposition 103 in California 1988

• It was the best thing that happened to this company(...)I decided from then on, anything we did had to be good for the consumer or we weren't going to do it.” (Lewis 1988)

Reasons for Differentiation

• Innovation culture of the company

• “Looking for opportunities to do things different and new“ (Founder: Joseph Lewis)

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Innovations• fast reliable service with high educated staff,

which was highly paid

• could now compete with the big opposition like

Allstate and State Farm

• higher goals with sophisticated staff and ideas

• always venturesome

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Information Transparency

• Customers: very price sensitive• High costs for workforce

• Preposition103 Customer Orientation

• Reducing workforce• Increasing direct sales• Comparison Quotes• Website

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Customer Segmentation

• Different sources/variables into calculation• More detailed risk estimation• Extensive and state-of-the-art software

• Competitor with lower rate higher risk of losses

• High satisfaction with Immediate Response• Fast service

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• High-tech method for calculating auto insurance premiums on a pay-as-you-go basis.

• Tracking mileage, time of day and where driving occurred.

• Example: A mile driven at 2 a.m. was four or five times more expensive than one driven at 7 a.m.

Autograph

GPS satellites

Mapping technolog

y

Internal computer

When and how much a vehicle

was driven

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Autograph Market Test:Houston (1998) Texas State (1999)

COST $ 500 per vehicleGPS

transponder

Cellular Communicati

on

Small Computers

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• Drivers who signed up for Autograph were offered: Theft recovery Remote door unlocking Travel directions Low-battery detection Emergency assistance help

• Using autograph, consumers are paying 25% less than “traditional“ products...

• Does Autograph offer a competitive advantage?

75%

25%

Premium Calculation

AutographTraditional

1.100 policyholders

Progressive Customers

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Barriers to Consumer

Acceptance• Higher Premiums for consumers who commute at night

• Monthly fee for the additional set of services (GPS-based)

• Cost of installing GPS transponder, cellular system , etc.

• Lack of privacy

• Focus on new technologies, losing sight of the insurance business

NoYes

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Final Decision

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Advantages

• market shares and global market

• company's reputation

• Customers increase

• first-mover advantage

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Disadvantages

• high costs and less reward

• approval from each state

• Time duration

• high risk potential

• liquidity issue

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Solution

• Do Not expand right away!!!

• time for research

• stay in Texas and expand slowly

• bigger cities only

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Thank you!

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Images• Alphamen (2012). Decision Making. Retrieved Nov 18, 2012 from

http://alpha-men.net/wp-content/uploads/2012/01/decision-making.jpg• Allen Kleine Deters (2011). Do You Ask Good Questions?. Retrieved Nov

18, 2012 from http://allenkleinedeters.wordpress.com/2011/11/28/do-you-ask-good-questions/.

• PORHOMME (2008). Insurance companies want to track us by GPS. Retrieved Nov 18, 2012 from http://www.porhomme.com/2008/09/wtf-insurance-companies-want-to-track-us-by-gps/.

• Progressive Insurance (2006). Progressive Headquarters Sign. Retrieved Nov 18,2012 from http://www.flickr.com/photos/progressive_insurance/4838281534/in/photostream

• Progressive Insurance (2007). Progressive Immediate Response Vehicle, Arriving in the Rain. Retrieved Nov 18, from http://www.flickr.com/photos/progressive_insurance/4834844557/in/photostream.