STRATEGIC MANAGEMENT

PROGRESSIVE STRATEGY SHEET

STUDY GROUP E7

1. The Loss Ratios of Progressive have consistently been better than the peers from 1995-1999.
However, the expense ratios of Progressive are one of the highest in the industry, far above
the industry average.
Progressive has a culture which promotes innovation and investments in research and
development. Moreover, their innovative approach to better serve customers inspite of having
higher expenses is the cause of their higher than industry average expense ratios.

The combined ratios of both GEICO and Progressive are comparable. (GEICO had the lowest
expense ratios in the industry) This means that the higher expenses incurred by Progressive
on its products enable it to charge higher premiums to its customers, which results in the
benefits of higher premiums being offset by higher expenses.

2. Arenas
a. Progressive is the fourth largest auto insurer in the USA
b. Auto insurance is the primary revenue generating business segment
c. Innovation fuelled growth, with focus on better segmentation and quicker services.
d. Additional non-insurance services such as theft recovery, remote door locking, travel
directions etc. offered as a part of Autograph
Vehicles
a. Insurance primarily sold via independent agents
b. IRV – Immediate Response Vehicles used for quick deployment and settlement of claims
c. GPS based calculation of premiums based on miles driven
Differentiators
a. Competitive pricing, providing insurance quotes to bad risks as well
b. Early adoption of technologies, innovation in segmentation (customisation) and quick
provision of services
c. Non-insurance related value added services
Staging
a. Fast paced and ambitious expansions, with movements from high-risk businesses to
standard sectors and low-risk policies.
b. Growth from 9th largest to 4th largest Auto insurer in US from 1993 to 1998.
Economic Logic
a. Premium prices charged because of both proprietary product features such as non-
insurance add-ons and better segmentation of better risks, and unmatchable services by
means of quicker deployment of IRVs and claim settlements.
b. However, advantages of higher premiums offset by higher costs of execution and
investments in innovation and R&D.
3. Yes, Autograph is viable, provided the segmentation accurately represents the riskiness of the
claims. Segmenting customers better and providing them with better services will enable
Progressive to charge them more accurate premiums which reflect their actual risk, as well
allow it to add surcharges on these premiums for the quality of services provided. Further,
data mining will be an additional source of revenues for the company.

However, issues which can potentially hamper its proper implementation:

a. Issues with privacy: Customers might be reluctant to be recipients of targeted

advertisements (collected via GPS tracking and then used in data mining)
b. Higher costs of implementation and R&D being passed to customers in the form of higher
premiums and additional non-insurance services. Apart from convenience of quick
disbursal of claims, insurance is not a differentiated product, and customers may become
price sensitive.
c. Focus on ancillary services and additional streams of revenue might take company away
from its core competencies of earning money by means of premiums and investments
income.