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Innovation At Progressive Insurance

INNOVATION AT PROGRESSIVE ± Pay As You Go Insurance1

Progressive had captured 10% of the market and as the largest writer of auto insurance wrote
80% of its insurance premiums through independent agents. As an insurance company, it
displayed strong characteristics of success, incrementally attained. Their methodology seemed to
have a close correlation to the design rules for innovation, as expressed by Gary Hamel2.
According to Hamel, ³no company outperforms its aspirations´. For Progressive their goals were
ambitious but they were able to prove that they could outperform the average. They had the
unique ability to finely segment using the appropriate information, data mining and statistical
analysis, possessed the necessary proprietary software and the challenging strategy; they seemed
to have all the prerequisites necessary to expand their market share.
Their business definition was fairly elastic, expansive and changing. As Hamel suggests they
defined GBETTER GRADES
themselves on the basis of competences and assets. They knew they had great software, namely
their ³Claims Workbech´, they had good data, but most importantly they had great assets, which
were their employees. Their philosophy was to hire the best and pay the most; an open market
for talent.
Progressive showed that they had a cause and did not only run a business. The basis for the
implementation of their fast service, was that overall it would cost the business less and more
importantly provide their clients with immediate service in the most efficient and equitable way.
These efforts seem to set the preconditions to success.
Their Immediate Response Program (IR) which utilized over 350 local claim offices and over
1400 IR vehicles, seemed to be comparable to the concept of cellular division, each unit being
responsible for their own claims. This model provided the
opportunity to nurture the entrepreneurial abilities of the agents. The managers had an on-hands
advantage and the results were...
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ÿ at was t e 1982 Reagan Plan?

Ronald Reagan was the first President to see Israel as a valuable ally in the Cold War. Reagan
once wrote:

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The Israelis cultivated Washington's perception of their capability to deter the Soviet Union,
while the Arab states refused to join the "strategic consensus" that Alexander Haig tried to create
to oppose Soviet expansionism in the region. By mid-1982, Reagan Administration attempts to
align Arab Middle Eastern states with the US and blunt potential Soviet moves in the region
were faltering. The Iranian revolution and the Soviet invasion of Afghanistan gave the ideas
some credibility, but Arab leaders were not motivated to respond to the American initiatives.
Arab Governments were reluctant to become identified with American political objectives, but
there was progress toward military cooperation since this directly benefited the Arab states.

The series of clashes along the Israel-Lebanon border, followed by Israels invasion of Lebanon
in June of 1982, turned the attention of the Reagan Administration toward the Israel-Arab
conflict. In June 1982 the Secretary of State, Alexander Haig -- a leading advocate of close
relations with Israel -- resigned. The stage was thereby set for an experiment by a section in the
State Department, supported by the incoming Secretary of State, George Shultz, and the National
Security Adviser, William Clark that favored a pro-Arab tilt and a top priority effort to find a
negotiated settlement of the Arab-Israeli conflict.

Influenced by the State Department's Bureau of East Affairs, under the leadership of Assistant
Secretary of State Veliotes, they argued that there was a major opportunity for a breakthrough to
peace. Jordan was believed ready to enter negotiations, possibly with the permission or, they
hoped, even with the PLO's participation. Ambassador Philip Habib assured Shultz that Syria
was ready to negotiate its withdrawal from Lebanon. Unfortunately for peace, all these assertions
were proved erroneous during 1983.

The Reagan plan approach grew out of the belief that the US must show progress towards
solving the Arab-Israeli issue -- or, at least, make energetic attempts in that direction -- to retain
US influence in the Arab world. The policy was meant to show the Arabs that America was
trying to respond to their grievances. There was also an important domestic political component
or Reagan. In a speech delivered on September 1, 1982 President Reagan outlined a proposed
solution for the Arab-Israeli conflict. He labelled his position as the "next step" in the process
that was begun with the Camp David Accords to pave the way for autonomy for the Palestinian
people. He spoke of ""the legitimate rights of the Palestinian people and their just requirements."
He proposed a five-year transition period for "the peaceful and orderly transfer of domestic
authority from Israel to the Palestinian inhabitants of the West Bank and Gaza" and a freeze on
new Israeli settlements during that time. Self-government by the Palestinians of the West Bank
and Gaza would be in association with Jordan and not a separate state. Jerusalem would remain
undivided, its final status to be decided through negotiations.

Jordan, Saudi Arabia, Egypt and the PLO's Arafat had been consulted in preparation of the plan,
but Israel had not been notified by the Reagan Administration until right before the speech. In
fact, the American Secretary of State had met with Israeli Foreign Minister Abba Eban a few
days before and concealed the imminent announcement from him.

Although Labor leader Peres expressed support for the plan, Prime Minister Menachem Begin
and the Likud opposed it. Begin reacted very negatively, calling the plan "national suicide for
Israel". In September Begin wrote to Ronald Reagan:
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The Reagan Plan was finally rejected by Jordan and the PLO in April 1983 -- a development that
discouraged Washington about prospects for settlement of the Arab-Israeli conflict and the
reliability of Arab "moderates". Consequently, the US-Israel alliance was strengthened,
recovering from the blows it had suffered during Israel's 1982 invasion of Lebanon, and Syria
was again identified as the prime obstacle to regional stability.

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