Progressive Insurance:  Going Beyond The Niche

In 1951, Progressive established its home office in Cleveland, OH.  After the death of co-founder Joe Lewis in 1955, Jack Green became President and Chief Executive Officer.  Peter Lewis, Joe's son, began his career with Progressive shortly after graduating from Princeton in 1955. 

As other insurance companies began to enter the standard auto arena, Peter Lewis assisted in Progressive's earnest search for another market, eventually identifying nonstandard auto.  In late 1956, Progressive Casualty Company was formed to write nonstandard auto insurance.

Skipping ahead to 1992, Progressive distinguished itself in the insurance industry by providing consumers with a cutting edge auto insurance comparison rate shopping service: 1-800-AUTO-PRO.  In 1995, Progressive became one of the first major auto insurance companies with a presence on the World Wide Web.  In 1997, Progressive became the first U.S. auto insured to offer real-time online sales of auto insurance at progressive.com.  In 1999 Progressive became the fourth largest auto insurance company in the country.  In the fourth quarter of 1999, Progressive's Web site received more unique visitors than any other auto insurance company site, according to Nielsen Net//Ratings.

With nearly 19,000 Progressive people nationwide in over 350+ offices, serving 48 states and the District of Columbia (not in MA and NJ), Progressive has proved its role as the fourth largest insurance company in the United States. 
Progressive has over 30,000 authorized agents set up throughout the country offering many types of insurance.  Among them  are: automobile, motorcycle, recreation vehicle(RV), commercial vehicle, personal watercraft, boat, and all terrain vehicle (ATV).

What is High Risk?
When someone needs auto insurance and they are a high risk candidate, Progressive is usually the company that they will call.  For years Progressive has been associated with high risk insurance coverage, covering all sorts of nonstandard auto equipment such as motorcycles and snow mobiles.  In 1998 Progressive become the number one motorcycle insurer in the country.  On May 3, 2000, Progressive announced that in Texas and Alabama consumers can buy motorcycle insurance policies and be covered instantly online at its Web site.  To purchase a policy online, consumers may use a major credit card or an online check that transfers funds directly from their checking account.  Progressive companies writing insurance receive among the highest ratings available from A.M. Best, the independent company that rates financial conditions of insurance companies. 
 

Example of High Risk
High risk coverage does not only include the type of vehicle one is driving, but the drivers previous driving record as well.  If an indivual is a male between the age of 18-25, has had any prior accidents and/or speeding tickets and is drivng a sports car, he is considered to be a high risk candidate.

Why Do We Need Auto Insurance? 
In the state of Ohio it is mandatory.  State laws typically state that as a driver, you either must have insurance, or be able to provide evidence that you have the financial resources to pay a judgement against you if you cause injury or damage to another person.  Therefore, and inurance policy is the easiest way to document that you can pay damages.  Auto insurance is designed to protect you financially.  If you or anyone for whom you're responsible seriously injures another person, you can be held liable for the injured person's medical expenses, rehabilitative therapy and long-term nursing care, as well as for his or her lost earnings.

Who Are Their Competitors? 
Progressive's three largest competitors are  State Farm, Allstate and Vesta.  State Farm Insurance insures about 20% of US automobiles.  Statefarm provides auto insurance as well as homeowners, nonmedical health, and life insurance.  State Farm operates throughout the US and Canada and has some 16,500 agents.  Allstate Insurance, the "good hands" company is the second largest US personal lines insurer behind State Farm.  Its core auto lines account for 75% of sales, the company also sells other property/casualty (homeowners and specialty lines) and life insurance in North America and Asia.  Allstate operates through some 15,500 Allstate agents and an additional 13,000 independent agents.  Vesta Insurance Group focuses primarily on personal insurance, offering preferred, standard and nonstandard automobile (about 65% of personal lines) and homeowners insurance.  

According to the charts below, Vesta had the smallest in actual sales, but is growing the fastest.  Progressive is the second fastest is sales growth over a one year period. 
 

The Long and the Short of It
Progressive is currently coming out a slump.  The stock is more than 55% off its annual high, and down more than 44% over the last 52 weeks.  Progressive is not meant for investors who are in a hurry, but more of a long-term investment.  It is important for this company to increase revenues and use the convenience of the Internet becasue it will help improve customer retention.  In a recent analyst meeting, executives noted that even a 5% increase in retention would translate into $37 million, or about $0.32 per share after tax profits.  Progressive recently announced that it will miss estimates for the third quarter in a row.  A combination of lower policy pricing combined with a bad year which saw the company get hit with $7 million in auto claims from Hurricane Irene were to blame for the earnings' shortfalls.  

When the company launched its Web site and was forced to lower rates was the need to take on a number of new claims personnel to ensure proper service and claims handling.  The company hired roughly 5,000 people, almost doubling the size of the claims department over the last three years.  It takes a few years for these reps to get up to speed and earn their keep.  

Progressive is also winding down its Canadian operations and reducing the volume of nonstandard auto premiums written by Midland Financial Group, which was acquired in 1997.  Each of these groups contribute less than 1% of the company's consolidated net premiums written.

Finally, Progressive is constructing a corporate office complex in Mayfield Village, Ohio at an estimated cost of $105.5 million, of which $56.3 million has been paid through September 30, 1999, including $14.1 million paid in the third quarter 1999.  The first of the four builings was complete in May 1999, with the second building to be completed by the end of 1999.  The whole project should be complete by February 2001 if all goes as planned. 
 

Resources 1. Rigby, Bill. "UPDATE 1-Progressive falls into loss on old claims". Yahoo Finance.  April 16, 2000. Article. 2. Rigby, Bill. "UPDATE 2-Allstate Q1 profit falls on storm costs". Yahoo Finance.  Aprl 16, 2000. Article. 3. "Progressive Insurance Strengthens Its Operations With Mitchell UltraMate:" The Washington Post Interactive.   March 28, 2000.Article 4. "1 Motorcycle Insurer Announces That Texas Motorcyclists Can Now Buy Insurance Online:" The Washington Post Interactive. May  3, 2000.  Article. 5. About Progressive.  Progressive Online. Article. 6. Progressive Facts. Progressive Online. Article.  7.Our History. Progressive Online. Article.  8. "Progressive reports loss on last year's storm damage". Yahoo Finance. April 18, 2000. Article.  9. Curtis, Glenn. "Progressive Corp.: Waiting for the Web to Work". Yahoo Finance. March 30, 2000. Article.  10. "Four Insurers File $60 Million Civil Suit Against Group of New York Doctors, Chiropractors and Lay People in Statewide Elaborate Medical Fraud Scam:" The Washington Post Interactive. March 15, 2000.  Article. 11.  What Makes Progressive Progressive? Progressive Online. Article 12. Vesta Insurance Group, Inc. Hoover's Online. Article. 13. State Farm Insurance Companies. Hoover's Online. Article.  14. The Allstate Corporation. Hoover's Online. Article.   15. Auto Insurance FAQs. State Farm Online. Article.  *A Racey Interview With Mr. Lewis Loomis, Carol. "Sex. Reefer? And Auto Insurance!". Fortune Archives. August 8, 1995. Article.  **Other Valuable Web Sites Fortune 500 Hoovers Online The New York Times The Wall Street Journal Yahoo The Washington Post Northern Light CNN MSNBC