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Progressive: Pay-as-you-go insurance


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Innovation at Progressive (A) - Harvard Business School
Answering the following questions:
1. How does Progressive’s performance as an auto insurer compare to that of typical insurance companies? How does its performance changed over time? What explains the difference in performance?
2. Customers of auto insurers are very price sensitive. How problematic is it to Progressive that customers almost always select the insurer that offers the best price?
3. Assess the viability of the Autograph system. What level of consumer acceptance will it take to make Autograph successful? What are the barriers to consumer acceptance? Should Autograph be expanded nationwide?

Made and presented for the course Service Operations Management at the Viadrina University, winter term 2012/2013

Published in: Business
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Progressive: Pay-as-you-go insurance

  1. 1. Innovation:Pay-As-You-Go Insurance
  2. 2. Outline• Progressive Company and History• Innovations• Autograph• Future 2
  3. 3. 3
  4. 4. Progressive Short 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 premium o price (on finer level) o drivers history o continuously search of new opportunities
  5. 5. 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 5
  6. 6. 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 6
  7. 7. 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 werent going to do it.” (Lewis 1988)
  8. 8. Reasons for Differentiation• Innovation culture of the company• “Looking for opportunities to do things different and new“ (Founder: Joseph Lewis)
  9. 9. 9
  10. 10. 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 10
  11. 11. Information Transparency• Customers: very price sensitive• High costs for workforce•  Preposition103  Customer Orientation• Reducing workforce• Increasing direct sales• Comparison Quotes• Website 11
  12. 12. 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 12
  13. 13. 13
  14. 14. Autograph• High-tech method for calculating auto insurance premiums on a pay-as-you-go basis. When and GPS Mapping Internal how much satellites technology computer a vehicle was driven• 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. 14
  15. 15. Autograph MarketTest:Houston (1998)Texas State (1999)COST $ 500 per vehicle 15
  16. 16. Progressive Customers Premium Calculation 25% Autograph 75% Traditional• Drivers who signed up for Autograph were offered:  Theft recovery  Remote door unlocking  Travel directions 1.100  Low-battery detection policyholders  Emergency assistance help• Using autograph, consumers are paying 25% less than “traditional“ products...• Does Autograph offer a competitive advantage? 16
  17. 17. Barriers to Consumer Acceptance Yes No• 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 17
  18. 18. Final Decision 18
  19. 19. Advantages• market shares and global market• companys reputation• Customers increase• first-mover advantage 19
  20. 20. Disadvantages• high costs and less reward• approval from each state• Time duration• high risk potential• liquidity issue 20
  21. 21. Solution• Do Not expand right away!!!• time for research• stay in Texas and expand slowly• bigger cities only 21
  22. 22. Thank you! 22
  23. 23. Images• Alphamen (2012). Decision Making. Retrieved Nov 18, 2012 from making.jpg• Allen Kleine Deters (2011). Do You Ask Good Questions?. Retrieved Nov 18, 2012 from good-questions/.• PORHOMME (2008). Insurance companies want to track us by GPS. Retrieved Nov 18, 2012 from want-to-track-us-by-gps/.• Progressive Insurance (2006). Progressive Headquarters Sign. Retrieved Nov 18,2012 from in/photostream• Progressive Insurance (2007). Progressive Immediate Response Vehicle, Arriving in the Rain. Retrieved Nov 18, from in/photostream. 23