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Progressive Corp..Ashky

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Progressive Corp..Ashky

  1. 1. Case Analysis MBAM619.11 Hongchul Jun, Yokesh Kumar, Samantha Tang, Kenny Toop, & Ali Yazdi
  2. 2. PEST Analysis- Political <ul><li>Proposition 103 (California)‏ </li></ul><ul><li>Prior to the passage of Proposition 103 on November 8, 1988, the California Department of Insurance operated under the McBride-Grunsky Insurance Regulatory Act. Under this Act, insurance companies were not required to file rates for approval except for health and life. California was considered an &quot;open competition&quot; state in which competition regulated the marketplace. </li></ul><ul><li>Prop 103 changed landscape of how insurance companies compete and brought clarity to consumers </li></ul><ul><li>State laws required most drivers of motor-vehicles to have auto insurance </li></ul><ul><ul><li>Each state issues regulations specifying minimum liability coverages and other mandatory coverages </li></ul></ul><ul><li>State governments required standard carriers to underwrite non-standard risks under the Assigned Risk Plans (later called Automonile Insurance Plans)‏ </li></ul><ul><ul><li>State regulators set premiums for non-standard risk applicatns </li></ul></ul>
  3. 3. PEST Analysis- Economic <ul><li>Car insurance premiums based on age, gender, marital status, vehicle information </li></ul>
  4. 4. PEST Analysis- Economic <ul><li>Unleaded Gas Prices, (Cents per gallon, NSA) </li></ul>http://www.economy.com/freelunch/protected/cht/default.aspx?task=chart&s=XCPMGASUW%2EUS
  5. 5. PEST Analysis- Economic <ul><li>Total Auto Sales (Ths., NSA)‏ </li></ul>http://www.economy.com/freelunch/protected/cht/default.aspx?task=chart&s=XRVEH%2EUS
  6. 6. PEST Analysis- Social <ul><li>Progressive strived to reverse reputation of the car insurance industry </li></ul><ul><li>Transform the human experience of dealing with customers providing low cost and high service </li></ul>
  7. 7. PEST Analysis- Technology <ul><li>“ Prince of Smart Pricing”- using data to analyze risk more efficiently resulting in better pricing </li></ul><ul><li>Express Quote Service- provided pricing clarity to customers in California </li></ul><ul><li>Track metrics such as “loss report lag time” to track how efficient Progressive was in their policies </li></ul>
  8. 8. Industry Chain Insurance Companies Internal Agencies Independent Agencies Governments Regulations Remote Selling Drivers Non-standard Standard Standard
  9. 9. Value Chain <ul><li>Where can an insurer gain an edge? </li></ul>M A R G I N <ul><li>Financial Policy - Legal - Organizational Form </li></ul><ul><li>Regulatory Compliance - Accounting - Incentive Systems </li></ul><ul><li>Actual Training </li></ul><ul><li>Actual Methods </li></ul><ul><li>Investment Practices </li></ul><ul><li>Information Technology </li></ul><ul><li>Actual Training </li></ul><ul><li>New Product Development </li></ul><ul><li>Market Research </li></ul><ul><li>Communication Technology </li></ul><ul><li>Adjuster Training </li></ul><ul><li>Settlement Procedures </li></ul><ul><li>Data Gathering </li></ul><ul><li>Rating </li></ul><ul><li>Underwriting </li></ul><ul><li>Investment </li></ul><ul><li>Policy Issuing </li></ul><ul><li>Billing and Collections </li></ul><ul><li>Claims Response </li></ul><ul><li>Loss Settlement </li></ul><ul><li>Loss Control </li></ul><ul><li>New Policy Sales </li></ul><ul><li>Policy Renewal </li></ul><ul><li>Policy Re-pricing </li></ul><ul><li>Create Network of Independent Agents/Build up Internal sales force </li></ul><ul><li>Agent MGMT. </li></ul><ul><li>Advertising </li></ul>FIRM INFRASTRUCTURE HUMAN RESOURCE MGMT. TECHNOLOGY DEVELOPMENT PROCUREMENT INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS AFTER-SALE SERVICE MARKETING AND SALES
  10. 10. Industry Analysis Source: http://www.census.gov/econ/census02/data/industry/E524126.HTM This industry comprises establishments primarily engaged in initially underwriting insurance policies that protect policyholders against losses that may occur as a result of property damage or liability. SIC Code - 6331 Establishments primarily engaged in underwriting fire, marine, and casualty insurance. Source: http://www.osha.gov/pls/imis/sic_manual.display?id=260&tab=description
  11. 11. Industry Analysis Year $ billion Market size grew from $21 billion in 1975 to $109 billion in 1993 The top 10 underwriters accounted for approximately 51% of the total market
  12. 12. Industry Analysis Source: http://www.naic.org/documents/research_premium_by_LOB.pdf
  13. 13. Industry Analysis Source: http://finance.yahoo.com/q/ae?s=PGR Over the next 5 years (from current) the industry and sector growths are forecasted to be 10.8% and 9.1%, respectively
  14. 14. Industry Analysis Standard Segment Nonstandard Segment <ul><li>Lower risk </li></ul><ul><ul><li>Excellent driving record </li></ul></ul><ul><ul><li>Typically between the age of 20 and 70 </li></ul></ul><ul><li>Higher risk </li></ul><ul><ul><li>Previous accidents and/or violations </li></ul></ul><ul><ul><li>First time drivers </li></ul></ul><ul><ul><li>Elderly </li></ul></ul><ul><ul><li>License previously suspended </li></ul></ul>The auto insurance industry generally breaks down their customers into two segments:
  15. 15. Data Gathering Inbound Logistics Operations Outbound Logistics Marketing & Sales After Sales Service Traditional Auto Insurance Industry Value Chain Underwriting margin : 2% Rating Underwriting
  16. 16. Immediate Response System <ul><li>Quick settlement of claims (56% settled within 7 days)‏ </li></ul><ul><li>Attorney involvement reduced by 20% </li></ul><ul><li>Reduced costs (e.g rental car,storage of damaged car etc.,)‏ </li></ul><ul><li>Satisfied customer promotes the company </li></ul>
  17. 17. Marketing & Sales <ul><li>Express Quote Service-compare price with other insurers </li></ul><ul><li>AutoPro-Reduced underwriting costs through direct calling (15% to 5%)‏ </li></ul><ul><li>Walk-in service center </li></ul>
  18. 18. Data Gathering Inbound Logistics Operations Outbound Logistics Marketing & Sales After Sales Service Progressive Auto Insurance Value Chain Immediate response System Process 30% more claims Underwriting Margin : 7.4% * *as of 2007 - Progressive annual report Rating Underwriting

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