The Progressive Group of Insurance Companies
Managers Leverage Ongoing IT Investments to Achieve Competitive Advantages
The Progressive Group of Insurance Companies literally started from a garage. Today, it is the third largest U.S. auto insurance group in terms of net premiums written. The company sells auto insurance, other specialty property-casualty insurance, and related services through a network of 30,000 independent insurance agents, via direct sales over the phone, and through its Web site. Its premiums increased from $2 billion to $14 billion between 1993 and 2005, as shown in Figure 1-5. Much of Progressive’s success is due to the leadership of its managers in investing in IT to support its many business innovations and fundamental business objectives for over 25 years. Progressive provides an excellent example for how a business can generate a sustainable advantage through continuous IT innovation.
Joe Lewis and his friend Jack Green were two young lawyers trying to eke out a living in Cleveland, Ohio, during the Great Depression. In 1937, they started Progressive on their own. Times were tough for starting a new business—many people were out of work and typical factory workers earned just $36 per week, when they could find work at all. To keep expenses down, the friends used an old garage for the company headquarters. They charged $25 for an annual insurance policy, which was a lot of money given the state of the economy. In recognition of the hard times, they allowed their customers to pay their premiums in installments. In another insightful innovation, they offered clients a drive-in claims service.30
Peter Lewis, Joe’s son, began his career in sales at Progressive shortly after graduating from Princeton in 1955. He was a bright, energetic young man who proposed many new ideas in an attempt to distinguish the company from its competitors.31
Peter Lewis often heard people complain about independent insurance agents who tried to persuade the company to cover high-risk drivers, including young drivers, people with points on their license, and people with a record of driving under the influence. At the time, other insurance companies wanted nothing to do with such drivers because they were considered unprofitable. Lewis, however, challenged the organization: “They’re bringing us potential business. Can’t we find a way to write these people?” It took a while for the idea to catch on—less than $100,000 worth of such policies were written in 1957. Over the next decade, however, this niche in the insurance market greatly expanded and became the foundation for future company growth.32
Early on, Progressive recognized the need to make significant investments in IT to achieve high-quality, efficient data processing. Such investments were planned well in advance as part of a five-year program, and each potential investment was subjected to vigorous cost/benefit analysis before proceeding.With each passing year, IT became a more important part of achieving operating efficiency and marketing success. Progressive’s pricing strategies were increasingly dependent on using more data than its competitors. For example, Progressive segments its customer groups more precisely than competitors, giving it more price points for a given group. This precision requires superior customer and claims data and excellent data processing capabilities.
One of Progressive’s first major IT initiatives was to develop an online computer system called PROTEUS (Progressive Online Transaction, Enquiry, and Update System). This system was developed to support the firm’s policy processing;33 it enabled workers to inquire into customers’ policy files and to quote rates for customers online. The most significant productivity and service gain from PROTEUS was the ability to enter, endorse, and cancel business online.
In 1988, Progressive faced two major challenges to its continued growth and profitability. First, a consumer backlash in California led to the passage of a referendum called Proposition 103, which ordered all insurance companies to roll back rates by 20 percent and forced them to refund $1.2 billion in excessive premiums to Californians. Progressive’s share of this total was $50 million.34 Second, Progressive learned that Allstate had surpassed it in its specialty of high-risk auto insurance, making Allstate the firm’s most threatening competitor.
Lewis sought out Ralph Nader, a longtime friend, Princeton classmate, and outspoken advocate of Proposition 103, to help him understand why consumers were so upset with insurers.35 It became clear that the source of customer ire was uniformly poor claim service and the inability to do comparison shopping for the best rates. In what proved to be a strategic move, Progressive decided to streamline and improve its services in assessment, adjustment, repair management, and claims processing.36
In a second strategic move, the firm decided to move from being a niche provider of high-risk auto insurance to a broad-based provider of personal auto insurance. This move put Progressive in direct competition with such major carriers as State Farm and Allstate
Progressive managers moved quickly to identify and implement several key IT innovations in support of these new business strategies. In 1989, Progressive introduced the next generation of its claims processing system, Progressive Automated Claims Management System (PACMAN).The goal was to expedite the claims process and squeeze out excess costs. PACMAN was a large, centralized, online database built on technology that was state of the art at the time. The system required many years of management time to define the system requirements, develop streamlined work processes, evaluate prototypes, and test all aspects of the system. Not only were claims representatives given extensive training for using the system, they were sent to an empathy training program to help them relate to the plight of their customers and focus on solving their problems.The new claimshandling process and automated system reduced the average time it took Progressive to process and pay a claim to six days. (The industry average was 42 days.) The improved process led to significant improvements in customer satisfaction and reduced customer defections by two-thirds.
To further speed up the claims process, Progressive managers implemented an Immediate Response® claims service in 1990.The service was available 24 hours a day, 7 days a week, and provided customers with personal service and support immediately after they reported a claim.
Customers could now call Progressive at any hour and talk with a trained claims representative, who could begin resolving the claim and offer immediate help. Progressive’s claims representatives were on constant call to go to the scene of serious accidents, which helped to ease the trauma of injured people and their families during a difficult time. Claim reports were entered into the proprietary online computer system, allowing Progressive to verify coverage immediately and make the information available to a nearby claims representative. As a result of the new “24-7” reporting and response capability, Progressive was able to contact 90 percent of its customers and claimants within 24 hours and close one-third of its total claims within seven days.
These rapid settlements had several effects—the dramatic time reduction not only decreased the costs of claims processing and administration, it also cut the cost of litigation, shrank the amount of fraud, and slashed the number of customer defections to other insurance firms. Beginning in 1991, Progressive saw a major reduction in its general, sales, and administrative expenses as a percentage of total revenue, as shown in Figure 1-6. This led “CEO Peter Lewis to establish an outrageous objective: Because faster was better for the customer and cheaper for the company, Progressive would settle claims instantly!”3
to help. The rep then surveys the scene, takes digital photos of the damage, develops a damage estimate using data stored on a portable computer, and writes a check to cover the estimated costs—often within an hour of the accident.38
Also in 1994, Progressive introduced 1-800-AUTO-PRO, the first comparison rate service available for free by phone. With one call, consumers received a Progressive quote and comparison quotes for up to three competitors. Customers then were given the option of buying insurance directly over the phone or through a local agent. (Today this service is available by dialing 1-800-PROGRESSIVE.) Because of the technical difficulty of developing accurate rates for other companies, and concern over the potential loss of customers from a competitor’s lower rates, Progressive first tested the program in California and then in Florida before rolling it out broadly.
In 1995, Progressive became the first major auto insurer in the world to launch a Web site. Policyholders can log in to update information, make payments, get vehicle recall information, and more. They can report accidents in minutes without picking up the phone. Customers also can schedule appointments with claims representatives and body shops while reporting claims online. Potential customers can view Progressive rates side-by-side with those of competitors.39
Never resting on its accomplishments, management identified further improvements for its claims service and rolled out the Claims Workbench in 1997. Progressive spent four years developing this software application, which enables claims representatives to move information between their wireless laptops and a mainframe to keep claims moving forward to resolution. The Claims Workbench allows claims representatives to have all pertinent information at their fingertips when they meet face-to-face with customers. Another application, Pathways, was developed to provide an encyclopedic listing of parts for nearly every car on the road. The claims representative uses Pathways to scroll through a database of parts, prices, and labor estimates to develop a settlement amount.
Lewis retired as CEO in 2000, after 45 years of outstanding service. The role of CEO was turned over to Glenn Renwick, who had served as the CIO. Even with the change in top management, Progressive continued its 25-year strategy of making ongoing investments in IT to improve operations.
Progressive worked closely with representatives of its independent agents to improve work processes, and worked with the IT organization to reduce costs and increase flexibility for product changes.The independent agents were provided electronic access to customer data, enabling them to provide more responsive service to their customers. These improvements increased the number of policy changes made directly by agents; enabled a substantial number of policies to be underwritten at the point of sale, including all underwriting data validation checks; increased the number of policyholders who chose installment plans and electronic funds transfer; and eliminated paper files and reports. Progressive’s commitment to expanding technology and improving workflows has made its expense ratios comparable to or lower than any competitor who distributes through agents.
By 2005, Progressive had successfully introduced its next-generation Web-quoting platform, which provided much faster online quotes and led to an increase in Web application completion. Progressive also introduced “talk to me” functionality, allowing Internet customers instant telephone access to a licensed professional who can access their quote in real time and provide counsel.
“I have often described Progressive as a technology company in the auto insurance business. Much of what we have achieved has been made possible by our talented information technology staff, and we certainly would not have been able to support our growth without extraordinary commitment to our technology capacity and capabilities.We see the future and our agents being very dependent on technology and we are developing applications that allow us and our agents to do more, easier and at less cost. We are placing equal emphasis on infrastructure platforms to maintain strategic or cost advantages. Our continuous investment in technology over the past several years has positioned us well to remain a leader in technology solutions for service delivery to both our customers and agents, and we are committed to a level of technology investment that ensures we never constrain the business.”
—Glen M. Renwick, Progressive President and CEO, in the 2003 annual report.
1. Visit the Progressive Web site and review recent press releases and financial statements. Can you find evidence that the firm continues to implement effective IT solutions that increase revenue, decrease costs, or improve customer service? Write a paragraph that summarizes your findings.
1. Why does Progressive keep modifying its basic claims processing system? After three or four generations of this system, shouldn’t it be right by now?
2. Progressive has a 25-year history of implementing change and new IT solutions. In a culture so attuned to change, is there less need for managers to help smooth the introduction and adoption of new IT systems? Defend your position.
Use the Change Management Continuum Model to plan a schedule and identify actions to support Progressive as it moves through the seven stages of commitment to implement its new customer and policy management system. Assume that the project started in January 2006 and will finish in June 2008.