Progressive discussed its huge improvement in third-quarter earnings Friday, which amounted to an 83 percent jump from last year, while executives announced plans to ramp up marketing for Snapshot Discount, less than a half-year after the insurer’s major move to let customers at competing insurance carriers test out its signature usage-based insurance (UBI) program.
Snapshot Test Drive Yields Low Volume but High Awareness
In much of the quarterly conference call hosted Friday with investors, CEO Glenn Renwick discussed Snapshot and said that the volume of consumers involved in the Snapshot Test Drive offer—which allowed policyholders at other companies to test the program for 30 days—had “underperformed our internal estimates.”
“Certainly we got an awful lot of interest, or clicks, but I’m not sure that that necessarily is the operative measure,” he said, adding that the company hopes to mold a “funnel” around the UBI program that will take in customers and lead them through other sectors within the insurance company.
“Everything we had hoped for on Test Drive is coming through, except the volume is less than we would have hoped,” Renwick said.
Still, Test Drive has brought a number of new customers that aids Progressive in understanding the relatively new concept of UBI insurance, according to Renwick.
“We’re learning things about the underwriting, the discount, the measurement period, so expect to see this be very dynamic,” Renwick said.
In what is the bright side of what Renwick called “a mixed bag” following the Test Drive’s debut in July, more than half of those participating in the test came from “the three auto companies that are, by market share, larger than us.”
The latest rankings from the National Association of Insurance Commissioners (NAIC) show that Progressive holds the fourth-largest market share in the U.S. auto coverage industry, trailing State Farm, Allstate and Berkshire Hathaway Group’s GEICO. Progressive, which holds nearly 8 percent of the market, is locked in a close race with GEICO, which holds just over 9 percent, according to NAIC data.
Test Drive was meant to “get people to sort of think about shopping who would not have otherwise have shopped,” Renwick said. “I would expect to get market share from companies that, perhaps, maybe had more entrenched customers—and that seems to be happening.”
Although the migration of customers sparked by Test Drive, which Renwick said has been used by “more than a million customers,” was significant, it has not been “dramatic enough to move the needle.”
Renwick said that he is pleased with “the mix of customers that are picking this up” and added that “that mix is flowing through to sales.”
What the insurance carrier hasn’t seen in expected new sales from Test Drive has still yielded “encouraging” results about awareness around the UBI program, Renwick said.
Consumer research has shown that 56 percent of the public is aware of Snapshot and 84 percent of them attribute it to Progressive, according to Renwick.
“I think that’s a pretty cool thing to have more than 50 percent of the consuming public aware of something like this,” he said. “Now we just need to turn that awareness into action; we’re going to keep plugging away at it.”
With Snapshot Awareness Up, Executive Maps Out Future
Renwick was unequivocal in his support of Snapshot, calling it a uniquely useful tool in an increasingly competitive marketplace.
“This is clearly something that is very exciting, there can be no question,” he said. “This is an underwriting variable that gives us insight to driving behavior and segmentation that no other variable has given us to date, at least in the same way.”
According to Renwick, Progressive has taken a wisely measured approach to Snapshot, which utilizes an in-car device to monitor motorists’ behavior like the duration, mileage and other driving habits, to offer discounts tailored to their habits.
A Web-based tracking system gives Snapshot participants the chance to view their results online as well as their eligibility for premium discounts.
“Giving discounts is a very, very tricky thing. You’re clearly reducing the margin on that particular—or the price on that particular—customer,” he said, adding that “everything we do, whether it’s Snapshot or Name Your Price or anything else, we design to meet the same financial targets.”
Lost revenue from discounts still invites new customers to the “funnel” that improves the insurance company’s performance as a whole, according to Renwick.
Discounts “translate into higher satisfaction scores, which translate into higher retention scores,” he said. “We just need have more volume through the funnel.”
The insurance company’s immediate hurdle is connecting consumers with the Snapshot product, according to Renwick.
“While there is a general understanding, there is still a fair amount of ambiguity as to exactly what to do about it and what it will do for me,” he said.
Based on its consumer research, the insurance carrier will shift its marketing of Snapshot in the first quarter of 2013, according to Renwick. Although he did not specify what that campaign will look like, Renwick said that it would be “quite different than what we’ve done before” and would “inspire people to better understand what Snapshot/Test Drive can do and will do for them.”
Insurer Plans Patent Licensing in 2015
Progressive owns several UBI-related patents surrounding Snapshot that Renwick said the insurance provider is willing to license “starting the second quarter of 2015.”
Until then, however, the insurer plans to defend those patents in court.
“We’ll be very clear that we don’t think people should be infringing on things that have been a significant amount of energy and work for us and have had patent protection,” he said. “So we’ll protect ourselves during that period of time, but we invite other insurers to show interest in licensing if they so wish. By that time, we’ll just continue to push, push, push.”
Progressive is currently engaged in a federal lawsuit it brought against The Hartford and State Farm over patents behind their respective UBI programs. State Farm’s Drive Safe & Save and The Hartford’s TrueLane programs utilize in-car devices that Progressive claims infringe on its own Snapshot-related patents.
The lawsuit, which was filed with the U.S. District Court for the Northern District of Ohio in April, is ongoing. Judge Benita Y. Pearson granted a motion on Thursday from Progressive to lift a moratorium on discovery evidence.
Executive Gives Hurricane Sandy Update
Responding to an investor’s query about Hurricane Sandy, CFO Brian Domeck said that the insurance company has already seen thousands of claims from the disaster.
There have been about 6,000 claims filed so far, according to Domeck, who added that two-thirds of those claims are related to flood damage while one-third is related to wind damage.
About 80 percent of claims are located in New York and New Jersey while 10 percent is located in Pennsylvania and Connecticut. The remaining 10 percent is spread across other impacted states, according to Domeck.
“Flood claims for us are probably going to be, more often than not, total losses,” he said. “Saltwater is not good for cars.”
The first view of the disaster’s financial impact on Progressive will be publicized in the insurer’s financial report for the month of October, which Domeck said will be released in 12 to 13 days.
Flo Has Been a Central Part of Insurer’s Marketing
Flo has been the face of Progressive marketing, and Renwick said the insurance carrier plans to continue “to make the case for both the Snapshot Discount and pre-purchase ability to ‘test drive’ Snapshot” in the coming year.
Last month, the character, involved in more than 80 commercials, was awarded a spot on both the “Top 10 Female Ad Icons of All Time” by marketing publication Advertising Age and Advertising Week’s “Walk of Fame” on Madison Avenue.
Flo’s “great quarter” has given the character “more than the expected 15 minutes of fame,” Renwick stated in a letter to investors in Progressive’s third-quarter report.