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

1. Innovation:
Pay-As-You-Go Insurance

2. Outline
• Progressive Company and History
• Innovations
• Autograph
• Future
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3. 3

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. 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
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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
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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 weren't
going to do it.” (Lewis 1988)

8. Reasons for
Differentiation
• Innovation culture of the company
• “Looking for opportunities to do things different and
new“ (Founder: Joseph Lewis)

9. 9

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
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11. Information Transparency
• Customers: very price sensitive
• High costs for workforce
•  Preposition103  Customer Orientation
• Reducing workforce
• Increasing direct sales
• Comparison Quotes
• Website
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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
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13. 13

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.
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15. Autograph Market
Test:
Houston (1998)
Texas State (1999)
COST $ 500 per vehicle
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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?
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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
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18. Final Decision
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19. Advantages
• market shares and global market
• company's reputation
• Customers increase
• first-mover advantage
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20. Disadvantages
• high costs and less reward
• approval from each state
• Time duration
• high risk potential
• liquidity issue
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21. Solution
• Do Not expand right away!!!
• time for research
• stay in Texas and expand slowly
• bigger cities only
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22. Thank you!
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23. Images
• Alphamen (2012). Decision Making. Retrieved Nov 18, 2012 from
http://alpha-men.net/wp-content/uploads/2012/01/decision-
making.jpg
• Allen Kleine Deters (2011). Do You Ask Good Questions?.
Retrieved Nov 18, 2012 from
http://allenkleinedeters.wordpress.com/2011/11/28/do-you-ask-
good-questions/.
• PORHOMME (2008). Insurance companies want to track us by
GPS. Retrieved Nov 18, 2012 from
http://www.porhomme.com/2008/09/wtf-insurance-companies-
want-to-track-us-by-gps/.
• Progressive Insurance (2006). Progressive Headquarters Sign.
Retrieved Nov 18,2012 from
http://www.flickr.com/photos/progressive_insurance/4838281534/
in/photostream
• Progressive Insurance (2007). Progressive Immediate Response
Vehicle, Arriving in the Rain. Retrieved Nov 18, from
http://www.flickr.com/photos/progressive_insurance/4834844557/
in/photostream.
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