INNOVATION AT PROGRESSIVE (A): PAY-AS-YOU-GO

INSURANCE
Submitted By:
Group 4
Kanupriya Gathoria
Kaberi Malakar
Mrunalinee Koli
Shaloo Nidhi Minz
Swetha Totha
Sheersha KK

How does Progressive's performance as an auto insurer compare to that of typical insurance companies? How
has its performance changed over time? What explains the difference in performance? 
Traditional competitors of Progressive are following state of the art, proven and experimented strategy, which
includes provision of competitive services and pricing is based on risk measured through historical data,
however, this strategy is not going to help companies for taking competitive advantage over its competitors.

Competitors are following strategy of charging premiums based on the traditional measures of risks, which is
measured using the past record of similar vehicles, driving habits, age, violation records, etc. On the other hand,
Progressive uses segmental pricing which are based on the nature and magnitude of harm that can occur from
violation.

Moreover, the competitors are weighting one aspect of risk measurement to offer insurance services and to
decide the level of risk premium; while Progressive is using sophisticated underwriting software to weigh all the
aspects of customer records in order to arrive at sensible premium levels, which gives it a competitive advantage
over competitors.

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? 

This sector of auto insurance comprised thousands of companies all vying for a share of the
multibillion-dollar market for personal and commercial insurance coverage. Hence it was
highly competitive and therefore highly price-oriented. This ensured that the suppliers were
very good at negotiating with the consumers and vice versa, especially because of the huge
competition. Customers were used to go to the supplier who offered the best price. This best
price either came at their own expense. The primary source of revenue in this insurance
business was earned premiums collected from policyholders to cover losses. The
second-largest component of their revenues derived from investment income. Insurers
invested funds set aside for loss reserves, unearned premium reserves, policyholders’ surplus,
and shareholders’ equity. Therefore these insurance companies have historically found it hard
to work the business and make money on it. This sector relied on more of substitute sources
for their income which is why they are trying to compete a lot in this industry and hence
trying to lower the price to gain more customers as much as possible while having a unique
selling point to stand out too. Even though it seems very hard to make profits in this industry
the company’s sophisticated software allows them to obtain a more precise and accurate risk
estimation that enables them to offer a better rate than other companies to certain segments
of the industry, which not only creates earnings for volume of sales but also maintains
customer’s loyalty. Additionally, the company has been proven eager to take advantage of
the technology easily available and integrate into its business process and is encouraging
innovative practices. This not only represents a competitive edge and help them to improve
the efficiency of the business processes they currently work on, but it also allows them to
expand their market and acquiring new clients by attracting specific segments of the
population with the same predisposition to embrace modern technologies. Hence, the
company has shown over time a high capacity to grow and to identify unexploited and

profitable business opportunities in a way that is required in this industry.Assess the viability of the Autograph
system. What level of consumer acceptance will it take to make Autograph successful? Should Autograph be
expanded nationwide? 
Progressive’s autograph insurance model is quite attractive and appealing to customers as it offers usage-based
insurance premium and risk is calculated based on the location, time, driver profile and so forth by giving
weight to each factor. In this way the prices charged to each customer will differ, hence, it will make a more
reasonable risk premium in accordance with the risk faced by the company. Consequently, customers with lower
risk exposure will be interested to buy insurance from Progressive in search of lower interest premiums, which
will increase the customer base and customers with more risk exposure will go to other competitors.

Autograph model can be extended to urban areas of other states of US were readily available infrastructure can
help Progressive in successfully launching the autograph model, moreover, the extension of autograph model
home insurance market may not be able to make a difference from the traditional way of charging premium,
however, renter insurance market can be approached with autograph model where the premiums are based on
the same factors except the driver profile. However, the extension of autograph into other states will require
detailed analysis of state policies regarding the insurance regulations.