Progressive Corp. has the technological capability to expand its presence in the commercial auto space even as the industry has seen narrowing profits and consistent losses recently.
The nation's top commercial auto insurance writer more than doubled its direct written premium in commercial auto from 2015 through 2019 to $5.58 billion, S&P Global Market Intelligence data shows. That book is set to grow further with a pending acquisition.
Progressive on Feb. 16 announced its plan to buy fleet insurance specialist Protective Insurance Corp., which has itself struggled to make money in the industry as high claims costs and swelling legal judgments have curbed profits industrywide. Protective Insurance booked an underwriting loss for the first nine months of 2020, though that figure was significantly smaller than the loss for the same period in 2019.
Protective Insurance would diversify Progressive's commercial insurance operation, and the latter has the analytics tools that might have "cracked the code" for business auto insurance profits, according to Keefe Bruyette & Woods analyst Meyer Shields.
Progressive's executives have reported strong uptake for its telematics-based application Smart Haul, which charges premium according to usage, since the onset of the COVID-19 pandemic.
The company's telematics-based expertise has given Progressive an advantage in bringing in new policies from commercial haulers with discounts for safer driving, KBW's Shields said in an interview. Skimming off other insurers' safest drivers might even be helping run up losses for competitors, he said.
"If Progressive is more precise in its driving analysis and therefore pricing, then it makes sense to me that it's actually the cause of a lot of its competitors' problems," the analyst said.
If the Protective deal closes, Progressive will venture into workers' compensation insurance for the first time with a program that Protective has included alongside its truckers and fleet insurance, Shields noted. Progressive could use its data capabilities to "out-analyze" and therefore out-price competitors in yet another line, he added.