Theinroads ProgressiveCorp. has made in winning business through comparative raterapplications — the real-time, risk-by-risk auction that serves as the original sourcefor a majority of its quotes generated from independent agents — providesinsight into the steady improvement the company has recently achieved in agencyauto policies in force growth.
PersonalLines President Patrick Callahan, speaking during Progressive's Oct. 6 investorday, presented a slide that showed comparative rater conversion rates atconsiderably higher levels through the first half of 2016 than in the sameperiods of 2014 or 2015. He described those conversion rates as "the bestbenchmark" for Progressive's competitiveness through the agency channel.
Callahansaid that conversion rates and quotes, Progressive's two primary drivers of newbusiness growth, have each played a roughly equivalent role in turning aroundthe agency channel. August served as the eighth-consecutive month in whichagency auto policies in force increased on both month-over-month andyear-over-year bases. The year-over-year growth rate of just under 5% markedthe company's strongest such result in any month in nearly four years.
"Wedidn't just restore [agency auto business volume], it's at the highest levelever," said President and CEO Tricia Griffith.
Callahansaid that new business trends turned positive in the agency auto business about"midway through 2015," a time in which the business had been mired ina 17-month stretch of unfavorable year-over-year comparisons in agency autopolicies in force and when the direct auto business achieved the milestone ofboasting a higher share of the company's total personal auto policy count.
"Ournew business growth continues to be up in the double digits on year-over-yearbasis ever since," said Callahan, who described new business asProgressive's "lifeblood."
Competitive rates alone are insufficient to driveconversions in the agency channel, he added. Service, ease of use andcompensation also contribute.
WhenCallahan addressed the impact of comparative rating on Progressive's agencyauto business during a previousinvestor day in May 2015, he observed a widening in conversionrates from the business generated through those applications relative to whatthe company achieved through its proprietary quoting platform. He attributedthe divergence to more carriers participating in comparative rating and asituation where agents were increasingly selling price to their customers.Plus, he added, Progressive had been raising auto rates at a time in which itscompetitors were becoming increasingly aggressive in seeking new business.
"Carriers that play in this auction environment runthat razor-thin line between winning a piece of business that they're not goingto be profitable on and losing a piece of business that they had the potentialto deliver their target profit margin," Callahan said in May 2015.
While the executive observed during the Oct. 6 event thatProgressive does a "great job" in acquiring new business, he saidthat the success in the agency channel extended to customer retention, as well.
"Sustainable premium growth doesn't just come fromacquiring new customers," he said. Progressive's agency channel retentionrates suffered a "dip" from early-to-mid 2015, Callahan said, butadded that the company has "been increasing our agency policy lifeexpectancy month-on-month ever since." He attributed the improvement to animproved mix of new customers and investments Progressive made in customerrelationship management.
Callahan said that he has been "particularlyexcited" that Progressive's agency policy life expectancy had increased atthe same time the company had been raising rates by low-single digitpercentages.
"The combination of being able to improve retentionwhile also increasing rates indicates to us two things: No. 1, marketconditions are fantastic for growth in the agency channel and we are reallywell-positioned and No. 2, given the plethora of choices that agents have tomove business to when rates go up, the fact that our rate increases aresticking indicates to us we've got stronger relationships that are forming theagency channel, and that's a critical element of our long-term destinationsuccess," he said.
Making Progressive a "destination" for personallines customers has been a key to the company's business strategy for severalyears, and Griffith reiterated that aspiration during the investor day, sayingthat the company had entered its "Destination Era." She described theframework for growing the business with the terms "acquire, anchor, bundleand extend." Regarding the "extend" component, she said thatProgressive is seeking to hold on to customers "for decades."
Griffith reiterated Progressive's goal to "grow as fastas we can" while achieving a 96% combined ratio. Though Progressive'syear-to-date combined ratio of 96.2% is slightly above that target, she saidthat she is "extraordinarily happy" given the nature of the businessProgressive has been putting on its books.