It's risky business, and Progressive loves it. Long a leader in nonstandard, high-risk personal auto insurance, The Progressive Corporation has motored beyond its traditional business into standard-risk and preferred auto insurance, as well as other personal-use vehicle coverage (motorcycles, recreational vehicles, and snowmobiles). Progressive also offers commercial policies for heavy trucks, vans, and lighter trucks. It writes a bit of professional liability insurance for directors and officers insurance of community banks. The company markets directly to consumers online and by phone, and through more than 35,000 independent agents who account for roughly 60% of the company's business.
Personal insurance accounts for 90% of the company's net premiums while commercial auto represents the remainder. Other indemnity and service business accounts for less than 1% of the company's revenues. In 2010 Progressive sold off its small professional liability insurance business, but arranged to continue writing such policies through a third-party.
Progressive stopped writing homeowners insurance years ago, but it continues to offer coverage to its auto insurance customers, underwritten by third party insurance carriers. Progressive also offers personal umbrella insurance that provides coverage for the extras in life, such as personal injury and legal defense.
Unlike some insurers who, in fat markets, earn more from their investments than their premiums, more than 90% of Progressive's revenues have historically come from policy premiums. This quirk allowed the company to maintain a bit more serenity than its competitors during most market fluctuations. However, it loaded up on subprime investments in 2007, which proved a regrettable strategy. Subsequently, in 2008 Progressive experienced its first loss in 26 years. By 2009 the company's income had bounced back sufficiently to afford expansion efforts, but have since remained relatively flat. The company reported increased revenues through 2011, when sales increased 4% to some $15.5 billion.
The company's actual insurance operations have remained profitable and grown as it has entered into new geographic markets and expanded distribution of its personal auto products online. Already among the leading US auto insurers based on premiums (just behind State Farm and Allstate), Progressive is aiming to be on top.
Because it is fairly easy for customers to switch auto insurers, Progressive competes on price and accessibility. To attract new customers the company's television ads featuring its perky spokesperson "Flo" have shot up the company's brand recognition. Operating on the premise that a few drivers are responsible for the majority of claims and that previous risk models were incomplete, Progressive is now also offering rates that are tied to actual usage. In 2011 it launched its Snapshot program to offer usage-based discounts. Snapshot customers plug a tracking device into their cars for a month; data collected by the device are used to determine the customer's discounted premium rates. While the product didn't take the market by storm in its first year, Progressive is betting that it will be a big part of its future.
To retain customers, Progressive is promoting its non-auto personal products through bundled packages with lower auto rates. Once a customer has bought a bundled package of home/auto/umbrella coverage, they are also much less likely to switch insurance providers.
The company took a bold international expansion measure in 2009: Launching personal auto insurance online in Australia. International expansion has not been a key strategy for Progressive, but apparently the time was right for such growth. And, apparently the company is prepared to give the new operation time to grow, which is good, considering that it has not yet made significant contributions to overall revenues.
Colorful chairman Peter Lewis is the son of one of the insurer's founders. He built Progressive up from a regional operation to a national player and controls more than 5% of the company.