Q3 2020 Progressive Corp Earnings Call
Welcome to the Progressive Corporation's third quarter Investor event.
The company will not make detailed comments related to quarterly results. In addition to those provided in its quarterly report on form 10-Q, and the letter to shareholders, which have been posted to the company's website and will use this event to respond to questions.
Acting as moderator for the event will be progressive as director of Investor Relations, Doug Constantine at this time I'll turn the event over to Mr. constantly.
Thank you James and good morning, although our quarterly Investor Relations events. Typically include the presentation on a specific portion of our business. We will instead use the 60 minutes scheduled for today's event for introductory comments by our CEO and a question and answer session with members of our leadership team.
Since can only be asked by telephone dial in participants the dial in instructions they'd be found at investors that progressive dot com forward slash event.
As always discussions of this event may include forward looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today's event additional information concerning those risks and uncertainties is available in our 2019 annual report on form.
10-K, and our first second and third quarters quarterly report on form 10-Q, where you will find discussions of the risk factors affecting our businesses safe Harbor statements related to forward looking statements and other discussions of the challenges we face in particular note that our quarterly report on form 10-Q for the first quarter includes discussions of the risks and.
Uncertainties that we face including specific risk factors are rising directly and indirectly from the COVID-19 pandemic and these risks are further referenced in our third quarter 10-Q.
Before going into our first question from the conference call line, our CEO Tricia Griffith will make some introductory comments tricia.
Thanks, Doug and good morning, everyone.
An extremely close and not yet decided election I thought I'd open with a few words before we get to your questions [laughter] I know that the elections on everyone's mind, including those the progressive I think it's important that our shareholders. You know that we live our core values, specifically the Golden rule, regardless of the candidate we support.
Very proud of it and we're all United in our commitment to caring for our customers our communities our shareholders and most importantly for each other.
As you know, we feel strongly that our people and our culture, our significant competitive advantage for us there.
They are one of our four strategic pillars, and we rely on are incredible culture to get us through challenging times I come out more focused and United than ever. This year has been you know different as we move forward together.
I thought I'd share and now that I received on Monday from an I.T. group manager Scott regarding video I did on even in the last week, that's really exemplifies who we are as a company and why we win in the marketplace.
He said Trisha I have so much to be thankful for in this year in months and there is a literal pile of things for time deeply appreciative for you and your team.
Truly and I know I speak for so many others I am grateful.
And he went on to share the communication that he sent to his team and these are words that are echoed by so many leaders at progressive.
No. It's sad, it's the last Tuesday in October, which means that next week marks the national election, and another and two political yard sign season Irrs assigned we placed our own yard and assigns started with love your neighbor and talked about loving your neighbor, regardless of race, So you love et cetera.
[noise] conveying what we'd hoped for neighborhood that regardless of next week's outcome, we hope that our common bond as neighbors can prevail over the difference is really an extension of the Golden rule.
That's not to say that it's not easy or that were not strong in our political convictions, but it's also to say that we strive to respect care for and even love our neighbors, regardless of their vote or other differences. The same applies here at work with progressive culture rooted in our core values. My DRG is committed that's direct reporting group is committed to support the diversity of our.
People, please work to grow and sustain that spirit of collegiality and friendship with each other through and beyond the election.
His words really truly reflect who we are as a company and you know being a blade and the Mel denied in this morning, I will end up after this call. She another video today to ensure the progress of people coming sales trust remain calm and focused I'm, even though they'll be delayed results.
Oh, So tomorrow marks our eighth annual keys to progress to where we gave away cars can deserving veterans due to restrictions on business operations for the program participants in social distancing requirements are give away then so be small, but still very meaningful all in all this is another great example of giving back to our communities, where we donated over seven.
150 vehicles in the past eight years.
Being a successful business starts with our people and this quarter continues to exemplify what you can do with the right team and the right culture.
As I stated in my letter we're extremely pleased with our Q3 results were also acutely aware that these times are tumultuous and that we have to remain nimble as events unfold, that's really always been our strong suits. Thank you and with that and James will take the first question.
[noise] beyond just the question queue.
Star one on your phone in order to get to as many questions as possible. Please limit yourself to one question and one follow up.
Our first question comes from the line of Mike Zaremski from Credit Suisse. Go ahead. Please your line is open.
Hey, Thanks, Good morning, I guess first question I'd I'd love to.
To learn more about the automobile severity trends you know they they seem to have kind of you kind of staying higher for longer I know, there's a lot of there's been some noise and distortions Darren coal that you called them out.
In the Q and I know last quarter, you called them out to about Sobra geisha and I'm trying to I'm trying to just learn more so we can kind of understand what are the underlying trend might be a little bit lower or if this is kind of Ah that's the new normal, especially on the ballot bodily injury and Pip sides.
Thanks, Mike He'll let me give you some insight and adds a little bit difficult to compare with PC because they haven't reported Q.
Two yet.
They're not as volatile as early as Q2, but let me let me go through a couple. So we think is a P.D. audits.
Or the opposite of what happened in Q2 in terms of inbound subjugation [laughter], our supplement payments such as inbound Saab are coming from a period of lower volume applied to a period of any increase incurred volume. So we report a 3.9% PT incurred it's a little bit higher if you remove that inbound.
About four points higher so right right around eight and a half point, so it's a little bit higher but clearly less than Q2. When we were at 12.7 [laughter] on collision again, the outbound sudden mix is no longer driving trends and that's of course the money. We were see then and if you remove that stub percentage.
This 6.2 goes up a little bit that was negative in Q2, so that was very different in its all really about the the numerator and denominator when you're having frequency changes quarter to quarter.
You talked about the eye.
Our incurred severity is similar to Q2, so we have some aging, which we believe that accounts for about two point and.
And then we have another one to two points on that relate to facts of loss loss. Yes. So what we did was we took a look at quarter two of 2019 facts of loss and then we compare that to quarter two of 2020 facts of loss and what we're seeing and we think this is likely.
Because of less warning congestion can you that there are less rear end accidents, I think I'm kind of a fender bender that wouldn't cause much damage from a severity perspective or an injury perspective, there are more intersection accidents, which are always more severe so our estimates taking take into account the aging.
Inflation and the facts of loss mix shift, we believe is around 7% to 8%. So while we are reporting the 11.6, we believe it's a little bit lower on based on those two issues [laughter] Pip so difficult because there's so many different state mix.
Changes and in these severity the higher severity sales accounted for about two points of what those makeshift. So we think that aside from New York and most of the Pip states are around 6% to 7% severity. So it's not as volatile it's still a you know it's it's still different just because.
The situation with couple of it in vehicle miles traveled and different loss patterns, but hopefully that will give you some insight into our severity trends.
Okay, Yeah, Okay, that's very helpful.
I guess lastly, I'll I'll move just more broadly she you the direct to consumer segment.
Of auto you know it feels like there has been a a an acceleration of a path and I think the you know the main question. We got whether you know it is whether this is kind of a new normal or if there's kind of been a a temporary bump during cold, but I'm trying to you know I know, it's a high level question, just trying to better understand.
Do you feel that you know there's something helping you guys. That's kind of one off that you know that could cause could kinda back.
You know, it's kind of taper off a little bit or is there you know it's a third party marketing technologies you guys are using and just you know will continue to help you or you know anything to kind of get us better I think you know we understand from your letter Tricia you guys feel great about growth just trying to get a sense of of weather or the.
The the double digit growth in direct to consumer is sustainable.
Yeah any idea on the auto side in the private passenger auto side, you know when we market were marketing for the direct side, but we believe that our agents are recipients of that so when the Ah Ah stay at home orders happen you know a lot of our agents weren't able to actually you know work or opened their branches some of them obviously.
Able to do it from their home, but we saw applications go down and now we're seeing an increase a little bit as things start to open so that could be volatile for a while depending on what happens with it with the rates of infection on what I will say is that the direct to consumer side really is increased on a commercial side. So our commercial business as always.
Then the majority from the agents and some more complicated product and we're seeing more direct to consumer on the commercial side is that trend you know likely would've been happening over time as people felt comfortable with the products, thereby it really depends on complexity, but I will say that honor in our four higher transportation. This.
The strongest in our direct channel, where those new ventures are coming in directly to.
Progressive So you know it's hard to say if that will continue I. If you couldn't be what's happening with the pandemic it couldn't be whats happening with younger truckers for example, starting new ventures, and they're more comfortable going to Iraq, but what I would say is we're glad that we've invested in the direct side of the business we continue to feel.
Oh like we want to have broad coverage for where when and how customers want to buy and just be available for everyone depending on that need.
Thank you for just Florida Murkier can you use the term new normal in both the severity on the direct [laughter] questions and.
I'm thinking there's any new normal to point out right now, it's a very dynamic environment, obviously, but we think we'll find a well. So you know in the direct space as you noted in the Q advertising is up 29% for the quarter. So when you see us spending more on advertising you should know that we are seeing opportunities.
Spend officially to bring a business.
That is what we call the prospects side of the equation and prospects are up as we noted.
We are in the queue about 8% for the quarter, but conversion is up as well and that was a quarter, where some of our competitors had a lower pricing in effect because our bare approached her covert rebates or credits and some of those have come off no. So from a <unk>.
I didn't know standpoint, all else equal we think we're in a pretty good place conversion was up 5% for the quarter, we may be getting more competitive. So you know again, all else equal our advertising spend should be even more effective.
Thank you.
Our next question comes from the line of the lease Greenspan with Wells Fargo. Go ahead. Please your line is open.
Hi. Thank you. Good morning. My first question was just in the queue. You I did point out that miles driven went up in the first half of the third quarter, but then back down in the second half. So just wondering if we could get some color on what you think might have driven that I'm not sure. If it was you know pick up in Colby cases, though.
Partial dropdowns in certain states or anything any other color that you think would have liked that dynamics within the third quarter.
Yeah. Good morning. He leaves a we do think that's what happened we think that is reflected pretty quickly when when something changes in the given staying we look at this from state to state had really a variety of vehicle miles traveled and ranges. It's filled now you know much obviously higher than the trough of 40 percentage.
Right around Tenish tend to 15% across the country, we're really digging into kind of understand it we do see the congestion is still a very different in the morning to me, where there's less congestion or starting to dig into how we look at the types of job you have and so we can try to understand people that might.
Great work from home for a longer period of time versus people that haven't jobs, where you need to be out and about and in fact, we're really looking on through our UBI I data that our robinson's or people that are 65 and older on their features fell in line with their vehicle miles traveled and we just think they are driving less.
During rush hour, they're working from home or they have rules that can work from home they might be retired and the younger demographics, what we would call. It the Samson Diane's and ride their features on the fell more than to be empty, although the gap is narrowing.
They had a small drop in mileage and we believe that these are jobs that can't be done from home. So we're watching that closely I think a lot depends on what happens in the next several weeks with a infection rates and what a specific states do so again and what we'll do is we continue to our product group.
Watching those states and those area very closely to understand those frequency trends and using data both on the east the snapshot side and the smart home side and commercial where we're not seeing that change. So the so the truck drivers are on the road more because of the moving goods back and forth. So we see a little bit.
Different on the commercial side, and ER and even though that even though the congestion has decreased 'em, we know that they're on the road more so hopefully that gives you a little bit of color is it sort of changing always in where we're thankful that we have a lot of data in our usage based insurance are crossed on many of our product sales.
And we'll keep watching that and react as necessary.
That's helpful. And then my second question is on snapshot I was hoping that you could give us an update.
On kind of the.
The take up rates within both the agency and the direct side, where we sit today and then have you guys noted a greater take up rate.
For your snapshot devices. During this kinda Colby slow down I guess as you know folks off potentially driving less right with potentially want to use the device that could potentially lead to come some savings for them.
Yes. So immediately you we've always had a pretty good high take rate on the direct side. So immediately when we had to shut down we saw an uptick in that and that sort of leveled off.
On the agency side, where we haven't had a historically a great as great of a take rate. We saw that go up and is continuing so I think you know agents and I've been I've, probably talked you know one of the great things about Cove. It is that I've been able to get out and talk to literally thousands of agents in the last couple of months virtually of course and.
And they understand that they need to be competitive and they've been talking and selling snapshot to their clients to our mutual clients and so that has increased and that has continued to kind of maybe level out but its increased much more than before coated.
On the commercial side September was the biggest on smart hall enrollment ever and the monthly take rate climbed to about 24%. So we're seeing that and definitely on the commercial side, John you want to add anything.
So that's.
Definitely seeing that pick rigs go higher, especially in the for our transportation segment that pressure was noting earlier.
So that is you can think of a sort of delivery trucks as well as interstate trucking.
And we are very excited to see especially with our grid or what we call new ventures. So a lot of truckers are going out on their own these days.
And Ah you know crop insurance premiums are pretty high so they're very open to offers that might lower that premium and that's.
It's great that the take rate there is even higher than the overall.
And.
We feel that segment is very well priced, especially where we have the smart home sites that we have you know really from day one.
So the other thing I would mention on snapshot more generally is that we are well we haven't marketed it a lot we have something called a snapshot road test end market now and the take rate. There is is encouraging and this is via mobile devices whereby.
You can do what we used to call test drives so if you drive for a while we get your driving behavior when we deploy that.
Your initial quote today and snapshot.
Give you a disco for participating and then give you the full weight.
Developed discounts at the renewal was road test how you get that up front. So we're excited by the early take rates. There again, we have a market it did.
Well, we think when we're ready to do so consumers will be.
Our interests.
That's helpful and we'll roll test I'm, sorry, just to quickly follow up for vote test be available in all states, where you have the traditional snapshot.
Yes, so it's available today, we just haven't.
We just have more candidates.
Okay. That's helpful. Thank you for the color.
Our next question comes from the line of Jimmy Bueller with JP. Morgan Go ahead. Please your line is open.
Hi, Good morning, I just had a question on the competitive environment. If you could just discuss sort of pricing conditions.
In the personal auto business and your outlook for margin.
'cause it does seem like more and more companies are trying to be more proactive in trying to either gain share or recover this year that they've lost over the last few years.
[noise], Yeah, I mean, we we feel really great. We've added 2.4 million policies.
Compared to last September so we feel like we were well positioned coming into the pandemic and then we reacted very quickly. So we knew that vehicle miles traveled went down that we immediately game, 20% credits for two months to our auto customers. We feel that that you know it could change for that that helped us with retention on because those customers.
[laughter], we're able to stay obviously, there was some moratoriums as well animal that'll have to play out depending on what happens if there's a stimulus et cetera, and then we started to do what we do best and surgically look at state by state channel by channel product by product, because we want to balance that growth and profitability and we really enjoy.
<unk> gaining share across the board and we want to continue that so you know what we're doing now is what we call taking small bites of the Apple in terms of rate decreases if we see conversions going down or we are less competitive when we get a lot of Intel from other companies in our agents on we will take rates down slightly.
So we talked about taking it down to about a percentage for the quarter and 3% April through September we did that in about 37 states and when I say 37 states there might have been two rate decreases maybe a half percent maybe a 1% we really watch system or were you able to react so quickly.
Which keeps us really competitive and when people are shopping and then April through December we'll have taken some form of rate decrease in about 42 states and that is about 84% of our country wide countrywide net written premium so again surgically being able to react or raid on beacon.
Additive and we give me do that going both ways, depending on the product, but we feel like we're positioned well like John said, you know that and everybody had whether they took credits or discounts everyone's trying to make sure that we are competitive and this is a very competitive industry and we feel like we're in a really good position, which is why I started.
The letter off the way I did I'm very pleased with our results and our reaction to covert and what we've been able to do for our customers when they need us most.
And when you think about this balancing growth and profitability is there a level on either the loss ratio or the combined ratio to be or you are comfortable taking it up.
And continuing to push for growth like I think in the past you've talked about mid ninetys would be a level, where you'd sort of slow down their growth and focus more on margins instead.
Yeah, I am sorry, we've had the same objective and the company since going public in 1971, that's grow as fast as we can and make at least four cents of underwriting profit and so we always try to balance that that said, we have five core values and one of them is profit. So if we don't believe we can be profitable and then we'll start growing profit comes.
First on so here's the deal we don't want to give away margins. So if we believe that you know we can grow and still grow with that that 96 or or less of the combined ratio will do so if we don't we'll keep the margin and I understand you know that again that is as such we do it it's such a surgical level.
You know that's the 96 grow as fast as you can as our job objective for the overall company, but we look at it very different across our portfolio. So yeah, we're going to continue to try to aggressively grow gain market share all while making sure that we achieve our profitability goal.
Thank you thank.
Thank you.
Our next question comes from the line of Greg Peters with Raymond James Go ahead. Please your line is open.
Hi, good morning.
First question would be around retention.
As you know there was another short.
Sure Tech companies that went public roots, so Solon, Ohio, Ohio based.
Based company they disclose their retention rates Allstate discloses their retention rates and I'm. Just curious if you could give us some color about how your retention.
Has been this year relative to last year.
Yes. So you know were tension for us is really the Holy Grail. You you want you spend the money to acquire customers. They come and you want to make sure we give great service and a and they reward assessment their retention. So yeah. We look at retention from what we call policy life expectancy on the trailing 12 months is up 9%.
10% of agency, 7% indirect now the caveat is we're getting the benefit of the billing lenient season, moratoriums and so we would say and we want it we would say that those are the numbers, but they may be conservative depending on what happens with people in jobs and unemployment et cetera.
Trailing three is a little bit lower and a little bit more volatile a trailing three is 7% up up in 6% an agency, 8% indirect and on the commercial line side of course, if we look at a 12 month basis, because those are annual policies a p. Ali is up about 4%. So we're very pleased with that but we also know.
That there was a lot of volatility going on right now and it will do our best to keep our customers and to work with them, our CRM or customer relationship management group on both the.
The direct side auto and commercial lines auto our work very closely with customers if they need to make changes to their policy in order to keep their coverage available. So I would say the appeal the numbers that we see that we stayed in the queue are very positive, but we also know part of that is because of the lenient seen moratorium.
Based uncoated.
Got it.
And question is around the expense ratio and number of your competitors.
Our laser focused on reducing their expense ratios to bring them down close to your level and I'm curious about the initiatives that you have ongoing within your company to keep your expense ratios low impossibly forget them lower.
Yeah, we talk about expense ratios all the time and we're pretty proud of our results. It's a balance of course on making sure that we're investing in things like digital and our customers need I think the the one of the silver linings of the pandemic is that we learned that we can write really good estimates from photos and video.
Sales and we were working on that prior to the pandemic, but obviously it was exacerbated based on the fact that we all you know kind of went into our homes to do the work. So we continue to experiment and see what type of vehicles that we can look at and not be side of CCAR and I understand you know it is it is that is it is it a quality.
Yes, Matt because you don't want to have such as well as an example, so such a a low loss expense ratio or loss expense adjustment ratio. If your accuracy is is not good because that indemnity is the biggest part of what we pay out and we continue to work in our CRM organization to understand how customers can get things they need without.
I'm an intervention John Sauerland. His group is working on you know some RPK processing. So there's we have a lot of things going around the company, where actually we had we.
We had completed a five year plan for our board of directors last year, and obviously, we're redoing. It this year because a lot of the changes and that's actually been a topic what were what we try to achieve we have internal goals that we work on together and we balanced that with investments of like John said advertising digital.
Oh, but we constantly try to look at how can we how can we do more with less and not affect our customers and we know that this is a this is a competitive industry and that competitive prices are really important so that expense ratio is a big part of it whether it's on the overall side or the claim side.
Ah Johnny or the the purse strings holder you want to add any color [laughter].
Certain many competitors.
Spring to our level of fixed cost structure, but there are some competitors who have a better cost structure has been progressive. So we've been focused on continuing to get more competitive in terms of cost structure for years as Tricia noted.
Think of it in two buckets, so we think.
And what we call non acquisition expense ratio and acquisition expense ratio in the acquisition, we put advertising as well as agents Commission. So I just mentioned earlier advertising for the quarter was up 25% was up 20% year to date, we think that's good growth in expenses, because we're acquiring customers.
Were going out for a long time.
Surely on there.
Asia side, we have to pay competitive commission in order.
We continue to grow there so.
We think growth and expenses in.
And that portion of the expense ratio is good we focus on the non acquisition expense ratio, where we're trying to drive what we think of as our infrastructure costs lower and if you go back to around five years is true she noted.
I think we've taken out maybe close to three or four points.
On our non acquisition expense ratio and we have our sights set on reducing that further. This is tricia noted price competitiveness is not the only thing that matters in the marketplace, but it is a very.
Big part.
Part of the consideration set for for auto and home insurance as well as commercialized disbursement.
Thank you for the answer.
Our next question comes from the line of Michael Phillips from Morgan Stanley Go ahead. Please your line is open.
Thank you good morning.
Sure. So we've all heard we've all heard ilan out of bed of tests will talk about being aggressive with Harman actuaries and sources of insurance company.
To use is proprietary real time data and.
Well, maybe that's only for its captive fleet I guess, just your thoughts on how you view the competition from connected car companies like that that you have really assets to rich data from their own fleets offer insurance two fleets.
Yeah, I mean, I think that you know we you know from from a talent perspective, we feel really positive where we were at we do we have been investing and understanding how to I'd have functionality to gather data from third parties, whether be always and we call that express data quality. So that would be something that we're working on now I mean.
I think the the question is are the answer is that yeah. The talent the talent is important.
We believe that at some point, we'll have to answer who owns the data, but we've been working on this with a lot of partners over time to understand how to get quotes are way and I understand that data to better understand trends did that answer your question.
Oh.
You know I guess I was looking more towards your view of just the competitive landscape from companies like that that have access to their own data from suites and are trying to offer insurance and even they are aggressively off with her on her terms.
I know how he speaks but did that that was really what I was trying to get that got it yeah I wasn't I wasn't sure if I answer that [laughter] yeah.
Yeah, it's great competition, we have had snapshot and data for a long long time, and so we feel very comfortable the fact that I could be able to tell you today I think when at least answered the question that our Robinson cohort you know the features fell in line with vehicle miles traveled et cetera, we're able to watch that real time and.
Especially now I'm very excited about what we're doing now on the commercial side and I talked about that with the four higher transportation to be able to give on deep discounts to those delivery trucks those trucks try.
Cost drivers intrastate and understand the best drivers are really important that will help with retention it'll help with us with loss cost. So the competition is getting great because it allows us to never stop evolving so years ago, we only had the dongle and you had to plug it in and then you can do a wireless now we have the most.
Device, John talked about our road test, we have snapshot pro views. So it it forces us in a really good way to continue to invest in data and collecting data on our you know 24 plus million policyholders. So we feel like we're in a really great position and competition only makes us better.
Okay. Thanks.
I guess part two then as you kind of alluded to it here, we talk a lot about you'd be in telematics now I guess, what's the lifeline.
Of credit score specifically as a rating variable on personal auto are we looking at a couple of years do you think that thing dries up or decades for how long does that take have lepton into runway left that's that's a pricing variable.
You know what that's I'm glad you brought that up because I know, we've been thinking about that a lot and I know theres been there'll be challenges because of the pandemic on regulatory issues. So Mike.
Michael This would be a lot longer answer then then you probably want to I think it's really important for me to make a couple of points on basically on risk based pricing and then it kind of what's happening in the world. So you know.
First and foremost we've been getting questions on the usage of credit specifically does it does it affect race and erases never used in pricing insurance products in fact, it's illegal.
Two people had the exact same at risk profile. If there's a person is just like me same driving same credit.
And we happened to be a different races, we get the same rate and basically we are risk based and race blind.
I also want to make sure that it's clear that progressive supports legislative and regulation that enables insurers to leverage all the available data technology and advanced analytics to price insurance risks when it reflects the insurance cost and that's really what we want to have you know rates.
Right for this specific risk.
For me, it's for US, it's about accuracy and it allows people and consumers and small business owners to fulfill their American dream and achieved their economic opportunities that they desire we've talked a lot in the past about the virtuous cycle, if you've got rating accuracy. It leads to a broader consumer availability in AFFO.
Stability, which leads to growth and financial success, not just for our shareholders, but for the company and for job creation, we've been able to create so many jobs in the last several years that leads to innovation and segmentation and then goes back to rating accuracy. So we've had that virtuous cycle that we've been very proud of and in the.
You know we've talked about it's a regulators role to work with us closely in the industry to ensure solvency ensure compliance and facilitate healthy in competitive markets that provide a wide variety of options for consumers. So key elements that I mentioned before are said to focus on is ensuring that prices for an <unk>.
Parents are not inadequate excessive or on fairly discriminatory. So we're staunch advocates for healthy competitive voluntary insurance and broad distribution.
And you know for the U.S. insurance industry, we want to be able to continue to facilitate the risk taking and transfer that drive economic growth through delivering products that are both available and affordable so.
For us we had them in the industry. We believe we want to preserve the sanctity of contracts and the continued support for risk based pricing that now all that said you know we do recognize that for some individuals mandatory insurance after testing can be a significant financial burden, we're very open to collaborating with regulatory and other regulatory regulators and.
Other industry leaders on solutions for those individuals versus creating massive an unnecessary market disruption that will likely have a negative outcome for certain segments. So that's sort of my should feel on on why we continue to support risk based pricing, which credit is one variable isn't any I think you know how we think about four.
Stability challenges and we just have to think about where we're at in this time of history.
On decisions that we make that affect the future for consumers. So if you go back to our roots in 1937, I'm very proud of Progressive we started out as a non standard insure, allowing people in Cleveland, Ohio, who couldn't get insurance to be able to do that and then of course, you know the rest eventually countrywide and that were able to.
I have access to affordable protection across many segments.
We have a critical role I believe in a inviting innovation segmentation and the use of technology and data to provide greater access to competitively priced insurance for all.
We shouldn't confuse affordability challenges and many face during this unprecedented pens 10 pandemic with our longstanding and solvent mile of providing affordable and widely available protection I.
I think the issue that arisen regarding social injustice can stem from the insurance industry, they've been looming for decades and events. This year brought them to the surface and now I think we need to really get together and ultimately solve the root problem Bob.
Opportunity and equality for all not just during the pandemic, but ongoing so if <unk> from my perspective, and then just lift could go on and I'll shut up but you.
Very short term after the elections decided we need some form of stimulus to get us through this next wave of infections and my hope is that we are able to distribute it more surgically this time to those who need it most.
Believe it we need to raise the minimum wage overtime to $15 per hour I will note that all active progressive employees already make over $15 an hour and we're proud of that and as the country. Our focus should really be on additional funding for the schools can safely reopen and deliver effective online communication you can't get ahead. If you don't have the ability to learn online which require.
<unk> infrastructure investments like access to broadband coverage, so I could go on and on but the message here is that we as a country are facing a really great opportunity to make substantive changes and as an insurance company will continue to play a role in focusing on rational and risk based solutions. So that everyone is able to achieve the economic opportunities they desire.
Right.
I'd been obviously thinking about that a lot Michael So I'm glad you brought it up I think that credit is a powerful variable. It is on it it's not a race related we do not believe this race related and I will continue to so from on that.
Okay. Thank you very much appreciate it.
Our next question comes from the line of Gary Ransom with Dowling and partners go ahead. Please your line is open.
Yes, good morning.
Tricia you mentioned in your letter.
Creative ways of repeat customers.
We also saw how AD spend is up and direct quotes were up.
And I just wondered do in looking at the success of all that is going in and getting customers into the funnel and successfully getting a new customer or.
What what are they actual key elements of success in attracting those customers either today in this covert gold environment or what you're seeing over.
Over the longer term.
Well I think ultimate success scary is to be able to acquire customers on at or below our targeted acquisition cost, but more importantly, as we look at and expand our product line, we're able to do so with our creative so for years, we had flow inside the superstore.
Or all that the whole message, we're saving savings savings and now we have obviously an entire network of characters that talk about savings, but also talk about protection protection for your home and we're seeing that work on an example is you know we don't if you've seen it or not we have had this campaign for a few years and we settled in on a character call Dr. Rick.
Which is a print and morphosys she'd become your parents when you buy your first home I think that a lot of people can relate to that we're seeing the results of that do really well we've done a couple of good campaigns with the Cleveland Browns quarterback and Mark and Marcus two guys that do the 10 yard line on chains that we were able to.
Play during you know live sports switches, which was what everyone's watching now until we get back to regular television. So we look at what we call it new prospects that haven't shopped us in the last six months and then we look from that we look at do they convert and at what cost and all those things lead us to understand when the creative works when it does.
And when it does we doubled down and get deeper in the campaign when it doesn't we move on and get more creative. So we you know during co that I'm really proud of our marketing department because everything is shut down and initially we did you know some some nice campaign stories that were softer because everyone is sort of.
Just nervous about what was happening because it was so new and now we're really doing a lot.
We're kind of moving forward, but even in the meantime, we did really creative opportunities, where we had flow and her whole squad that we call. It honestly I'm, calling set where we really got creative to make sure that we didnt Miss a step. We know this is a competitive environment and we want to continue to be on consumer shortlist out in it.
Sellable thinking at progressive when they got to shop.
Maybe extending that into the agency channel also where you think your conversion rates were up as well.
Usually that just means youre your prices lowest on the comparative raters, there, but is there more to it than that as well or they are you seeing more coming into the Asian says there are their agents incentives or other things going on there.
Yeah, We you know we occasionally new agent incentives on it maybe you know based on it seems like you'd be I and if we see something that we want them to do more and we over the years have had changed some of the agency commissions structures, depending on if you're selling preferred Robinson's auto home.
Bundled you those agents the platinum agents get more commission. They are allowed to have 12 months policies on the auto side. So we're giving them that and we've done a lot on our inner platinum agency to have incentives based on loss ratio and other things. So we we didn't always do those in the past.
Our relationship with our agents has really changed in a very positive way like I said at the beginning I been able to talk to a lot of agency agents I, just I'm not long ago I had our top 25 platinum agents, usually we do something with them. We obviously couldn't this year. So while we will keep our overall commission level.
About the same rate, we have bifurcated and we'll give you a different commission based on the incoming on type of customer, which we believe is a long term value of that customer so I.
Obviously cost matters, a lot brand matters a lot on commission matters, a lot and probably the last thing I would say and coming from the claims organization agents are always so happy to not have to deal with any complaints because our claims organization is so seller. So there's a lot that goes into it clearly cost is one of them they benefit from.
Brandon, but yeah, we have we do incentives and we have a different conditions based on the type of customer that we get in at namely preferred or just elaborate on Christmas last for Gary to say ease of use so price competitiveness is extremely important ease of use is.
Almost as important in my perspective, so as Christian noted not having to deal with hassles on the backend with acclaimed for sure but front end as well. So we've invested heavily in technology to make quoting and now quoting about household.
And our Asians easier and that will definitely help drive business to progressive as well.
I think this month or last month, we finished a full rollout portfolio quoting. So they are the agent feedback is extraordinary just you had to make it easy.
Thanks, Gary Thank you.
Our next question comes from Yaron Kinar with Goldman Sachs. Go ahead. Please your line is open.
Hi, Good morning, actually want to continue to fight last line of question with regards to the kind of creative ways to reach out to consumers beyond the east.
He said Houston in quotes and the innovative AD spend in the traditional channels or are there any new ways to get to market any.
We see Irrs for you may be internet social social.
Social media and the like to articulate to customers.
Yes, you know what I, usually speak about marketing I go to sort of the mass media and that's one portion of how we market to customers were on streaming. So we we advertise on who Lou we advertise on most of the social network on channels and affiliates on the Internet. So we.
And we have generic search so there we have a variety of ways to make sure we get our message to you and do everything we can to get our message to you. The right number of time not too much not too little because we don't want to bogged down on it. So yes. There is besides the creative theres all so many different ways and they are sometimes on it.
On a digital platform that will have characters that we don't even have on mass media and and it's usually serves the specific demographic that we're looking for in that channel. So yeah. We we have a variety of ways and as things change.
Now with how people watch TV or watch streaming I will continue to play a part of that and the great. Part is you know we have access to so much data to understand pretty quickly. If it's working so we can remove it or double down.
And are there any any metrics you can share on that in terms of.
Are you increasing your spend and those kind of non mass media channels is to take up rate greater we're improving there.
I think John want to say something to be yes, we're increasing the spend in those channels I for sure because many people have cut the cord and don't watch any TV. So we need to have access to them on through those different channels to do want and sometimes there's growth in spend in non traditional media has outpaced traditional four years now.
We're constantly assessing into new media, where we care we have a group that entirely focuses on new ways to reach people.
The overarching philosophy is where women how consumers want to buy so we're we're definitely investing and are normally I think relatively speaking on the forefront of trying new channels.
Ensuring that we can actually measure the success of those new channels. So we're very disciplined but we're we're out spending new money that we find ways to measure its effectiveness and I think that that differentiates us relative to a lot of other marketers.
Okay.
Then my second question.
It was one of the arguments that we hear from insurer tax.
Which is fair that traditional insurers, even innovative and successful ones like progressive.
Ultimately facing innovators dilemma in the form of how much you push telematics based scoring and pricing.
Because of the legacy box.
And that these insurance acts as a result could have a a an advantage over the incumbents over time, because they're not encumbered by legacy Bob [laughter] I'd love to maybe share a little more about how progressive looks at the innovators dilemma and how it handled would be.
There's the right balance between pushing these.
Creative and innovative ways to pricing that score.
Versus maintaining the legacy block.
Yeah, I talked a little bit about that when I talked about the virtuous cycle in terms of you know when you had a second that you innovate accenture and you do that I think that ensure attacks are serving a great purpose in terms of ease of use and it would be I think you know it's easy to be able to are nice to be able to I should say start without having a legacy.
Legacy systems that said, we have them, we work around them, but we don't say, okay. We're just going to be here in time and try to work around it we're constantly innovative innovating from a technology perspective, either use perspective, and we believe that.
Part of our DNA is really innovation, we've been first and a lot I won't go into naming that and we don't intend to change that and a great and benefit that we have that the insured Texans down is the cost of acquisition and for US we're going to continue to hone on in that hone in on that and that's why we were able to.
Increase our policy is two and a half million in one year and that's the reason we're able to do so and make our target profit margins, which are also very important. We have you know shareholders that are that own us because they know we're committed to our 96 grows faster can we don't have the.
Yeah, you know the availability to say, we're going to test things, regardless, if we make money or not so we're very innovative where I was going to do everything we can to make a profit. It's one of our core values and are able to leverage our size to have a lower acquisition costs.
Got it thanks, and congrats on a good quarter. Thank you.
Our next question comes from the line of David Mcmahon with Evercore ISI go ahead. Please your line is open.
Hi, Good morning, just sort of following on along the lines of this the unique ways of or new ways to acquire customers.
I was hoping maybe you could expand a bit on any distribution partnerships for the personal auto business that you may have with the.
The Oems or online car sites like food.
That you that you have or that you might be exploring.
I know that that's forward to just centered is an agreement with various data exchange.
So help offer insurance I'm wondering do you have any of these relationships is this something that you are exploring as a new way to acquire customers and just sort of how you view that.
Yes sub channel.
[laughter].
Thanks, David Yeah, we've worked with many different always over the years and I talked a little bit about that express data quote that will give us the functionality to work with always and other aggregators. We do we have many relationships and we have some in the works that I'm not at Liberty to talk about right now.
Joanna.
So weve worked directly with always over the years when we.
Sort of relationship with GE.
I can't remember, how many years ago now probably four years ago.
As you know to get the data directly from vehicles in the offer rates that are reflective of driving behavior at the port a quote and the point of sale.
We have also worked with.
Aggregators that data or third party.
Gathers or that data. So there are apps on your phone that are tracking you know, where you're going and how you're driving and we've worked with those entities as well.
It is a funnel as we think about when we talk about total economics.
The number of people that come in the top there versus the number that come out of the bottom meeting actually buy a policy.
It's been challenging that is not to say, we will continue and are continuing to test in that space and.
New media, we normally see formal challenges at the outset, we work through the experience to continue to refine it and continue to make it better and to get to the point, where the final economics work for us. So we've been testing into the data direct from always in numerous.
Manners for a number of years now and show some success, but not to the point that.
It will be a considerable portion of our media spend anytime soon frankly.
Got it and so it so it sounds like those are those are interesting, but the conversion rates are still below your other direct channels is that correct.
Yes, it does.
It's a fair way to think about it and think of conversion not only as you got a quote and you've been bought the policy, but getting folks from interested in the whole process even to get to the quote process. So it's a longer fertile than just.
Got the quote bought the policy is that when we talk about in conversion percentage. That's what we're talking about there. This is we think of the entire funnel.
Fishing season.
Got it okay. That's helpful that makes sense.
And then just switching gears.
Just just more broadly it's obviously Ben.
A profitable year for you guys.
Notwithstanding the credit and other actions that you've taken just just wondering how we should think about the variable dividend.
And I guess, how you guys are thinking about that that as we approach ended the year.
Yes, so we meet with the investment Committee, John and I, and John Bauer, our head of Progressive capital management throughout the year I understanding our our capital strength, which is very strong and and always thinking about leaving some are and some dry powder for any anything that might come up.
So we've had a couple of sessions that we have a range that we're thinking about obviously the board will be the one that decides that.
We meet with them at the beginning of December and we'll talk through something and get more in line with what we believe the dividend will be payable next year. So obviously.
That's an unknown because it will be a boards decision, we feel really great about our capital position, we feel great about our growth and our profits and we you know in the past. We've you know we've been able to.
Sure that with the with our shareholders. You know again, we don't we don't have any specific now I can share with you, but we feel really great about our year anything can happen, there's still a few months laugh at me feel good.
Just kind of.
We have approximately five minutes left in the call and still have a handful of people in the queue. We will go through the last handful here and go a little bit long.
However.
However, we will limit everybody to a single question. If you have additional questions you may contact the Investor Relations group at the contact information on the website.
With that I'll hand, it back over to James.
Our next question comes from the line of Meyer Shields with KBW go ahead. Please your line is open.
Great. Thanks, so much for accommodating us.
I was hoping is that either yourself or John could talk us through sort of the monthly volatility in the commercial lines expense ratio and what's been going on there.
[noise] so.
Whenever we're looking at results you should expect volatility let me start there.
The loss ratio.
As well as the expense ratio and our commercialized business, we talked about non acquisition expense ratio previously.
We have actually been.
Growing our expense ratio in our commercial business and that's been intentional and Planful because were investing for future growth specifically our business owners program.
We're now in 13 states and are feeling great about our progress there. So far we would like to get basically to the entire country with that program, because we think it effectively triples, our addressable market and commercialize business. We've also invested heavily in what we call our small business insurance initiative, which was essentially.
The direct platform for commercialize business.
In our business quarter explorer, which similar to our own quarter explore it makes it very easy to.
Good quotes from a variety of carriers through our direct platform there so.
We have long term plans to bring that expense ratio in our commercial lines business back down but in the near term.
It's going to be slightly elevated from where we've been as said on a relative basis relative to our competitors meeting.
We have a very competitive cost structure on a commercialized business, but if you're looking for commentary specifically on the expense ratio loss ratio for the month.
Currency to look a little longer term at least for the quarter.
And what I would say Meyer is that this was very specifically planned several years ago, when we set forth the three horizon concept.
We saw some opportunities on horizon, two mostly around commercial auto and BOP in Tennessee, and small business and fleet and so we knew that in order to.
Invest there that we had to have some money and put some money into it and now we're seeing the fruition of that investment. So we believe it will come down over time as we have more broad coverage with with these products. So we feel very good about that fund because we felt like there was an opportunity and that addressable market for us to do many new and different things.
Solidify again, our commercial auto customer with even more products and this the pandemics <unk> been a little bit odd for small businesses, but we feel positive about that going forward and our ability to win in with that bought product on both the agency and direct side.
Excellent. Thanks, so much.
Our next question comes from the line of Brian Meredith. Yes go ahead. Please your line is open.
My question.
If I look at average written premium per policy for your personal auto business went from plus one and two Q2 minus two and three Q. Just curious is that all due to the rate actions you've been ticking or are you seeing any changes in customer buying habits. He higher deductibles lower limits those types of things that may be having an impact on that as well.
[noise] Oh, I would say the majority of that is our reduction in premiums I haven't seen too much of a change in our business next profiles.
Great.
Thank you.
Our next question comes from the line of Josh Shanker with Bank of America Go ahead. Please your line is open.
Thank you for taking my question.
I'm just wondering if we can come through.
Shopping behavior right now.
They are to where it was three years ago I tend to believe that when prices are going up progressive season were shocked me if people are unsatisfied.
But you.
You know now that prices are going down maybe people, while we know that theres bargains to be had in auto insurance and so it might stimulate a decent amount of all of our buying and if you can add is there a difference between the.
The shopping behavior people seeking just an auto policy and people seeking auto and home policy.
Yes, that's so hard Josh to look at and compare three years ago I do think that even when prices are going down in this environment it might be different indices hate to use the word but so unprecedented it really depends on the situation with with the consumer and what they're looking for in terms of.
It didn't did somebody get furloughed or laid off et cetera. So.
So I think this is it's hard to it's hard to know what we really focus on is making sure that we have that message out there that we have that broad coverage that we have on the ability to measure our our acquisition cost and know that they're under our targeted on now to get the customer in there. So.
Really hard for me to say I think what we've tried to do is just when they are shopping regardless of the reason we're available were easy and we're competitively priced joint anything so.
I agree with your shifts there are many different metrics around shopping behavior and there are always agree what as Tricia noted. We're most concerned with is that we are spending officially to get the prospects. We are getting as we know prospects are up in terms of prospects, we are getting and their behavior in terms of auto or auto home.
You know, we are increasingly being positioned as the bundle provider for certain.
We do measure consumers' perception around that and certainly our quotes for bundles. Both in the direct channel as well as agency channel had been growing faster than in the model and on.
Thank you very much.
Our next question comes from the line of Suneet Kamath.
With Citi Research go ahead. Please your line is open.
Great. Thank you.
Just circle back to road test it sounds like you have have had the technology for a while but maybe haven't focused on it or marketed.
Marketed it so just curious.
Why the decision to make a push now and are you planning on rolling that out to existing policyholders as well as new customers or just new customers. Thanks.
Yeah, we have something called test drive years ago, I want to say five or six years ago maybe.
And they're you know at the time there was some complications because the way it was set up and need to put in some data. So we think that that was probably one of the reasons, we did a little bit of advertising not a lot. So we've been working on road tests just to give people the ability to could still have their own coverage and tests, what it would be with progressive and again, we're we've been working on this for a while.
We want to make you know make it.
Very worthy of our customer sites I'd say, we've been working on this for over a year rolled out a couple of months ago data is really early because we want to continue to learn as we spread as we you know on broaden that coverage.
But you know, yes, so you wouldn't do it if you're a customer for us he'd probably have snapshot already these are for customers that have other coverage again, we're going to work through the final at economics on that and then likely roll it out more broadly.
In the very near future.
Great. Thanks.
Theres been a final questions. So that concludes our event James I'll hand, the call back over to you for the call the scripts.
That concludes the progressive Corporation's third quarter Investor event.
Information about a replay of the event will be available on the Investor Relations section of Progressive Web site for the next year.
You may now disconnect.
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