Q1 2021 Progressive Corp Earnings Call
Welcome to the Progressive Corporation's first quarter Investor event.
The company will not make detailed comments.
Moving to quarterly results. In addition to those provided and its quarterly report on form 10-Q, and the letter to shareholders, which have been posted to the company's website. Although C. E O Tricia Griffith will make a brief statement.
The company will then use the remainder of the events to respond to questions.
Acting as moderator for the event will be progressive day vector of Investor Relations day Constantine at this time, all the time the EBIT over to Mr. Konstantin.
Thank you Tamara and good morning, although our quarterly Investor Relations events typically includes a 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 our question and answer session with members of our leadership team.
And as can only be asked by telephone dial in participants dialing instructions can be found at investors day progressive dotcom forward slash events.
As always discussions and 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 and additional information concerning those risks and uncertainties is available honor and our annual report on form 10-K for the year ended December.
31, 2020 are supplemented by our 10-Q report for the first quarter of 2020, one where you will find discussions of the risk factors affecting our business safe Harbor statements related to forward looking statements and other discussions of the challenges we face before I go into our first question from the conference call line, our CEO Tricia Griffith will make some introductory comments tricia.
Good morning, and welcome to Progressive as first quarter Conference call. We appreciate you joining us.
During our fourth quarter call, we took the opportunity to reflect on 'twenty, and 'twenty and emotional and told it depends on like and social unrest and now with the first quarter of 2021 behind US we look forward with optimism that the vaccine rollout spring and the help of a return to normalcy.
Our people are showing tremendous resilience and the face of hardships and a willingness to react to whatever comes next with a positive attitude.
Which allow us to continue to deliver fantastic results.
This quarter, our net premiums written growth was 19% and we reported a healthy combined ratio of 89.3.
All lines from profitable with the exception of property, where catastrophic weather losses added 30.6 points to the combined ratio.
Policies in force growth continues to be strong at fault per cent and I'm. Most excited to report that we passed the milestone and a 17 million and personal auto pets.
5 million and special line pets, and 25 million companywide tests during the first quarter.
I also want to point out that this is the first time since the second quarter of 2000 and for that we reported double digit growth and personal auto special lines and commercial lines policies and force we couldn't be prouder that so many people trust progressive to protect some of their most important and assets.
I'd like to take some time to address the effects of the pandemic will have on our year over year comparative results for the next several months March was the first month, where we saw the effect of the patent on making our previous year's resolved. So it feels like a good time to give some further insight into our March 2020, one results and to remind everyone of the actions that we took and <unk>.
And 'twenty that could affect our year over year comparisons.
This quarter, we reported 14% and new App growth and personal lines, and 29%, new app growth and commercial lines.
The year over year growth reflects two items the effect of the stimulus package and the denominator that includes the onset and depend on making which shopping and virtually stalled.
Even considering the effects of the pandemic growth is robust we've often said that test growth is our preferred measure of growth.
This is a great example, why since the denominator it was only nominally affected by the pandemic.
Last year's new business metrics continued to be affected by that pet that and are well into the summer of 2020, though not always negatively.
And mid April 'twenty, and 'twenty, the first wave of stimulus checks per released which restarted and new business shopping.
We expect the uptick in shopping last year will affect our second quarter 2021 year over year and new business growth.
Also starting in April of last year, we took actions to support our customers, including our April and relief program, which we believe will have an impact on many key metrics, including our expense ratio.
At the end of April and May of 'twenty, and 'twenty, our personal auto customers received monthly premium credits of 20%, which provided substantial financial assistance to our customers, but also increased our expense ratio and.
In addition, as part of the apron relief program, we initiated payment and billing Lady and see which temporarily increased our bad debt expense, but also increase our policy retention.
Well its policy enforced counts and retention metrics were affected by billing day Nancy.
And commercial lines, our TNC business saw a sudden and dramatic decrease and miles driven and estimated future of miles to be driven and March of 2020, which contributed to the significant commercial lines net premiums written increased in March of 2021 and noted in our March release.
Miles driven and those premiums are slowly recovered over the course of 2020. So we anticipate the effect on the denominator will decrease over the remainder of 2020 one.
Our property results continue to be rocked by catastrophic losses, and the first quarter, which is normally a relatively quiet quarter for cat losses property business suffered significant losses further the hailstorms in Texas and Oklahoma that occurred in late April and appear to be another large events.
While it's too early to assess our ultimate exposure I'll take this opportunity to remind everyone that we have and 80 million dollar retention thresholds from a single store I'm under our occurrence excess of loss reinsurance program.
More details on the late April events, and our APRA released which is currently scheduled for may 19th.
Also I'd like to take a moment to thank everyone who participated in the perception study we commissioned at the beginning of the year. It was encouraging to see all the positive comments, we received and helpful to receive feedback on ways, we can improve.
One opportunity that we heard loud and clear with a desire to return to the quarterly call format, we had before the pandemic, one and which senior managers from around the organization would present on various aspects of the business. We intend to return to this format. During at least two of the calls each year, starting with the August call, where we will highlight commercial lines.
Looking forward into the rest of 2021 I'm filled with a sense of optimism.
And while the pandemic is far from over and we still have many challenges ahead of us I think pride and the strength of our business and the resilience of our people and have confidence that the plans. We have in place will likely continue to deliver great results in the coming quarters. Thank you and I'm ready to take the first question and he tomorrow.
Thank you.
To be added to the question queue Press Star one on your telephone.
And in order to get as many questions as possible. Please limit yourself to one question and one follow up.
Your first response is from Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, Thanks. Good morning. My first question was on the frequency disclosure and the 10-Q on the frequency was down but I'll cover that.
And and the fourth quarter and.
Interested are you know and knowing why and just getting more color on what was going on.
Yeah, we are actually assessing that right now and when we look at the GAAP in PD and collision and at least one other competitor had similar resolved we believe and part is due to a R. C. W. P rates being different and PD and collision. So right now at least we're having Gary trade Cross group and our claims.
Control group dig in a little bit deeper and the reporting of similar C. D. B P rate as their friends and so we're trying to discern exactly what that is.
Okay. That's helpful and then in terms of the Iraq done and you saw some pretty.
Pretty strong new App growth on there and you also saw strong renewal growth as well.
Yes. My question is is the new business penalty significant and is it being masked by the increase that you're also seeing within on your renewal business as well.
Oh I you know I think you know whenever we hear.
Here, you get and acquire new business, we're obviously going to spend more for it in terms of both advertising and when she saw increased 25 per cent of the direct site and commission. So I don't know that the penalty is extraordinary John and you can weigh in a little bit on that and the renewal you know one where we're proud of our our service and our rates.
So we know that some of the retention gains are likely due to.
Two what has happened during the pandemic in terms of not and cancellation et cetera, but I wouldnt say that theres a big penalty.
And I would agree.
Sure.
The new business growth and certainly a function and the dominator, we all recognize that but it's also a function of 25 per cent more advertising spend and we always like to reiterate that we are always spending where we believe it to be efficient.
But in terms of a penalty.
Mix in terms of policies and premium new to renewal.
Is it fairly stable from where you're growing new business, a lot and and the business is mature.
Our businesses are.
And then just one quick follow up on my first question and you said E. W. P. I just want to make sure that is that claims with payments. When you were discussing on the Palladium question I had to start.
Oh, I'm, sorry about that at least we have a lot of acronym here its claims without payment so claims and come in and then we close them because we no longer see and exposure.
Okay. Thank you.
Sure Nick.
I was just going to clarify the trend for clothes without payments for collision and that's been going down and it's actually predicts the pandemic and per property damage, it's been going up.
So that obviously.
Affects the total frequency and.
Our next question. Your next response is from Greg Peters with Raymond James. Please go ahead.
Good morning, My first question will be on commission rates.
I know some of your competitors have.
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And up on the commissions they pay their agents.
And this has happened and the auto business, but we're also and the property business.
You know a lot of the regional carriers have been slammed with high combined ratios and underwriting losses and we're also hearing them apply pressure on commission rates can you talk to us about your view on commission rates.
Give us a synopsis of the history and then what do you think it's going to happen in 'twenty one.
I mean and history of our commission rates and we try to look at in aggregate right around 10, 10, and a half and then it's different depending on the type of customer that comes in and if things are bundled we obviously have a several thousand platinum agents to get a higher commission because they are bundling the auto and home those.
Robinson and its customers and I guess, if you bring in a.
A group of customers that we believe are going to be their short term the commission might be less again. The aggregate is are we try to keep around 10, and 10 and a half per site.
And we also do have some preferred programs and bonuses for our agents are depending on their loss performance. It's not across the board is with specific agents, John and anything Jonathan and the 10 and a half but.
Tricia is starting is.
Generally, where we run and our auto business and the.
Property side, we have a higher commission rate.
But the overarching objective here is to ensure we are competitive prices and that means we have to have competitive commissions as well as competitive.
Their cost what we call non acquisition expense ratio of course, and so really it's the combination of go to market in terms of having a competitive aggregate our expense ratio both of those come into play and obviously a condition for which we thank our agents.
And we'll thrive so there has been downward movement from competitors Youre right.
I think we are.
<unk> seen some positives for that to some degree because we our commissions are more alike competitors. These days and then perhaps they were previously but we couldn't really tease out any specific impact to that and that's where your growth.
Thank you for that answer my next question will focus on the property business because.
You know it does stand out for its underwriting result, which is very on progressive like.
I'm wondering if the view on the property business at this point and time is more of a loss leader to drive retention and the Robinsons and so youre willing to sacrifice your margins in order to drive up retention or Alternatively do.
Do you also have this overarching objective to eventually get that business down to I think your corporate target is 96 combined ratio, maybe it's lower because this property, but some color there would be helpful.
Yeah, No we do not want and be a loss later are we a profit is one of our core values. We have a very specific target margin for our property business that as you state it rolls up to our 96, we've just been riddled with a lot of catastrophes. It's also a fairly newer business in Europe for us in terms of segments.
And so if you look at over the years, how much we've improved and continue to improved and it really quick radar segmentation and auto.
Or are we anticipate we will do that and home. So we have a new product models are we have our R&D group working on the right product models, which could be you know you're off a roof are and we've also and have some restrictions for customers and they help from states.
And have them by a relatively higher deductibles for wind and hail because we've seen that that really causes a lot and in addition, and you know we have and done a lot of rate increases so and 2020, we took about 11 and a half points another close to one and a half and Q1 and we have another 4.2 expected and.
Quarter, two so we continue to raise rates to ultimately get to that goal now while we're happy with and I wrote it in my letter is the fact that we are getting a high percentage of our bundled customer on both the direct and agency side and what we know and the agency side is without having a property product we would not have.
Gotten and likely have not gotten most of those auto so we want those but we wanted to make our target margins across the board periods. So that's what we're working towards and we really have and along with industry been rocked with cat catastrophes and of course, we also have reinsurance heavily reinsurance on the property side to protect.
The downside, but nowhere, we're not a we're not thrilled with those results and we're going to continue to chip away to get to our ultimate goal.
Thank you for the answer.
Thank you Greg.
Thank you. Your next response is from Michael Phillips with Morgan Stanley. Please go ahead.
Thanks, Thank you and good morning.
First question on telematics and <unk>.
Net of pricing.
And we've seen some competitors talk about increasing telematics and claims and I guess I'm curious if you could talk about excuse me any value that you're currently getting from snapshot and claims and then related is there any opportunities maybe outside of price and segmentation snapshot to I guess extend the period of time and you collect data.
From snapshot to health and other areas besides price and segmentation.
Thanks to Michael Yeah, we've been testing and looking into our claims and a snapshot and understanding the facts of lost fraud and other things for quite some time I think we have about 150000 customers that are currently that we currently have access to our claims information and should they have a loss and we will have more to come on that we've been working on that for a while but we.
It is an important next step.
For the use and our telematics.
And you know we've talked often onto about do we have continuous monitoring would that help not only with and understanding the likelihood of changing driving behavior, but also could help with other necessary things and customers have grown accustomed to in terms of added added services like <unk>.
Bose and gas stations and things like that so that is on our list as well currently I you know obviously during the pandemic are our big effort was to try to understand vehicle miles driven and how that relates to work from home versus not work from home et cetera, as well as some of.
The other items, we've talked about the apron relief and I've talked about in terms of actually a shorter monitoring period to give people who believe that they are driving lost the ability to prove that through data and give them a lesser rate, but you know we we've been we've been out and that UBI.
Bandwagon for a couple of decades, we'll continue to do so we do so on both the personal auto and the commercial auto side really happy with our smart haul resolved very successful and and and the program is very profitable and the commercial auto side, because that's a big expense for truckers, but I mean, all of those things are.
On our agenda, and we continued to invest a lot and this area.
The other thing I don't know, if we call at telematics and Uh Huh.
Walgreens is dash Cam video, so, especially in the commercial space.
And those devices are frequently one and the same and.
And I are limits from the commercial space if you have video.
And be extremely helpful and resolve and claims because some of those vehicles are targeted because of the limits and if you have a video that clearly shows it was stage.
The resolve the claims very quickly so.
Telematics and certainly a benefit obviously profitability and ratings side as Tricia mentioned evolving for claims from personal and and evolving from commercial as well, including a dash Cam video.
Okay, great. Thank you guys.
Second question, you've got some kudos this weekend and from the friends and and Omaha on you know your lead you haven't and telematics and risk based pricing, but I guess, if we look at it.
And they said, they're going to start to do more so I would think that that gap could narrow, possibly if we combine that with if we look at some states where the.
The use of credit score and use of telematics has been limited if not all about bands and these aren't small states mass and New York as examples.
You know there the lead from.
From that competitor is pretty significant over you in terms of market share gains. So I guess, if we combine those two things and credit score may start to fade away and other states and then their use of telematics may start to pick up how do you. How do you think about the competitive dynamic between you and them and.
And Steve says the overall market shifts away from credit and they start to shift more towards telematics.
Yeah, Great question and I'll, just I'll use the G word and so yeah Geico did Berkshire talked a lot about it and they're a formidable competitor and and we liked the competition because it makes us better and it's better for customers Here's here's how we think about segmentation. You know we have we've had and edge on a lot of our competitors for many many years now and we're not going.
And stop and we believe Rachel risk has a lot to do with many different variables and <unk>.
<unk> credit scores being one of them are usage based insurance being one of them, but there are a lot of other variables. We will comply with the regulators and we believe they help to match rate to risk and they're correlated to ultimate losses, which is really important for all consumers to keep their red at the day rates competitive and.
So I'm I'm not surprised that they're going to spend more money and that we also will be spending more money on continuation of our many many billions of miles of of snapshot data on both the auto side and the commercial auto side. So we liked the competition, we think it's great.
And you know now you 10 years ago I might not have said this but now we have head to head Brown and stuff. So you you may like or or you may not but you know who flow is and we're very proud of flow and network and all the different characters. So I think going head to head and all those things is a good thing I've always been a competitive.
And and we like that and I think it makes us better and it makes sure that you don't just rest on your laurels. So we will react to whatever we need to react and continue to invest and and segmentation, especially and usage based insurance, but other segmentation and variables as well as our brand our broad coverage and AR and the people and culture at Progressive and we think.
All of those together are.
Really a winning formula.
Okay. Thank you George appreciate it.
Thank you. Your next response is from David Moat Madden with Evercore ISI.
Hi, good morning.
Had a question.
Tricia and your letter and you use.
And spoke about.
Robinson, Pip growth up 20% and the direct channel.
And up 16% and the AR.
And the agency channel.
I guess I'm wondering if you could just sort of level set us here and just think about what percent of the book now is bundled customers.
And also maybe just talk a bit about margin differential and policy life expectancy differential where that stands today.
Yeah. So we're very happy about the increase and Robinson and that's really what our goal has been to have those bundled customers. We've added some platinum agents.
And the agency side I would say our total book of Robinson has right now is right around 10%, which is a much higher than it was many years ago. So we continue to kind of gain and that momentum.
And Robinson and what was the other part of your question.
And ability yeah, we you know their preferred customers, so and we believe they're more profitable and on the retention side. The retention is dramatically different not just on the Robinson and sign but as you have more and more and more and more our policies with us. So that's why it's so important for us to continue to give people a real.
And at this day for decades, and decades to be able to have products that can all come from the same care, whether or not we write it on our paper and not so yeah. So.
That's a preferred customer and we want wider margins there and the retention is longer.
And our targets just for clarification across the customer segments for auto.
And there's pretty on a lifetime basis as consistent so obviously.
Or are the loss costs vary at times and frankly during the pandemic.
More preferred customers have the ability to work from home have been driving less than.
Other customers, whose professions require them to drive to the office, so well we might have different.
Margins by segment and the near term due to extenuating circumstances, our target margin across those customer segments is consistent with the 96.
Yes.
Got it thank you.
And then and <unk>.
And maybe just switching gears a little bit.
And over to the severity side of the equation, we're just thinking about loss costs.
It didn't look like you saw a big increase in severity this quarter.
Property damage severity was flattish collision up a little bit.
But you know obviously hearing a lot about supply shortages chip shortages, just wondering how you're thinking about.
Severity as we go forward.
Combined with the mix of maybe claims coming back a little bit. So you know the mix of claims might be somewhat of a.
Of a tailwind for severity, where you have a bit more fender benders and that could potentially bring it down but sort of just just maybe at a high level just wanted to get your take in terms of where you expect severity to go just given everything.
And that we're seeing and the macro environment right now.
I wish I knew the answer to that question that is such a tough one and we are seeing some losses come back, especially now and it makes sense from the special line side, we'll watch that closely we haven't been affected yet from the semiconductor shortage and we watch those things closely and some of the severity.
And now we'll look at in terms of our average premium is down a little bit and we've had a lot of cat losses. So all those things play into it and then of course it really does like you said it plays into it in terms of what do people do as different states open. So will there be more highway travel because your pack up the kids that go see grandma Grandpa and that cause.
You know a less volatile act since we've been saying, obviously the congestion is less and the pandemic than it will be so we're watching all of those things closely.
And we're gonna right, we're gonna be able to react to react to those and we're you know we've never been in this situation. So and we were watched closely with not just our UBI data, but some other data that we're starting to gleam in terms of understanding when more people are starting to a work from the office and so we have some.
Patients and some day. This shows some people are already there. Some people are they're a little bit more often and we're going to continue to watch that because you know we think that all that could creep up pretty quickly and we want to be on top of that.
Thank you that that makes sense and maybe just following up on that point that was any of that just sort of I guess caution and uncertainty was did that come through because it looks like you guys.
After decreasing rates last year and it looks like you increased rates and auto obviously, not a little bit by a little bit under a per cent, but.
Did that have any influence on that rate change.
Well, we look at all the trends in terms of what we do so we went after we took the crowded than we looked across the board and we loved state by state product byproduct channel by channel and our goal was always to take small bites of the Apple because our customers. We know they want rate stability and so we felt and great at the end of this year and now we're done.
And the same thing, we're taking a look and different states have very different attributes in terms of increases in and frequency and severity and driving behavior. So.
That less than 1% and it's just based on us looking at the data.
And making tweaks and we'll do that the rest of this year as we see things unfold. So it's really using the data and then and saying, okay, we need a little bit more on and this product and the state and this channel and that that's why I think the way we're set up and so good because we're a machine that can react pretty quickly to those trends as they unfold.
Got it thank you.
Thanks.
Your next response is from Josh Shanker with Bank of America. Please go ahead.
Yes. Good morning. Thank you for taking my questions just a clarification. Please on the March 17th shopping day.
The biggest shopping day you've seen.
When people got their stimulus checks are these sam with just continuous coverage who've come back into the insured population.
And along those lines I mean, you know I know you are you would go through and you.
Break that business, but it obviously didn't have a lot of persistence and I'm just trying to understand the surge related to the stimulus and what that means maybe for April may.
Thanks, Josh and and actually for years. If you go back we presented this and a IR meeting probably and maybe seven or eight years ago. We were we saw that shopping and when people get their earn income tax stimulus from from the government and it is it is largely sound and so it is other people that I think are other.
Constituents that have lost their insurance or couldn't afford to it but and a large part fans and you know our theory and Sam's and we grew up with them, we love them and as long as we can make our target margin. So the stimulus just exacerbated that these are people that are trying to do the right thing and maybe loss coverage and want to get back and the game and be legal and do the right thing so are we.
See this and and other stimulus that that started and and will continue to be something where we'll increase shopping behavior for the industry as a whole, but yeah and large part is it is predominantly Sam's.
Okay and then.
And it'll just farm and David severity question.
We've obviously heard a lot about lumber prices going up.
And we are we've heard about rental car issues and whatnot.
Those issues it seems very very close to what might be a severity inflation related issue for progressive and your current pricing or the inflation issues that are.
Sort of a kitchen table issues that everybody knows about it that's captured and how you price them right now or is that is that going to contribute to future rate.
You know we look at all the macroeconomics that are going on and react to that and and severity basis I would say on the on our rental coverage, especially for our first party we have contracts in place a.
And minimize the amount that you pay per day on a rental so we felt good about that we also believe on the rental side.
And if you get out there and see the car you know customers want their car back and their driveway. So we really do try to compress the time with which to get the car back into a better shaped and before the accident and so we've always pride ourselves on an on and on the actual time that that takes which of course affects rental and law.
Remember, we will start to see that unfold and if we believe that it is a piece of the severity, we will price that and and future rate increases, yes, Josh as you know and insurance is an interesting product because you truly don't know the cost of goods sold until a year from now and in case of a home.
And our rate indications as what we call them forward looking process to say what should our price that will be over the coming 12, 18 and whatever months.
We are selecting trends for frequency and severity and their and formed as Tricia said by macro and.
Economic views, but also a little more specific views such as the cost of lumber, but obviously.
And as a near term spike over the long term, we're not sure where that goes and we would have taken a little more holistic approach to selecting and that case, the severity trend for the price level going forward.
Alright, well, there's lots of digest from there and I appreciate the answers.
Thanks, Josh.
Thank you. Your next response is from Gary Ransom with Dowling and partners. Please go ahead.
Good morning, I wanted to ask about <unk>.
Voting and conversion I think I see your conversion is up a lot that probably is explained by accurate matching of price and risk on.
On the quote side Youre doing something.
Powerful that gets people and the funnel and the first place and you have a big flow of customers. So if I'm I'm sitting at home, whether I have a stimulus checks or not and maybe I'm wrong.
I'm Ah Robinson.
And I decided I'm going to go shopping and just wondering what.
What is what sort of the key ingredients of being successful with getting that customer in to get a progressive quote.
Yeah.
Yeah, Gary I think a lot of it is our brand and so we started out I started out one of the one of the answers with a 10 years ago or 11 years ago, our brand would be different it's about awareness and people know who progressive is they know our brand. It's a solid brand it's a reputable brands. So.
That's kind of awareness get you on the shortlist and then when you are on the shortlist and you shop, our competitive prices and our broad coverage gets too and the door. So we believe that you know we're we've obviously spent a lot more on brand and another 25 per cent increase and this quarter and are and again, we were spending a lot.
And expanding our broad coverage, so if you're sitting on a couch and here and Robinson and you want to buy and auto and home on your phone or your iPad or you want to call and or do you want to go to your agents, we try to be aware of when and how you want to shop, just to make it easy for our customers and and and those getting and what they are then you have competitive prices. So I think that is really important and that goes of course and.
Two our segmentation and understanding rate to risk.
And much of our advertising is mass media.
A massive portion of our advertising spend is and digital media and that can be sort of display stuff, but it is.
Creasing, the what we call digital auctions and there are multiple digital auction market places on the web these days and I would give huge kudos to our digital and media group because they use the analytical powers that are inherent and progressive people and.
Great real time decisions made and where should we spend more where should we spend less sales.
And so do it and recognizing the lifetime value of the prospects that are looking to quote. So you can imagine if we have a longer retaining customer and strict.
We can spend more and for shorter you get the whole concept. There. So I think we are pretty good in that space and that it's been a space that has been growing force a lot for a number of years now the other important thing to do is once you get the person and the front door you got to get them to the price and that is.
And as simple as you might assume there are multiple avenues, where customers can decide to quit quoting process and we optimize continuously to make that funnel.
That starts at the top of the flow as you said.
And as efficient as possible to get them a quote and then obviously translates to a quote to a buy and so I think well.
A lot of this is our great people, great analytical skills massive datasets and I think we're doing some impressive things there and.
And the only thing and this is a little bit off but once they're in and you do have an incident or an accident and I believe we have industry, leading and claim service were out there we care for their and they need us most I've talked about that a lot when there's cats that we can't control. The weather. All we can control is how we treat you as a customer and we've always gotten really high marks on that.
And you have another question Gary I was just going to follow up on the 25 per cent AD spent too based on what you said is that.
Is it reasonable to assume that a lot of that growth was more and the digital space.
Yes, when we look over the years and we looked at and take the last 10 15 years, and we look when people bought and phones to now and they're buying a digital it is the highest rate of growth.
Yeah and I.
Just just one little more on the same topic just is if I look at the body of science that you're putting into this in terms of the quoting process and all of that and kind of compare it to the body of science you have for matching price and risk are they are.
Or are they both just as robust.
I think so I mean, I think and when you look at our ability to continue to have new product models coming out where we can even more accurately price rates, a risk and get to that preferred customer. We've just continued to excel and that and then on the buying analytical side I'll concur with John.
We have an incredible team and we do a lot of our buying and house. So its proprietary to US we have an incredible team that understands both the art and science around branding and then getting in our customers at or below our allowable cost. So I. Both both are highly analytical teams of people that we continue to invest and.
I appreciate that thank you thanks, Gary.
Yes.
Thank you.
Your next response is from the line of Adam Klauber with William Blair. Please go ahead.
Thanks, Good morning, excuse me.
Commercial the commercial auto is clearly growing.
Curtis comparisons, but I think you called out that the for hire is growing rapidly and and get that makes sense with the economy picking up but I guess what are you doing different in that line of business and in particular, it is more of that business being distributed through the direct and digital.
Yeah, I think we were we were ready not not intentionally but when the pandemic happened and more truck drivers decided to go from big firms to their own by their own tractor trailer because spot rate coverage went off so we were ready and were priced well and we look at that very closely because we've got.
And substantially both on AR and both on the direct side and the agency side.
And we you know from for many years, we sold the majority of our all of our commercial auto and the agency side, but again, we want to be aware of when and how our customers want to shop. So there.
And there was for commercial auto overall not necessarily for higher.
And for higher trucking are the highest growth and the direct commercial auto are ever came and March of this year and and and that's when we normalize for four or five week month and only bested by January of this year and then August of last year. So we were ready to kind of make hay when the Sun shines, we're ready for when this has.
And we feel great about the trends and the underlying cost. We also or you know careful about that because it is high.
Hi limits coverage and so we have selected a 12 per cent severity trend.
And it's very comfortable with our reserves and I think wherever and the right place at the right time, we feel like we're more than adequately reserved adequately reserved and were excited about this new business on both the direct and agency.
Right, Okay, and then my follow up in your letter you mentioned that.
The M T.
8% to 10% versus prior years through the end of March and the first week of April you say that frequency of claims compared to last year's coming up but.
And the March early April, but as frequency of claims frequency frequency of claims and the end of March early April compared to say 2017 through 2019.
Okay and compare it.
Let's go first and compare it to whats happening now so the MTS were down about 10 or 12% and March early April.
And then it went down to eight to 10, and it's back up to 10% to 12%. Our claims has not caught up yet and we are starting just and and really recent data starting to see features grow hasn't caught up yet I'm not surprising compared to 2017 through 19, what would you say John.
And so we don't actually provide a raw frequency numbers. So I'm sure you're trying to do the math yourself and we don't give you the exact data for it and recognize as well that.
Overall frequency trends for a number of years now.
And then negative obviously with the pandemic took a step function down.
We look at the frequency and we will look at a lot of things not only versus 19, but sort of a range of 17 to 19 and frequency is still down from we'll call that generally that area were recognized as well.
Before the pandemic frequency was dropping so.
And I'm sure. We're trying to do a look through to what is April may June et cetera look like and it's.
It's been difficult for us to know.
But I wouldn't forget those long term frequency trends for a lot of reasons I had been negative and of course over the longer term offset more than offset by severity and that's why the industries and growing.
But I would think through that and when you're trying to project that frequency is going to look like for the rest of the year.
Thanks, a lot.
Thank you.
Thank you you and nice responses from Tracy <unk> of Barclays. Please go ahead.
Thank you just a follow up on loss trend are you anticipating any delays and seen claims as the economy reopens and thinking about medical procedures that might've been delayed during a pandemic and are you.
Looking extra IV NR for that possibility.
Well, you know when we get and injury claim or a pip claim or a medical claim or specifically injury. We are we have an estimate on what we believe will be a and the cost depending again, how long that claim is open and what actually happened and then the adjusters can come in and see if they believe it's lesser.
Or and it can be influenced by data as it unfolds I think early on we saw sort of a stall and not.
And not necessarily in treatments, but more importantly, I think surgeries and of course and.
And there's not a huge amount of surgeries and b is a lot of our injuries or soft tissue injuries, and so on and allowed us couldn't even heal on their own but we did see was a closure of course and so we can see that open up as well, but I don't but that that data that we have years and years worth should already be priced and.
John.
Got it.
Also in your view what is the quality of drivers and the for hire space as folks are looking for employment.
I think that varies and I think that really varies we feel great about the business that we are putting on our books and we watch that very closely I think a lot of it depends just like and auto on driver maturity.
And you know right now with the driver shortage. We can see you can see that changing over on the industry. We have not seen that but we'll watch that closely to make sure again that we price for HRS for that segment.
And Kim.
Thanks Tracy.
Thank you. Your next response is from their shields with K B W. Please go ahead.
I know you've talked in the past about how severity is reasonably predictable and auto and frequency less. So so you have to respond to that and I'm, hoping you could talk about how you view that in the context of the property book, where policies are 12 months rather than six.
Yeah, I think we largely and property and we look at the age of the structure or the age of the roof. The location is and a hail prone and say et cetera and.
And that's right now where we're going to continue to understand deeper segmentation and the property space and so I think that will that will change over time, and we'll have more variables that we look at even on the property side really the property the outcome and the C. R has been a really solely.
On catastrophes and freely a lot and Texas, I mean, theres been several things and Texas that have happened, but we look at that and because of that Oh, we I talked about day rate increases we put into place last year and next year.
We will also look at making sure that we have certain restrictions, where we believe we may or may not want and grow do you Wanna add anything and trying to that.
I think it's very similar.
And obviously the models use what we call a trend to date with those trends that take into account durations of policies.
Mentioned property is being 12 months the commercial business is predominantly 12 months as well and we have.
And I think it's close to 10%.
Agency book and put my policy somewhere around there.
So it's the same process its just a further out trend to generally.
Okay. That's helpful.
And switch quickly to the small I guess, the baas side of commercial.
Does.
The current competitive environment change the timeline for progressive wrapping up there.
Well when.
And when the pandemic initially started we had rolled out Bob and a few states and we kind of took a pause to reassess are not where they were going to go in but just reassess sort of what states, who want to do audits, our computer system et cetera, and we're now rolling out very quickly and many many states. We're very excited about it remember when we think about small business.
Think about employees of 20 or less almost micro businesses and that is growing very rapidly, albeit on a very small base, but we're excited about what we're learning we feel good about and where we're at from a rate perspective. So we are and and Karen can talk about this more and August I'm gonna have her comments I know theres a lot of questions on commercial and all have or.
Outlined where we're at on all the BMT, and especially BOP and small business and fleet, but no. We're very excited to continue to roll that out aggressively.
Yeah.
Okay, great. Thank you very much.
Sure.
Just a reminder, that if you would like to ask a question you May press star one on your telephone again to ask a question. Please press star one on your phone.
Your next response is from Brian Meredith with UBS. Please go ahead, yes.
Yeah. Thanks, Good morning and trust.
Alright.
Quick question here for you.
We saw and second the rate.
Or the average written premium per policy decline a little bit here, how much of that is rate driven the minus 3% versus how much is just rising deductibles or changes and coverages that the customers had been implementing during the economic downturn.
I would say the majority of it is our rates are reduction and race. We had you know several customers call in and sometimes they were delaying payments, but not huge changes and coverages are I would say right would be the primary reason behind our reduction our average written premium.
Great. That's helpful. And then my second question I'm, just curious so I know a lot of homeowners and policies have.
And inflation cards or inflation protected and them that are built and it kind of gradually ratio premiums over time to account for inflation.
Auto insurance policies carry that is willing to net per Hector a potential offset here, if we do see some rising and severity.
We have some things that we had in place for years.
Does that actually take a factor into place every month and for inflation.
And the auto side.
And so.
Agree with that.
Transpires and home Joey and the home is driven predominantly by.
And the replacement cost inflation.
So something like lumber would be factored into.
How we would assess your replacement cost.
<unk> on the auto side, we have built and what we call them monthly rating factors. So this is just an acknowledgement that generally speaking over time.
Trend and average losses is positive and so we baked that in to the pricing algorithms. So that every month, we see modest.
Increases in premiums in those states, we don't have those and all states, it's not a huge impact on average premium and stuff.
Does help ensure.
All else equal.
A positive trend in average premium and auto.
Great. Thank you I appreciate it.
Thank you your next responses from Josh Shanker with Bank of America. Please go ahead.
Thank you for taking more than one question from and I appreciate it.
I noticed that.
Policy count growth in property.
It was the best in March 2021, since I guess going back to September 2018, I know, there's a lot of new housing starts and an odd people are moving out and whatnot, but also there is the amount of appetite that progressive might have for a one and those risks it does seem that your Roe.
And property slowed down and the last few years and maybe it's accelerating right now can we talk a little about appetite how it relates both to your desire to convert Robinson and in general how it relates to cap aggregation and whatnot and that is the funnel opening up where property compared to where it was a year ago.
See I think if it tastes and it depends on the stage assets. So a couple of things one we've invested a lot on the direct side with our home court explore HQ and so having progressive property and other third party and non affiliated.
And as we work with so we've continued to do that and continue to have more and more of those companies have a buy button, which makes it really easy to be able to combine the auto home and buy it online on the agency side, we've increased our platinum agents have a little bit over 4000 and platinum agents now so again more ability to bite us.
And the you know we want to make money on the property side and so we have been and I think we're and 47 states and now we want to go across the country and and for years. We were you know we had a lot of density and Texas, Florida that area and we continue to we continue to.
But we also want to grow out of those and do the right thing in terms of segmentation and so our appetite is we want to grow as fast and we can but our other part of that of course is we want to make our target profit margins. So we look at those states. We look at ex cat to try to understand where we believe the underlying price is accurate and and as I.
We are increasing rates and trying to understand the segmentation a little bit more and more deeply so we.
We want and crowd and we want to grow Robinson and that's one of the reasons why we've made such so many big investments, but we need to make money on that product.
Can you give us any sense about how and.
How did the percentage of auto policy. If you have that are bundled whether by a progressive property policy World Unquote explore policy.
Ah yes.
The home quota exports, so I would say overall and Robinson is take that were about 10%.
10% of your of your of your auto market share as Rob at this point.
Yes, okay.
Okay, great. Thank you.
Thank you and next response is from David the moat match and with Evercore ISI.
Hi, Thanks for taken and another question for me Tricia.
I just wanted to just maybe talk about the road test offering and a bit more detail.
And just see where that stands if you have plans to roll it out.
On a broader scale and how much how traction has been there.
You know what we've been we continue to be challenged a little bit with economics on road test, So where we're redefining some of the metrics and I would say on that and more to come and we continue to.
Develop there, but we need to make the economics work.
Yeah.
Got it and what is it about the economics, maybe maybe flesh that out a little bit like what is the sticking point.
That you see that make it hard for the economics to work there.
Either sat for several different things and I'd, rather have us outline exactly what's working one it's working Ah and hopefully that'll be soon.
Okay.
But that's fair. Thank you. Thank you.
Thank you and nice responses from Elyse Greenspan with Wells Fargo. Please go ahead.
Hi, Thanks My.
First question on.
And you guys, obviously, just announced the protective acquisition and I recognize you wait and kind of until that closes to give us more details there, but I'm just as you broadly think about additional M&A from here I know obviously progressive.
Progressive is often shied away from M&A and except in a couple of unique circumstances. So can you just provide us kind of your current view.
And anything that might cause you to pursue additional transactions down the road.
Yeah, we have and our corporate development department that that is under Andrew Quigg, and our strategy group, you're always kind of like searches the landscape to see things you know acquisitions are hard and and it's hard for US specifically I think because of our culture and that's why the limited number that we've done and we have felt have great products great culture.
<unk> fit with us and could be cumulative so I've talked a few times about the ASI acquisition. Yeah. We we didn't have the ability to bundle customers and agency channel and that gives us that we talked a little bit about the protective and and thank you for for allowing us to talk more about that after the transaction closes. So I will always look at what is it.
Bring to progressive that we can't grow organically or that will help us go and get to market faster and that's kind of how I see it and you know we're always we're always taking a look but again I want to be able to doesn't give us access to customers access to technology or the ability to get to market faster is kind of how I look at it.
Acquisitions.
Great and then my second question, you had mentioned that snapshot equally and relief product last quarter.
And then there was a little bit of color within our you know within your letter.
And the Q, but I was just wondering it seems like it's still early but are there any like observations that you've noticed kind of some switching like that shorter on driving period.
Relative to other products and just in general observation.
Yeah, So we haven't and 43 states and we are again like you said, it's early so I could unfold, we sent out communications to about 14 million customers and about 40 40000 of those enrolled so to have that 30 days. So far and 9400 have reached that 30 day point and a pretty small percentage of about 4%.
Called us to join the program and.
And we still feel very proud of the fact that we did that because it does allow people to reduce their rates, if they're driving lives or are their behavior and driving differ. So again. It you know we still have some time before all of the customers roll out, but a relatively small percentage has actually joined the snapshot program.
Is the idea to keep that going like obviously with tied right to the pandemic and the impact that that's had on driving behavior. That's the idea and are keeping option of a shorter.
Driving monitor period available indefinitely or is there.
You know kind of you only you might have this for a certain time period. Yeah. We have this program in place until July of this year.
Okay.
Thanks, I appreciate the color thanks Louise.
We've exhausted our scheduled time and so that concludes our event Tamara and I will hand, the call back over to you for closing scripts.
That concludes the Progressive Corp, first quarter Investor event information about the replay of the event will be available on the Investor Relations section of Progressive website for the next year you may now disconnect.
Yeah.
Oh.
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