Q4 2021 Progressive Corp Earnings Call
We can't change rates on our entire book of business overnight.
Rather rate changes start, earning and when a rate revision goes live either upon filing our after approval by a department of insurance and that depends on the state.
While new customers see the rate changes immediately existing policyholders rates will change at their next renewal event.
As a result, it takes time for rate changes to earn in Fortunately Progressive writes, mostly six month policies, which allows us to earn rates faster than many competitors, who issue a higher mix of annual policies.
Let me start with the auto pricing group.
Pricing its goal is to deliver best in class tools to enable product managers to make risk based decisions and to provide an accurate view of rate adequacy for our auto business.
Think of this as the science behind the ratemaking.
Given our beginnings as a non standard writer and evolution to become a leader in segmentation and product innovation, we've honed our pricing sophistication for nearly 85 years.
We continue to invest in attracting and retaining high quality talent building systems and processes to make sure. We can accurately price a very complex product and a high quality manner.
And advancing the science of pricing to improve our assessments of rate adequacy.
The pricing indication is the key tool we use to determine our indicated right knee. It helps product managers answer the question, how much do I need to raise or lower rates and my next rate revision to achieve that target combined ratio or better on an accident year basis.
The indication is based upon two primary loss ratio calculations. The numerator is the projected loss ratio. This is our best estimate of the loss ratio. We expect for policies that we were right in the upcoming rate revision at our current rate level.
The denominator is the target loss ratio. This is the loss ratio, we need to achieve to have enough premium leftover to cover our perspective non loss costs and profit loading.
The difference between these two ratios is the indicated rate need for the extra revision.
Let me provide more detail on how we determined the target loss ratio.
Our goal is to price policies in a way that we will collect enough premium to cover our expected loss costs loss adjustment expense operating and acquisition costs and have enough leftover to hit our 4% profit margin.
The chart on this slide depicts the various components to determine this loss ratio and in this example, as you can see our target loss ratio is 66%.
It's very important to note that changes in our non indemnity cost structure can result in changes in our target loss ratio and.
And thus having a low cost structure is very important.
All else equal if expenses are lower our target loss ratio will be higher and we can charge customers less for the same protection.
The other key input into our indication is the projected loss ratio. This is our best estimate of the loss ratio. We would expect for policies. We are going to write in an upcoming rate revision at our current rate level.
As I said earlier, we do not know what our loss cost would be when we write policies and given our 4% profit target we need to be very accurate in our projection.
So how do we get there.
Requires us to adjust our historical accident year losses, and premiums to reflect our best estimates of the future.
Let me talk a little bit about the adjustments, we make to our losses first.
The first consideration is loss development, which is the process of estimating the ultimate frequency and severity of our claims.
Since ratemaking as perspective, we need to know how much will recent claims change from what we know about them today.
We also need to know how many more claims will be reported from this time period and how much they will cost and change over time.
To develop our historical frequency and severity, we analyze historical development patterns using a variety of methodologies to help us achieve accurate estimates.
Second we also need to adjust for weather, which can be highly volatile over time. Our goal here is to price to a longer term average to make sure that we are not over or under reacting to recent weather events.
Once losses are fully developed both frequency and severity are trended to the midpoint of the rate revision period. The midpoint represents the average cost of goods sold of losses during the revision.
There are many factors that can impact our loss trends for macroeconomic variables, such as inflation and gas prices to improve safety technology to law changes and even our mix of business. We monitor these to understand where frequency and severity may be headed and we update our trends on a monthly basis.
On the premium side, we make two important adjustments first we adjust historical premium levels and bring them to current rate level to reflect our most recent pricing.
Premiums also have trends, which are largely a function of changes in our mix of business, we need to account for the fact that our premiums can change due to the segments. We write we do not want to change rates simply because our mix of business changes over time.
Our indications contain many inputs to help us projected future and as a result, there is pricing risk let me share a few examples of the strategies, we employ to manage this.
First when possible, we'd like to rely on the most recent accident periods, which allow us to be responsive to our most recent experience and limits. The training period here. Our data scale is a big asset as it affords us increased precision and prevents us from reacting to noise.
The second is our high frequency of rate revision. This allows us to price to a shorter rate revision length and to be more responsive to changes in our indications.
You've probably heard us say that we take smaller and more frequent bites at the Apple as a result, it is common for product managers to complete multiple revisions in a year.
This is true in general, but not always as we are currently taking much larger bites in the current rapidly escalating loss cost environment to ensure rate adequacy.
The third is our high mix of six month policies as I mentioned earlier once the rate revision goes live it takes time to earn into the book because we need to wait for policies to renew into the new rate level. As you would expect a six month policies earn and roughly twice as fast as annual policies are high mix of six month policies dramatically increases.
The speed with which new rates earn into our results.
As you can imagine COVID-19 was a massive shock to our business and has forced us to adapt our pricing indications in multiple ways today I'm going to use collision coverage as a quick case study to highlight the impact on our loss trends and to share our responses.
This slide contains a time series view of our collision coverage frequency severity and pure premium through the end of 2019. It represents a pre COVID-19 period.
Solid line is monthly data you will notice that this data can be bumpy, which is largely due to seasonality.
Added lines represent the trailing 12 month average.
As you can see during this time our trends are relatively stable peer premiums were increasing on average by slightly more than 3% per year.
With frequency gradually decreasing and severity growing faster than the rate of inflation.
During this time, we were tracking a variety of variables that can help inform where we thought trends might be headed in the future.
One thing we did not expect was a once in a lifetime pandemic.
On this slide the data has been updated through April 2020 to reflect the onset of Covid. As you are aware a massive decrease in driving significantly reduced our collision frequency.
This also dramatically changed our data and challenged us to think of new ways to project trends. The key question, we needed to answer was how quickly will frequency rebound.
To help US answer. This question, we leveraged a variety of data elements to inform future projections of frequency. This data came from a variety of sources first we closely monitor our claims frequency data to understand both monthly changes in comparison to pre COVID-19 levels.
Second we leveraged our extensive snapshot data, which we know is highly correlated with frequency. This data provides a daily view of vehicle miles traveled and important segment level data on driving patterns, such as time of day and day of week.
Third we utilized input from product managers, who brought local knowledge about changes to driving in their respective states.
By analyzing this data over time, we could start to quantify with what likelihood by how much and when frequency might return to pre COVID-19 levels. This.
This analysis is conducted at a state channel and coverage level and we update it very frequently.
This slide shows the same three graft through the end of 2020 . One as you can see our collision pure premiums have rapidly accelerated to well above historic levels. While frequency has rebounded it is still below where it was prior to the pandemic. However, collision severity has dramatically increased driven by supply chain.
<unk> and the soaring prices of used cars.
Like frequency or response for severity has been to leverage new data sources like the Manheim index to explain the causes of these increases and where they might be headed in the future.
In collision more than half of our last dollars are from total losses as we pay to replace totaled vehicles damaged beyond net cash value.
This plot is showing the average value of used cars for manheim in orange and the estimate of actual cash value or ACB of the vehicles, we write estimates on in Blue.
Not surprisingly, what we see as a very strong correlation between these two metrics with ACB lagging Mannheim by a few months.
Given this signals of upward movement in car values are a leading indicator of ACB estimates and severity.
With this data we are better able to evaluate scenarios of where severity may be headed in the future with the cones, representing the fact that there is still a high level of uncertainty.
Given there is a high level of uncertainty of where our trends and therefore, our rate need might be headed I want to share with you. How we ensure we are getting our latest views of rate adequacy to product managers in a timely manner.
As I mentioned earlier, our goal is to frequently update our trend analysis and pricing indications. So that product managers can quickly respond to changing market conditions. Our indications are updated quarterly for each day channel and coverage combination, which generates thousands of pricing recommendations per year.
As I mentioned earlier, we update our loss trends and premium trends on a monthly basis, given the rapidly changing trend environment due to Covid. We are now able to update the trend portion of our indications monthly which provides product managers, even more up to date data on changes to their rate indications. This allows product managers to adjust there.
Plans as the needs of their business change.
And now I'll hand, the presentation over to <unk>, who will provide an update on how product managers leverage our pricing science to deliver our operational goal of growing as fast as possible at or below a 96 combined ratio.
Thanks, Sean.
The goal of the product management organization and should deliver profitable growth at our target margin through adapting progressive products to win in our local markets.
Organization comprises of highly talented individuals their results oriented.
By profit and loss ownership.
They want accountability and decision rights and we empower them to make decisions at the local level I think of them as chief operating officers of their own businesses.
There's several aspects to our product managers job at progressive each product state channel is different and our product managers design strategies to meet our goals within the individual businesses.
Lyons is mandatory.
Profit is our second priority.
Growth at target margins comes next.
Managing legislative and regulatory developments and relationships are key levers in order to respond to economic conditions and the competitive environment within their states today I'm going to focus on one aspect of digital tactics to deliver our target margins.
This is especially relevant in the current environment.
The first step and consistently hitting our target margins is to give our product managers very clear operational goals.
You know it is or grow as fast as you Canada ninety-six objective.
Just a reminder, that is a composite calendar year target number.
Product managers manage to their respective targets within that channel product or geography.
Under the line coverage level.
Each business fulfills our role within the overall portfolio to meet this composite goal.
Our product managers have multiple tools that help us operationalize. This goal we call it a product manager toolkit.
Product managers actively monitor results with daily reporting on volume measures and monthly data across all other kpis.
The Duke it affords both diagnostics and informs actions to ensure we deliver segment level results that are old enough to our aggregate objectives.
At the macro aggregate level operationalize them. This objective is like riding a wave it requires a very delicate balance.
Go too fast with rate and it will be ahead of the market and compromise growth.
However, if you moved too slowly and fall behind on grade, it's incredibly hard to catch back up and you will miss profitability targets.
Product managers continuously adjust rate levels to match changing conditions and the capability to be nimble as a source of competitive advantage for progressive.
Our product managers are not just trying to hit a 96 at the macro level.
But our making sure they are pricing each individual segment the same target margins.
That's very important.
We don't have a bias towards any specific customer segment.
To drive growth across the spectrum provided those risks off price accurately.
This approach enables us to deliver on our broad acceptance or what we call peak nearly all comers philosophy, our heritage starting out writing less preferred customers requiring us to align our entire business around matching great tourists and as we've expanded our approach over the past decades. This approach remains foundational to our strategy.
We have to make sure we are continuously matching greater risk.
<unk> provides us incredible data and to make data driven decisions at the micro level, which is a competitive advantage versus many industry competitors.
Upgrades in each day to allow us to add new rating variables to our algorithms that feeds the virtuous cycle of risk selection.
You've talked about this at length in the past so today I'll just focused on how product managers managed profitability at the macro level.
The aggregate rate level is determined for each state in channel each product manager decides how much street to take and how often to take that rate for the state and channel to manage.
This decision, making relies very heavily on the advanced analytics, John talked about earlier product managers also incorporate multiple local and puts into their decisions I'd like to group. These local and put it into three broad categories state specific loss trends regulatory framework within the state and the mix of business to be sure in each state is that drew.
<unk> the earnings cadence.
That's walk through each one of these one by one.
The first category of inputs of states specific loss trends each state is unique and states have different loss trends at any given point of time to many reasons for this in the auto product coverages and limits offered are based on unique state laws.
Loss change often and have a direct effect on loss costs going forward.
Example of this would be injury limited increases fee schedule changes and new case law.
States have unique weather patterns that impact loss costs. For example hill states differ from Hurricane States and we use different weather loads in these states.
Claims processes are different by state and we keep improving them to make sure we are being accurately.
Process changes like labor rate changes litigation in fraud mitigation strategies can have an impact on loss costs annually. He's all different by state.
And during the Covid pandemic states had different lockdown and reopening laws.
Product managers work closely with our cross functional partners in their states. These partners provide valuable local market input and we incorporated those into our decisions.
The second and put that impacts decision, making at the state level as REIT regulations at a very basic level. There are two types of reregulation mechanisms violent using prior approval.
And father, New States, we can elevate rate changes literally the day after we file.
The approval for the revision in these days can come months and in some cases years. After the rates are effective.
Prior approval means the state do you I needs to approve the revision before it's effective.
Liam Burke requires more time to get rates to the street, but even before approval in prior approval states. We typically go through a back and forth with regulators.
They ask questions and we explain our data and answer that questions, but what's changing with the specifics of our vision.
We call. This the objection process, but don't be confused these are questions raised to clarify and understand and not fixed barriers to implementing our product changes.
Over decades, we have built incredibly strong relationships with our regulators as both credible and transparent operators.
And we continue to work closely with regulators to ensure they are comfortable with what we're doing why we're doing it and how what we're doing ensures we deliver rates that are adequate or not excessive.
Not unfairly discriminatory.
When trends change, usually where the first carrier to share the latest credible data with state regulators.
It's fairly normal for them to react when your information and ask questions and ask for support to confirm understanding.
In practice, though the 51 different enforcement mechanisms no two are alike. Each has to be managed independently we.
We have built institutional knowledge and dedicated resources to put together filings and additional support to ensure we get the right price into every local market as quickly as possible.
Each product managers in depth understanding of the state's regulatory mechanism.
They are on top of the unique deviations, which means we have to know how to calculate rate need on the state's template how much trade can be approved under a certain mechanism. The flex spans and how often we can file in a year.
Also manage the approval timelines, which can vary based on the type of filing within each state.
While the price of policies to run consistently at or below 96 accident year combined ratio prospectively.
Also manage our results to a calendar year 96 combined ratio target.
I wanted to do that product managers need to plan for the time it takes for rate changes to earn into our financials.
It's important to note that because we have a large book of in force business really changes don't affect all policies at the same time.
All new policies going forward I'd written on the new rates, but the existing policies don't see of reaching until they come up for renewal.
Our combined ratio is a function of losses and expenses divided by earned premium.
To put things into perspective. This is a chart of how much time. It takes for that earned premium to reflect the new rates on our personal auto policies.
With a predominantly six month book of business, if we increased rates by 5% today five months from now earned premium which is the denominator for the combined ratio would have increased approximately three 5%.
And by month, seven we will be close to that 5%. So the reason we took in the second half of 2020 , one around 6% will have largely earned into the financials by midyear.
And he is right we will take now will partially offset the first half and more materially the second half's combined ratio.
For comparison, if a carrier at 75% of their policies as annuals.
Take even longer is only 65% of the premium would be at the right rate level seven months out for the change.
This is a big reason, we've limited distribution of 12 month policies.
Our platinum agencies.
Over 90% of our personal auto policies are six month policies that times like these we benefit from a shorter lag period to realized rate changes in our book.
That's just one example to show you how one auto product manager made a high level decisions over the last couple of years.
This is a real example from one medium sized state.
The grille and on the chart as monthly pure premium in that state while the Blue line is a trailing 12 month average pure premium.
This takes out the weather related seasonality in this state.
In 2019, the stapler is running under a 96 combined ratio.
Loss cost trends were fairly stable in the state.
Stable trends the product manager was focused on growth strategies, which typically include lowering reach to convert more shoppers are increasing demand generation spend to generate more shoppers.
As early Covid related frequency drop came through our data and the product manager responded first by participating in our April and relief efforts.
Included 1 billion of premium credits during the immediate post Covid period that was followed by an aggregate rate level decrease a couple of months later.
In early 2020 , one as this product manager was evaluating their aggregate rate level.
Just on the data available at the time, they expect trends to start returning to pre COVID-19 level at a fairly slow pace.
Peer premium expectations at the time are shown in the Orange line.
At this point of time, our tools indicated no immediate rate action in order to local conditions and the state of warrant anything different.
Our ability to review trends angry at level every month allowed this product manager to very quickly spot a change in trend shortly after making the right decision. This change in loss cost trend was supported by U B I D and the state which are driving returning at a faster pace than previously expected.
There was enough credibility and the data for the product manager to react and they adjusted rate level upwards to reflect the change in frequency trend.
As time went on severity continue to rise at a faster pace than expected back in thing, especially.
And collision comprehensive property damage coverages.
Frequency also continue to see modest positive trend as driving behavior reverted back to normal at this point the product manager took another rate adjustment to ensure they would hit the accident years 96 and calendar year 96 combined ratio objectives.
So it's we're in the business of trying to predict the future. There is near certainty that we'll be wrong. However.
However, our business model is to minimize this error by shortening our future pricing time horizon to provide more frequent opportunities to adjust our future prices to market conditions.
Product managers have the advantage of getting updated indications and other diagnostics, often and have the resources to act when needed.
This allows us to react very quickly when conditions are changing and win the regulatory framework allows it it's tricia.
A shared this approach of taking more frequent smaller bites of the Apple continues to serve us well.
I read something more closely aligned with true underlying costs, which enabled us to deliver more consistent underwriting profitability and more competitive rates that drive long term growth.
If a carrier either does not have the ability to have reviewed it often and or does not have the flexibility to react quickly. It can fall behind on rate need the margin of error grows the longer you have to wait to react. This is why we have invested heavily in the tools to evaluate trend quickly and the systems to react as fast as possible.
The chart also illustrates the challenge in states with longer approval times.
Managers deploy different strategies to manage our entravision length risk instead.
In states, where we arent afforded the flexibility to change rates as often as necessary to accurately match rate to risk.
Managers typically act earlier and more conservatively to ensure we have adequate rates, while making sure they're not excessive.
They also have a full toolkit of levers available to deploy to protect the book and meet their target margins.
We just talked about the science and the product manager toolkit now, let's talk about how we deploy changes to the market.
Having data and analytics to inform pricing decision, making is necessary, but not sufficient to effectively manage a book of business. You must also have decision makers and the deployment of resources to father in a timely manner get regulators comfortable with our actions and the infrastructure to get the updated pricing.
The market.
And the example, I shared this particular product manager implemented 10 rate revisions in the state in the last two years alone.
For direct and five for agency.
These actions resulted in the state meeting its profit targets both years in a very dynamic market and achieving 7.4% earned premium growth last year or over 25% earned premium growth over the two year period, while continuing to keep US ahead of the industry on segmentation.
The backbone of our deployment capabilities is a revision factory.
We have the ability to act multiple times in a year in every state our resources dedicated for product upgrades are incremental to those for rate increases.
Just to give you an idea.
This year, we deployed over four entravision per state and auto and approximately 60% of our premium picked up the latest product model.
It's also important to note.
Each student and the product manager toolkit is supported with dedicated infrastructure. These are separate systems and resources that are incremental to our rate revision factory.
That gives us added flexibility to deploy other tools as needed in the individual states.
We have long seen revision deployment and cadence as a potential source of competitive advantage.
Which is why several years ago, we invested in the factory to increase throughput and improve its quality to ensure we can continue to lead in both pricing and segmentation.
We believe this investment has provided us with best in class capabilities and this is just a view of our auto product each business commercial recreational lines and property have incremental dedicated capabilities.
Our ability to react early to changes in market conditions creates opportunities for us the last time the market hardened to follow that playbook and reacted fast and decisively. We believe faster response times help us compress the industry's cyclicality during both hard and soft markets that continues.
Drive our growth during times of change.
This market cycle, maybe different in magnitude requires a similar playbook.
As soon as we saw trends turned in 2020. In addition to the 1 billion April relief effort.
Orange change direction in 'twenty, and 'twenty, one and we reacted immediately.
I had a head start.
And we'll continue to react quickly as we see changes in results in either direction.
While we can't know if this cycle will play out exactly like cycles of the past.
We do continue to have crushed or not process.
And believe it will help us deliver the best possible results.
Thank you.
This concludes the previously recorded portion of todays event.
Members of our management team available live to answer questions, including John Curtis and conning pharma, who can answer questions about the right level of presentation.
A Q&A session will be audio only and questions can only be submitted over the phone by pressing star one on your keypad.
In order to get as many questions as possible. Please limit yourself to one question and one follow up we'll now take our first question.
Our first question comes from Elyse Greenspan with Wells Fargo. Your line is open.
Hi, Thanks, Good morning, My first question.
Thanks for all the disclosure on the rating side of things given where you guys are now.
You mentioned points that you guys took last year as well as just what seems like continued elevated severity.
You know when do you like thank God.
Well potentially be at your target margins within personal auto if I remember from last call last quarter it seemed to indicate that Ricky.
You know six months or longer I, just want to understand kind of where we are in the.
Time frame up.
Thinking we'll have enough way to kind of get back to you know where you want your margins to be in auto.
Chest in personal auto.
I think it's the least and I think that's very dependent on each state and so we feel good where we're at now so we took the eight points last year took another three points in personal auto in January and we've had some successes with some of the regulators. So let me give you an example.
Texas I think that came up in the last call.
We they had some objections, we went back and forth with a lot of data I came to an agreement earlier this month.
Both of those prior those approvals are done and effective I think on the 24th and then we've put another rate increase in February . So we feel good about states like Texas, where we've had great conversations with our regulators and we can get the rates on the street and that allows us to open up our local advertising.
<unk> plans that we might have restricted underwriting guidelines.
And our underwriting restrictions I should say.
And so it's a mixed bag depending on each state. So we'll continue to watch the trend.
<unk> Ah Ah and used cars and new cars I still continue to actually outpace even pre COVID-19 levels and of course, a lot depends on frequency. So we thought the vehicle miles traveled down more in January they think that might've been through omicron. So they were down about 11% to 14%.
Compared to our our percentage of about seven to eight since may.
Now that we're seeing are more states open well watched frequency closely so we're watching companies open and what the new normal is of how people go back to work I think is yet to be determined I know with progressive we are just figuring that out as well there'll be a lot more people that work from home or work from home.
The time, so we're going to watch a frequency once things stabilize a little bit more so that the real answer is we don't know for sure, but hopefully John and chronic let you I understand that the propensity to have the majority of our auto policy six months allow us that flexibility to get the rate and more quickly.
Thanks, and then my follow up.
Touch upon in your answer.
And I look at your results.
Right.
Typically there is some better seasonality in January but this January saw almost six points of better underlying loss ratio relative to December and severity remains high.
So if frequency drive a net benefit in your January numbers, perhaps Oh My God and then is there anything that you can say about February at Mccann has waned and just perhaps in that month.
I think that's probably part of it I think there's a lot of seasonality in January so I wouldn't read into that too much because we still have a lot of that rates are and in what I would say early results from February from vehicle miles traveled there I'm going back to what we saw before in January So we can see.
Let's see.
Up a little bit again, that's yet to be determined and while we'll have those results in a few weeks.
Okay. Thank you thanks Elyse.
Our next question is from micro <unk> with Wolfe Research Your line is open.
Hey, good morning, a great presentation.
First question.
Tricia to your comments about.
In the past during times of industry disruption that you've been able to the company's been able to make great strides just curious.
As you know obviously every cycle is different.
As you all mentioned.
It is the window of opportunity just very different this time given it appears progresses results.
Deteriorated much more so than than peers, which which maybe could be due to.
Being overweight quote unquote non standard drivers or are you seeing kind of a bifurcation of results nonstandard versus standard, which which might make other appears less likely put to that.
Need as much right.
Oh really.
Kind of strip away I think Q4 results for some of our competitor or we feel like we're in pretty good company. It looks like almost everybody needs a similar rate than we do.
We're monitoring that I mean as far as our book of non standard of course as you know that was our humble beginnings, but we are we continue to grow more on the preferred side. When you think about new business. Our apps are down more on the Sam.
Which makes total sense, because theyre very sensitive to price, we define them as inconsistently insured.
Of course, a lot of the Pip growth on the Sam side coming from the new album, because Theyre really short so I.
I wouldn't say I would say I think I think everybody in these rates are the.
Trends changed as you saw it dramatically.
And so I feel like we're in it we're in a really good position and we'll continue to work with regulators, where we don't have the right rates down the street, yet to prove that out and if we need to have slow growth for a bit until we get there.
Okay understood. Thank you my follow up is is just trying to maybe if you can try to unpack some of the severity statistics a little bit more.
On the manheim in the deck it looks like but just curious we're also hearing about supply chain issues requiring cars to be take longer to fix a higher rental car prices just curious how you are.
Are any of the other issues that have been impacting severity or they are are they getting better or are they decelerating or is there still a lot of uncertainty.
I'm, Mike there continues to be a lot of uncertainty, but I think you hit the nail on the head. So we've got the supply demand issues on ships. So we have parts prices continue to increase because is taking longer to repair those are rental prices have gone up we're watching labor rates and body shops closely and we're working with our MSL.
To understand what we think about that but when.
When you think about severity, we look at it in a couple of different ways, but I've been focusing on looking at it from the this last quarter quarter, four our 2020 , one compared to 19 and let's take the collision as an example, and we don't usually share at this level, but in the aggregate we are up and severity about 11.9.
Per cent collisions up substantially more than that and actually frequency is down less than pre COVID-19 and severity is up. So we're watching very specific line coverage is to understand the trends and how they relate to the increases that we need specifically.
Thank you.
Thanks, Mike.
Our next question comes from Jimmy <unk> with J P. Morgan Your line is open.
Hi, Good morning, first just had a question on the sort of if you could discuss whats going on in California, It's a small state for you guys, but.
I don't think the state of the approved any pricing requests yet so what's the reason for that and do you think that that will change as use you'll have more of the sort of weaker margins and your actual experience that gets built into their analysis.
Yeah, I mean, we continue to work with regulators in California. It can be a challenge and we're up for the challenge. We you know how they might look at res versus we're looking at them prospectively I think there's a little bit different and so we're sharing data regarding what we're seeing and the trends we need here here's the bottom.
For any regulators, they said demand adequate rate and we need to get adequate rates on the street in California in every jurisdiction for that matter. So we're going to continue to work with California, and then there's a handful of other states, where we continue to go back and forth and our goal is to be open and available for all consumers.
And if were open and available.
That helps with affordability in the long run in the long run so in the meantime, we.
We have some levers that we can use to slow down growth, whether it's a local advertising or build plans underwriting restrictions.
And some agents incentives will do that in the states, where we need right now we do need rate in California, but we'll continue to work with the regulators there.
I can prove our case.
Okay, and then on the competitive environment are you seeing seeing our competitors take similar price hikes and or are there some of them not doing the same and as a result like because we've seen your premium growth slowed down a lot this growth slowed down a lot.
Recently, but not sure if that's because other companies are not raising to the same extent or they have more 12 month policies, where they can't implement price hikes.
There's a lot of variables like that was something you had been down that had with 12 months. Some are not increasing at the rate. We are we are usually first to market. When we talk we talk about that a lot in Illinois.
It had a track we do see competitors definitely taking race and so we you know we knew taking action aggressively early on when we saw that trend has changed so dramatically we knew that would affect or new business adds we're seeing that but we feel good about getting those rates on the street.
And as more and more companies see those rates that competitive environment will improve and hopefully as people shop, they'll come to us and we'll be in a good position to have a stable rate. So it's really across the board.
Some are taking a different approach because they had a 12 month policy some run their companies differently than we do you know we have a very specific goal to make that four cents of underwriting profit and so that is that as our primary goal and growth is second so we'll continue to watch we believe that you know we feel like we're in a good position and for the most part.
<unk>.
Okay. Thank you.
Thank you.
Our next question from Michael Phillips with Morgan Stanley . Your line is open.
Thanks, Good morning, I wanted to ask about.
Your comments on you know get ahead of trends and being first to market and then your comments are taking larger bites.
The question really is do you classify what you took anytime in 2021, maybe for Q. The six eight and those 19 states would that a larger bite or was that more of a smaller bites and the reason I asked prices.
Curious if you think that six eight and those 19 states was that enough to.
Offsets and provide some profit provision in that or is there more needed from even that <unk> number.
It's very dependent on each state. So there are some states where there's more needed I gave you. The example of taxes, where we had.
Two rate revisions and we put another one in play or double digit one in February . So I think it's very dependent on the jurisdiction I would say Ah.
When we define small bites, it's nice for consumers to have a stable rate. So small bi to me and I don't think there's any great definition is you know 1% here, 1% there. So I never like to take 6.8 per center average double digit percentage, because we see that that one it affects their new business and could ultimately affect.
Our renewal business as people get increases so that to me is the larger by it but again, we saw these dramatic trends and we needed to get out in front of it.
Okay. Thanks.
A related question I guess, but.
Some of your comments here, where we start we're starting to feel good about where we where we are today you got to wait for that to earn in what do you think that means for.
For how we should expect to see the marketing spend this year.
Sure.
Yeah. So we you know we will plan to spend as much as we can on marketing as long as we feel like rates are the rates we have out there are appropriate.
As well as the fact that you know our acquisition Costco within our target we want to have our targeted acquisition cost. So what the levers that we'll use in places where we don't think we have the right just yet I won't be too turn off or slow down local advertising. We you know we have some <unk>.
Great plans around marketing again are we will that will be dependent on Ah each jurisdiction and where we feel we are as far as rate adequacy.
Okay. Thank you.
Yeah.
Our next question comes from Greg Peters with Raymond James Your line is open.
Good morning, I guess, the first question and I'll go to the the projected loss ratio slides I think that slide slide 21.
Our 2020 or the 2021, well you know the slides you put them together.
<unk>.
Theres two pieces in there there's the new business piece of the renewal piece and I'm just curious about your perspective on new business.
Traditionally theres been a new business penalty and I'm curious what your views are on new business penalty in this in this environment and I'm wondering if it differs between say the agency segment in the direct segment et cetera.
Yeah, well I think of the new business penalty for me more and more on the direct side in terms of Frontloading our acquisition costs in the first six months of the policy.
As far as the projected loss ratio I mean, I'm not I'm, hoping mascara answer your question I mean, I think that.
Our our new business, obviously is negative right now.
Ah I think every single segment. We saw initially in the agency business I think they're very susceptible to any price price increases based on the fact that they had a lot of opportunity to put business with their customers with others.
I'm not sure if I answered your question or if you want to add anything I can add a little bit there. So there's really two objectives in pricing.
One is the <unk>.
The life time profitability of a customer.
The other is hitting our calendar year targets and we're trying to achieve bulk and sometimes there is a balance there to be had.
Tricia was noting in the direct business.
New business runs a lot hotter than renewals, so because of that advertising expense that we incur completely upfront less so in the agency channel, but we also see deferring new versus renewal loss ratio differences across segments of customers. So there are some bigger.
New business penalty when you're in the nonstandard end of the spectrum relative to the preferred end of the spectrum. So we're trying to balance.
The lifetime profitability of those customers as well as the calendar year of profitability of the entire business, while we're making those decisions as we are.
Noting earlier, there are certainly markets right now where the underlying base rate level. If you will is not adequate and so those cases, we are restricting.
You know as much as we can because we're pretty confident that we're not going to hit our target margin on a lifetime basis for that business are there other markets, where we're closer and that's where we're playing the underwriting and the advertising levers to manage that again sort of a calendar year, but also.
Two a lifetime targets.
Thank you that was that was actually.
Excellent.
Color on on my question, which was kind of baked. So thank you are the second and follow up question then.
I'm going to go off script here, if you'll allow me because hum.
I'd like to pivot to the commercial lines business for a second.
And we get so a few opportunities to talk with you and.
The commercial lines business continues to one grow rapidly to produce results that are well.
In excess of your your targets can you give us an update on what's going on there what areas of the market you're having success in and just give us a state of the union on the commercial lines business. Please.
Yeah, absolutely we feel incredibly proud of our results both on the growth and profit over the last couple of years, what are the biggest areas in commercial lines, where we've been able to grow is in our for hire transportation segment, which makes a lot of sense during COVID-19 goods needed to be transferred across the country.
Any of US are stopped shopping in order and so we really were in a great position to improve.
Improve and increase our market share in that specific segment, we've been riding out for a lot of years. So the good news is we knew the underlying cost structure, we were conservative in our in our take rate. So we feel really good about that obviously, there's a couple of other things we continue to grow in our TNC business are we.
Protective and adds another part of our fleet.
And across the board, we feel pretty good about growth really good about growth in all of our B M. Ts so.
So just a really great part of the story, where we saw an opportunity.
Had the background and experience to write a lot more of that and we took advantage of that.
I got it got it and talk about our commercialized so I'll I'll tack on here, we've got a number of other things going on that I think are not as appreciated appreciated in the market.
Perhaps they should be so usage based reading in commercial is going really well.
We're really predictive obviously those trucks are driving a lot of miles so.
The differential across those who are good drivers and those who are less good is pretty significant and we're pricing to that.
So have that information for a large group of customers.
This because truckers now have electronic logging devices that have that information and we can put that into the new business rate relative to the personal side. We're predominantly we're still using the information we gather at renewal versus new business. So smart hall is going really really well. They also have a problem.
He called snapshot Pro view.
It's also working well for smaller fleets.
Other piece of commercial but I think it's pretty exciting is the direct channel. So we've all been sort of wondering when commercial customers will sort of follow the personal side and start shopping at a bit more.
Direct channel.
Certainly.
Think help accelerate that and we're seeing great growth in our direct channel in commercial lines I could.
Go on into the BOP program as well, so I think you're right to say hey, it's it's a very exciting segment of the business right now the core what we call business market targets. The trucks sector are doing really well and we've got a lot of long term runway to play and commercialized.
Yeah. Bob program is now in 34 States. We added 17. This year. So obviously, it's still small but something as I outlined probably last year. A few years ago are different horizons. We're excited about helping ensure that small businesses. So that's a that's something that we think there's a lot of runway.
Got it thank you for the answers thanks Craig.
Our next question comes from Josh Shanker with Bank of America. Your line is open.
Yeah. Thank you looking through.
Our 10-K I was surprised at how much AD spending you did during.
2021.
And that tells me, there's probably more seasonality in there then I'm understanding I assume it was heavily first half weighted so could you a talk about the normal seasonality of AD spending at the firm talk about how that differed in 2021 and then the third part is that means that most of the savings that you got.
Is that on the expense ratio really came from the G&A expense.
Much of that expense can be saved into 'twenty two and later.
Oh, it's a multifaceted question I would say Oh, you normally we do spend a fair amount in the first half of any ear.
But we did dramatically reduce band because of our profitability issues at the end of 2020 . One so we wouldn't have normally reduced it by that much if we did that as a reactive.
Are you now positioned based on what we saw with trend and.
And so you know we spend.
We spend and depending on when we believe there that people are opened to shopping.
And that can vary so we we we did spend more in January of this year I don't know if Pat you want to add anything more to what we're feeling about from a media perspective, no I think your response on the seasonality of of AD spend is absolutely right. We spend when that will be efficient media spend and frankly, when we think we are.
Priced adequately for the new business coming in so months has konica and John laid out severity started to take off with frequency in the second half of last year. We had some rationale pullback there just simply because we werent comfortable with our rate level now when we come into this year as Tricia mentioned, we typically.
They will spend more in Q1 ahead of what's typical shopping season and that's what we saw in January but it is more state specific where we're open for business and turning on some media spend now on a year over year basis, we had our best quarter ever in Q1 of 2020 , one so from a span.
And an efficiency perspective, we've got some tough comps coming ahead of us at this point in time, but really are our full year spend is 12 individual months of spend highly controllable on and off as we're comfortable with the efficiency of the spend and frankly the adequacy of the.
Your line of business, we bring in for that as well.
Thank you and the permanence of the G&A expense reductions in 2021.
So yeah, we think of our non acquisition spend as what we call. Our non acquisition expense ratio, which generally you can think of is <unk>.
G&A expenses the long term trend there has been really good so we have taken out.
Over the past I don't know probably.
Okay, maybe four points in our non acquisition expense ratio, obviously that allows us to be a really competitive.
And our goal is to continue to reduce that number. So we obviously have scale at our advantage. We obviously are investing heavily in technology to continue to get consumers to self service and be happy doing so so a lot of efforts around continuing to be competitive.
Our cost structure outside of acquisition, we would if were priced adequately we would love to spend more on advertising, obviously, we're running out of a competitive commission.
For our agents to place as much business.
Here with us.
But the underlying G&A or non acquisition expense ratio is where we focus on continuing to get more competitive.
Thank you.
They used to Josh.
Our next question comes from Paul Newsome with Piper Sandler Your line is open.
Good morning, and thanks for the call covered a lot of ground, obviously very helpful. But.
They asked on the home business, how impactful could it be that.
On the auto business that you were trying to improve the profitability of the home business at the same time.
Yeah, I mean, I think we we like to bundle, but we also want to make sure that we're positioned well for the long term growth and property channel and we continue.
We continue to increase our Robinson, we're proud of that and we want to do that we just wanted to do it.
In spread across more non volatile weather states. So that we can make you know our target market margin on those bundled customers. So we'll we will we lose some customers from some of the Derisking decisions, we're making in Florida on the auto side likely that might happen, we'll wait to see how that how that.
Happens and of course, it also depends on what's happening in the environment. So when people shop, you now or are they getting are the same the same or better rate. If they go to another competitor. So a lot of that specifically in Florida will be dependent on what the what the competitors do as well so.
People don't want a bundle you may take both your auto and home with you. We will work on trying to keep as much of the order book of the property that we lose but that's yet to be known as we continue our plan to Derisk and then the direct channel we do have the luxury of having multiple.
The companies that we work with the place property business.
We will proactively work with those companies to try and place business that we no longer want to be riding on our own paper and obviously in the independent agency channel most agencies have multiple options. So as Tricia noted, we will likely lose some auto business as we.
Reduce the risk in our homeowners book, but we also expect to keep a lot of those auto customers because of the options that we have in the direct channel as well as that which our agents.
Yeah, and I shouldn't do a shout out because we've really invested a lot over the years and home quote explorer, where you can buy it when you can go online and now we have 34 states, where you can have an online by which makes it easier for consumers as well if they're shopping so they may have the auto with progressive and the home could be with progressive property, but that Nick.
Switching over to another one of our unaffiliated partners. So John's right on point.
And then I wanted to revisit the commercial auto business, but in the context of.
You gave us some wonderful detailed information about private passenger auto frequency and severity trends.
<unk>.
But my sense is that that result has been quite different in commercial auto and I was wondering if you might touch upon those differences and why that might be.
Yeah, the severity in commercial is up.
Look at the trailing 12 over the prior 12 right around just under 14% and frequency has come back to pre COVID-19 levels for the most part.
We see a lot with with our as John said, we have our telematics on the commercial auto side, we see that.
Speeding for some of our truckers are up about 10% to 20% and we see that sort of correlated when there's more congestion out versus less congestion. So yeah. Those are higher limit policies. Obviously, we've talked in the past about social inflation around more attorney Repped claims. So we are seeing an increase and those trends in the <unk>.
Commercial lines product as well.
Alright, Thank you very much.
Thank you.
Our next comes from yarn Qunar with Jefferies. Your line is open.
Thank you good morning.
First question going back to the AD spend.
Indirect.
We saw over three points of sequential increase.
The expense ratio in January .
How much of that is from the marketing and advertising seasonality versus other seasonality maybe just other.
Yeah, I would say a portion of that I said I you know Gee I wouldn't take one month like you said for March I think our expenses are usually up in January regardless and a portion of that was it was a medium but not a huge amount.
Okay.
And then.
And in the 10-K M C.
Seems like bodily injury severity has been elevated all through 2021.
Why would we see the in the year.
Year over year increases in 'twenty one when.
I think we already saw the impact from greater speeding and cause.
More material accident velocity, if you will.
And in 2020, so what's driving the increase in 'twenty, one and how much visibility do you have into that that the bodily injury severity going forward.
Yeah, a lot of a lot of it and in 'twenty and at least in Q4 would be around attorney rep rate and so a lot of the medical inflation.
Also as we've been hiring on new claims Rob's.
The propensity to to how the handling as Don and the accuracy can can be a little bit different as those claims reps get trained and so that was probably a part of it as well. So that's what we're seeing in quarter four but a lot of inflation is around attorney rep rate and it'll be interesting to see.
As more and more treatment facilities open up if that changes as well so we'll watch that closely.
Thank you.
Yeah.
Our next question comes from Tracy <unk> with Barclays. Your line is open.
Thank you good morning on insurance in order to me I really like your rate, making presentations super helpful. So I have a quick numbers question and then my follow up is more conceptual on the numbers in your 10-K, you mentioned, it's better to assess 2021 long trend versus 2019 and year over year. So if I just.
Zero in on your reported.
Birdie auto physical damage what is driving the more muted 8% for 'twenty, one versus 19, 9% in 2020 versus 2019, I guess I would assume supply chain disruptions would take a larger total in 2021 on auto physical damage.
Yeah, I think our I think just used car parts, just similar to collision, but you might see it a little bit of a delay but used car prices parts prices rental car increases all of those things are coming into play as well. We just think that it's good to look at it especially.
I, even think not even just year over year, when we compare to 19, we obviously have that data, but theres. So much changing right now that I'm really looking at quarter over quarter comparisons. So that's that's where we're at on a physical damage. We believe we'll see similar trends continue to emerge from a similar to a collision.
So there's a delay in recognizing that is that what you're saying well yeah.
There's a little bit of a delay and recognize that I think on I think we see that from our competitors as well, we see that in our subrogation files of getting some of the data in from other companies and.
And so a little bit of a delay us so just a little clarity on what we're saying there. So when we have our first party total loss collision, we're gonna pay that immediately we're going to recognize the elevated costs of new and used cars right now and we're settling back claim when we have a property damage claim some of those claims.
We pay directly and we would recognize that expense some of those claims the parties are going through their personal auto carrier and then that auto carrier reaches out to us and Subrogate took me and they ask for their payment and that is where we will see some of the increase in the total loss rate, we try and project that obviously in our reserves.
To be as accurate as possible and.
World, whether it is moving as quickly as it is right now or we don't always have that perfect. So as we see more of those demands for total loss settlements from other insurance carriers, we have.
We expect to see some some similar experience in the property damage.
I had mentioned that over all our severity was up COVID-19 quarter four to 'twenty to 'twenty, one a quarter for at about 11.9 property damages I said collision was up significantly from a severity property damage is up as well not as significant as collision but.
It is higher than the 11 nine.
Okay. Thank you so much and I guess my next question is more conceptual.
My understanding that more Midwest dates are on board with the rate increases and it just feels like the catastrophe prone states are dragging their feet more so I'm thinking that might be a function of regulators being sensitive to higher homeowner rate. So they're trying to cap the auto rate increases.
To put a lid on the overall insurance premiums for it.
And I'm also seeing and regulatory filings from <unk> do not think miles driven is going to snap back to pre pandemic levels, reflecting a secular shifts in a hybrid work environment. So basically this is my long way long winded way of asking you the psychology of rate increases.
And how that may impact your ability to achieve your indicated rate need.
Yeah, I mean, I think that we're all watching vehicle miles traveled in frequency closely and its not back to pre COVID-19 .
Now that said severity has so far outpacing that from all the things we talked about whether it's medical inflation car price rental cars et cetera that we need rate and I've said this in the last call and so there isn't the each individual like John and Connex, others 51 jurisdictions.
We work with to try to make sure that our rates are adequate and not excessive and not unfairly discriminatory Ah I do believe that you know regulators care a lot about their constituents and so they want to be very careful as they increase the cost because there's other inflationary things that are happening in each household so.
I can't get into the psychology of it because we're just such a data driven company that that's what we look at and so we will continue to do so and our hope is that we get the handful of states, where we still need rate, we get that in short order. So we can be open and available and affordable for every constituent Andy.
Entire United States.
But would it be fair to say you have to and will change the playbook by state to consider each nuanced concern.
Pollutant, Yeah. That's that's the fun part of working in a in a regulated industry because there's a lot of different personalities of each state and we.
And that product's management relationship that we talked about is so integral to that success and so we actually think that's a great advantage and yeah. It each day is very different.
Thank you.
Thanks.
Our next question comes from David Mode, Madden with Evercore ISI. Your line is open.
Hi, Good morning, Susan you spoke a bit about some of the states, where you're feeling good about in terms of what rates you have right now on the street could you give us a sense for how much of the book right now is priced.
Where you think you can start turning on more AD spend and other growth levers and also any thoughts on timing of rolling out more AD spend across the rest of your broker.
Great question difficult to answer you know like we said we look at each state and we were able to turn on local advertising turned on and off local advertising pretty quickly. So I'm as soon as we believe we have the rates right and that we can turn on media to get more.
More new business at our allowable cost we will do so, but it's it's really dependent on each state.
We want to do that we want to open up each lever to do that but it really is dependent on getting not just in the states that we just talked about but in every state to make sure. We continue to stay ahead of trend.
Got it.
And then you know I was hoping maybe you could talk a little bit about some of the drivers of the deterioration in personal auto Pip growth in January it took a step down.
It was kind of around like 6% year over year in the fourth quarter and then it took a step down to 4% year over year in January .
And I'm, specifically talking about personal auto I'm, just wondering is that still.
Is that just still mainly new business that is driving that deterioration or.
Are we starting to see some of the renewal book you know start to get impacted by some of the rate increases because I you know I did see that the oes are still up but you know that was obviously for <unk> 2021 and I'm, specifically wondering about January .
Yeah, we still we still are seeing a new business, a shrink and that makes sense with our pricing and from a renewal perspective, I think we talked about in the K that the trailing three was dropping a little bit and so it's very it's reasonable to believe that trailing 12 could drop.
As well.
But again, that's all dependent on what our competitors do as well when we look at elasticity. It's not just what's happening here. It's what the competitors are doing and we look at our renewal rates and sort of tranches of if we take a plus 5% five to 10 et cetera to see what what happens and.
We're seeing some we believe some improvement or some slowing down and some of the tranches, where our competitors are taking rate and that could mean and we know there's a lot of variables here that could mean that they're taking rates as well so when our customers get an increase in their renewal rate and they shop, they might stay because they can't get a better rate again.
We're not seeing that play through yet in the trailing 12 trailing three it can be an indicator.
And that's why we wanted to get out ahead of this to sort of get the rate stable as quickly as possible in 2022. So we can all focus on doing our job as an industry and be really competitive drive down those costs. So people have affordable ways to buy insurance.
Okay, great. Thank you.
Our next question comes from Alex Scott with Goldman Sachs. Your line is open.
Hey, Thanks for taking the question.
Thought I'd ask a high level one.
Slide 26, and 28 seemed pretty clearly shows is there's a significant range of outcomes here.
And you know that that would logically sort of make it harder to wean into your confidence on the lifetime value of.
Customers and hitting the growth pedal.
You know as I think through that dynamic what what would you need to see in terms of the range of outcomes and get in a little more certainty around at least how wide. The range of outcomes is to be able to have confidence in that I would think even at a adequate level of pricing for your base case thinking through lifetime value.
Are you still could be challenging with a wider range of outcomes could you just talk high level about how you think through that.
You know when we could expect to have enough clarity to kind of lean in harder on growth.
You know, it's so hard to say because there's so many moving parts I'm constantly so where we would think okay. We've come in in February that whether it's gonna be nicer places are opening up but then you have invasion of Ukraine. So what happens with fuel prices, although that's usually a small part of our frequency trends we I.
Say, if you have a couple of quarters all of a sudden stability and seeing what's happening as an example to see is a used car prices and that shipyard has start to ease up we would start to follow that and feel I feel better about that but we are our math. We believe is accurate of what we need.
Need now and that's really what we focus on in order to make sure that we ultimately have that lifetime value of that profitable growth oven 96.
Understood and then I just wanted to make sure I'm interpreting slide 28 rate I know these codes are probably.
Just rough guides, but.
In your base case, how are you sort of inherently assuming here that.
The used car prices will go up in that one.
And incrementally worse impact on severity is that what's been embedded in sort of your base case right now.
Not necessarily in fact, we have seen a small amount of data that says, they're leveling off and maybe even decreasing a little bit again, that's very early data and there's a lot of economists that you now can it can talk either up or down but no that wouldn't be an assumption.
Okay. Thank you. Thank you.
Our next question comes from Gary Ransom with Dowling <unk> partners. Your line is open.
Yes. Good morning, a few years back you talked about a feature in your product that increase the rates automatically once a month.
Is that a product that is still in use today and if so.
Is the impact of that included in the 8% that you gave us for the full year rate increase.
Yeah, I'll start and then Pat you can weigh in we do have monthly rating factors and they are baked into their rates, you're saying do you want to add anything else sure. Yeah. We don't have them in all jurisdictions. So we'd love to but you know regulators don't approve it everywhere. So I think we have it in roughly half of the country and and as you can expect we don't.
Tweak those trend factors.
As probably as sensitively or quickly as you know we might so right now I think it's that below what we're seeing with current net future trend how it helps because we're picking up every month additional rate without a filing and roughly half of our states, but it is not set to what we're seeing in this sort of super steep.
Current trend environment, but it is helping so yeah still on the products still available and our product managers are using it.
It is included in the 8% that we report.
Right Okay.
Great. Thank you I had another question just on on telematics as some of the states begin to come back to normal.
Is the demand for that product.
<unk> it all from pre Covid to now and in the states where.
Do you think you are closer to back to normal.
Well the demand for the product overall increase early on and especially in the agency channel. We've had almost 10% of our at Nexon UBI and of course, a direct has always been higher had a little bit over 40%. So that demand has increased.
I I don't know exactly if it's in the states that we where we have a filed the increases or what.
I would add to tricia's comments decembers take rate for snapshot were the highest we've seen ever so yes.
Influenced from pandemic take great there, but I think overall there has been a.
You know growing acceptability.
Usage base as a rating variable for auto insurance and I think our December take rate in both channels as Tricia mentioned, our are indicative of that so.
We also obviously see competitors continuing to grow there.
Upi programs, as well, which I think in the aggregate.
Enhances acceptability perceptions as well so.
We think that is definitely part of our future and even more so as the technology in vehicles and allows us to get that new business I was mentioning our ability to do that in the commercial space.
We have a.
Very limited ability to do that in the personal auto space, but we are doing it with.
With data right from vehicles, but it's a small percentage of what we do so.
I'd characterize take rate is continuing to grow and with.
Knowledge.
It's going to be an integral part of the product going forward and it's a great way for our customers. If they do see increases and they believe they're driving laws to be able to get some discounts.
Right can I clarify that the 10% and 40% numbers that you gave that's 10% of new business apps in agency, we're we're snapshot and 40% of direct where we are.
Stop shop crime crack right okay great.
Thank you very much thanks, Gary.
Our next question comes from Meyer Shields with <unk>. Your line is open.
Thanks to hopefully really quick questions first.
None of them today on the six month policies as being a way of implementing changes faster and earning them faster. The proportion of 12 month policies has been going up at least in agency and I was wondering whether we should expect an effort to maybe convince some of those drivers to move to six month policies.
Yeah, it's still a small percentage is less than 10% of our overall auto buckets in the agency channel basically we gave it to our 4100 platinum agents.
Because many people when they do want to bundle and want to have the the dates are aligned. So we will continue to watch that percentage Ah, but it is something that as we rolled out for our preferred customers for Ah Robinson. If it was something that our agents asked for in order to write more of that business.
Okay. Thanks, and then if I can go back to the cones on slide 28, obviously I guess you have to select a point within there does the position of the point within the cone depend on the volatility of the input.
Yeah.
Yeah.
Yeah.
This is simply.
Illustrative way to say, we're not totally sure where.
Value of used cars is going.
It's obviously been going up dramatically.
As Tricia noted we've seen some recent signs that it might be leveling off we're certainly not pricing at our indications to anywhere towards the top of the cone.
Characterize our pricing assumptions more so towards the middle of the co but the reality is we have only time will tell where we ultimately fall in those codes and that's the challenge of our business and that's the point, we were trying to get across.
Jon Cox presentation.
And we are trying to price for the future. The future is unknown, but we are not pricing towards the top of that I would characterize our pricing assumptions.
Towards the middle of that call.
My our hope is obviously like John said it was illustrative, but our hope is that as we have more data and as things stabilize that cone narrows as well.
Okay fantastic. Thank you.
We've exhausted our scheduled time and so that concludes our event Shannon I'll hand, the call back over to you for the closing scripts.
That concludes the progressive Corporation's fourth 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.
Okay.
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