Q2 2022 Progressive Corp Earnings Call
For today's event.
The company will not make detailed comments related to its results. In addition to those provided in its annual report on Form 10-K quarterly reports on Form 10-Q, and letter to shareholders, which have been posted on the company's website.
This quarter marks a return to our typical format, which is a presentation on a specific portion of our business followed by a question and answer session with members of our leadership team.
The introductory comments by your CEO in the presentation, where previously recorded upon completion of the previously recorded remarks, we will use the balance of the 90 minutes scheduled for this event for live questions and answers with the leaders featured in our recorded remarks as well as other members of our management team.
As always discussions in this event may include forward looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today's event.
Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31st 2021 as supplemented by our 10-Q reports for the first and second quarters of 2022, where you will find discussions of the risk factors affecting our businesses safe Harbor statements related to forward looking statements and other discuss.
<unk> of the challenges we face. These documents can be found via the Investor Relations section of our website at investors Dot Progressive Dot com.
To begin today I am pleased to introduce our CEO , Tricia Griffith, who will kick us off with some introductory comments Tricia.
Good morning, and thank you for joining us today.
As I stated in my letter, we continue to work through the challenges handed to us through the macroeconomic environment.
Certainty has been the theme of our post Covid World and that has continued into the second quarter.
I continue to be encouraged by the way the organization has responded.
Flexibility was our theme for the 2021 annual report and our people have continued to exhibit flexibility into 2022.
During the second quarter, we continued to feel the impact of inflation with used car prices still near all time highs and continued rising cost to repair vehicles on.
On the other hand record high fuel costs, and the resulting reduced driving provides a modest tailwind to auto frequency.
We will continue to monitor the environment closely and are taking proactive steps to ensure we meet our promise to 96 combined ratio.
As we stated in the first quarter, we believe our major personal auto rate revisions are behind us and that's reflected in our slowing pace of second quarter rate changes.
In the quarter, we raised rates in 17 states, which had about a 2% increase countrywide, bringing our year to date rate increase to about 9% and our year over year rate increase to about 16%. While these rate changes continue to have the expected effect on Pip growth I am encouraged by our recent results.
As competitors took rate and we increased our investment indirect acquisition in many markets. We have seen prospect volume rise and June marks the first month since may of 2021 with year over year, New App growth in our direct channel.
While the path ahead undoubtedly contains many obstacles I am encouraged to see our efforts bear fruit.
I'd now like to change focus to the main topic of today's presentation, which is our property business.
While our state expansion to write property insurance has enabled us to increase our addressable market and accelerate growth in the important Robinson segment.
It's no secret that we have faced challenges over.
Over the last five years, we've been unable to consistently run the business at our target margins and between 2017 and 2021 have posted an underwriting loss. We were the first to admit that we have work to do to get this business on track.
As I mentioned in my letter, our current pricing and underwriting activities do not adequately address weather driven volatility.
And we are in the process of executing a number of steps to turn the business around.
We realize these actions will require more time than originally anticipated to ensure consistent delivery of our target combined ratio for the property business as such we have revised our expected underwriting profitability over the coming years, which led to a write off of $225 million of goodwill primarily related to our <unk>.
Purchase of Air X holding Corp.
The remaining $228 million of goodwill is also primarily attributable to the acquisition and reflects the increase in addressable market, we gain for our agency auto product that bundling represents.
The team of people working on our property business continues to focus time on improving our underwriting managing risk concentration and more precisely matching rate to risk at a much more granular level.
For the last five years, Dave Pratt our soon to be retired property General manager has worked closely with senior leaders from ASI as they transformed our property business from a regional carrier to the 10th largest property carrier in the country now writing in 47 states.
With daves and pending retirement next year, Tanya Sierra who has more than 20 years experience at ASI and progressive has taken over leadership of our property P&L and is partnering with supporting groups across progressive from product claims I T legal and finance to ensure we're building the product experience.
<unk> and team to create the broadly available and competitively priced and profitable product offering that we've all grown to expect from progressive.
While we cannot change course overnight today, we will share the steps we are taking today to reach our goal.
For our main presentation today first Pat Callahan, our personal lines, President and nearly 20 year progressive veteran will discuss our market opportunity and our investments in property product distribution.
Following Pat Dave Pratt will go into more detail on our results. The investments we've made in people and product and a real world case study on how our actions have resulted in favorable results.
David is a 31 year progressed employ he has held numerous roles throughout his illustrious career.
Dave has been an important part of progressive success over his decades of service and we will miss him upon his upcoming retirement.
Thank you again for joining us and now I'll hand, it over to Pat Pat.
Thanks Tricia.
While our focus has historically been on vehicle insurance, we've always recognized that property insurance is an important segment of U S personal lines and as we continue to grow our personal auto business meeting the property needs of our growing auto customer base is increasingly important.
Over more than a decade, we've regularly shared our investments to meet those needs as part of our destination era strategy.
These began back in 2008 to our progressive home advantage partnerships and today, David and I will restate the business case for investing in property share our progress driving market share growth and more importantly, the initiatives underway to ensure that we deliver profitable property growth and.
Sorted, becoming consumers and agents number one choice and destination for auto home and other insurance.
The U S property and casualty market is almost 800 billion in premiums written and more than 90% of that isn't yet insured with us.
Today's focus is on the $381 billion U S personal lines market, where we enjoy about 10% of the combined U S auto and home market share.
We're the third largest auto writer with almost 14% share while today, we right just below 2% of the U S homeowners market.
Despite many reports of its demise due to technology advancements reducing accident frequency.
U S auto direct premiums written grew about 4% annually over the past five years and more than $260 billion to U S. Auto market continues to represent a growth opportunity.
The U S homeowners market continues to grow faster than auto at more than 5% annually over the past five years and more than 8% growth in 2021.
Recent inflationary forces loss cost increases and resulting rate increases are further accelerating growth in both the U S home and auto markets.
Let's break this down by channel and segment.
I expect that many of you are familiar with how we think about consumer market segments, Our cross channel protection needs and auto and home bundle status.
The Roes on this table are the three largest U S distribution channels.
Captive agent independent agent and direct to consumer.
While all three channels have been growing premiums written channel share has been slowly migrating from captive agents to direct as technology adoption drives continued ecommerce migration across industries.
The independent agent channel continues to maintain share due to a strong consumer value proposition, which combines local agent expertise with the breath of product availability and depths of carrier options that deliver the ease and savings that consumers value.
The columns here, our progressive consumer segments from simple needs inconsistently insured auto only households, or Sam's to continuously insured renters diane's through consistently insured, but unbundled homeowners rights to our well known bundled auto and home Robinson.
Yeah.
You'll note that our market share is approaching 20% for the combined Sam Diane and Reits market, while we remain underpenetrated with robinsons at less than 3% share.
Note that this Robinson share does not include the more than $1 billion written by unaffiliated carriers through the direct progressive advantage agency.
You'll also note that more than half of the combined U S auto and home market is bundled and more than 80% of that is bundled through an agent.
The captive agent channel currently over indexes on Robinson chair, but as more Robinson to migrate to the direct and independent agent channels will benefit due to strong market share across each of those channels.
Our focus on Robinson is driven by our untapped potential in this large and growing market segment, which makes up more than half of the total U S personal lines market.
We've shared in prior investor presentations that current period financials fail to fully reflect the hidden balance sheet of future growth as our current customers. Both continue to renew and expand their relationship with progressive which delivers both top and bottom line financial benefit for years.
To come.
Investing to expand our offerings to better penetrate the existing approximately $200 billion Robinsons market great value in two critical ways first we drive top and Bottomline calendar period unit premium and underwriting profit growth through acquiring customers, who bundle their auto and home today.
As I shared on the last slide more than half of the U S auto and home market is bundled so when these customers shop and switch it's critical for us to have a competitive bundled offer to meet their needs.
The nature of these robinsons bundled homeowners is inherently more stable than other customer segments and they also have approximately three times the policy life expectancy of our sand segment.
Acquiring robinsons drives growth, both today and in future periods.
Second for more than 85 years, we've been a leader in acquiring simpler needs Monoline auto customers and we continue to view this as an important pipeline of future growth in.
Ensuring we are broadly available and competitively priced renters condo and homeowners offerings is essential to ensure we meet the needs of these customers throughout their lifetimes.
As we nurture these younger and simpler and each customers throughout their life events, we create and capture value for the firm today and unlock future growth potential.
Since embarking on our destination era strategy, we've made major investments in acquiring ASI launching new quoting platforms across channels building.
Building, our in House advantage agency, creating a platinum offering for our independent agent partners and investing well over $1 billion on bundle and save branding and marketing in just the past three years.
These investments are driving robinson's growth across distribution channels, which validates the potential for us to grow in this important market segment.
While our property profitability Hasnt consistently met our expectations. We also write more than $3 billion and profitable auto premium for these robinson households across channels and while some of that would likely have been accessible without the complementary property offering.
We're confident that having broadly available and competitively priced property is helping to drive this growth.
As I shared a few minutes ago more than 80% of the bundled auto and home business. We're looking to acquire is distributed through agents.
The Robinson opportunity through independent agents alone represents more than $60 billion in annualized premiums written.
And as the largest seller of auto through the independent agent channel, we are well positioned to leverage our massive distribution footprint and more than 85 years of experience selling through agents to grow our share in the channel.
I wanted to highlight two key initiatives that facilitate our independent agent channel Robinsons growth.
First recognizing that progressive has historically been an industry leader and ease of use for agents and customers. We built a streamline quote experience for the home and auto bundle, which makes it fast and easy for agents to enter customer information wants and quote Michele a bundle of most of the progressive vehicle and property Prada.
<unk>, either upfront or over time as customers experienced life events and need more <unk> different protection products.
Second shortly after buying a controlling interest in ASI, we launched our platinum program, which affords unique customer and agent benefits for bundling home and auto with progressive.
Over the past several years, we've continued to expand this footprint, bringing a highly competitive nationally branded and easy to quote and sell bundled offering to leading agencies across the country.
Beyond gaining share of the currently bundled independent agent market.
Close to $100 billion of Robinson premium is distributed through captive or exclusive agencies.
And this is despite lacking the superior consumer value proposition that results from carrier choice or depth that is available through independent agents.
As a leading nationally branded auto and home carrier. We believe we are well positioned to continue to both capture share of the existing bundled independent agent market. While also capitalizing on the ongoing shift from captive agents into the independent agent and direct channels.
Despite the majority of Robinson business being sold through agents today more than 30% of total auto insurance is sold direct and we believe as younger auto consumers go through the life events that increase the complexity of their household insurance needs, having broadly available online property ensure.
Orange will become increasingly important to meet the needs of these future customers.
Pretty risks are complex.
No two homes are alike, they don't come with Vince and as such property insurance products have historically been built to be sold through agents.
Homeowners, especially first time homebuyers, often struggle to identify important property characteristics like roof shape shingled type plumbing type et cetera, and as such most property products don't easily translate to online or mobile direct to consumer quoting and binding.
We continue to invest to make it easier for consumers to quote and buy property insurance online through our multi carrier home quote explorer platform.
This proprietary system guide shoppers through the home coverage interview, leveraging data, Phil and imagery to simplify the quoting process and deliver a multi carrier shopping experience.
This investment is paying off as we continue to lead the industry in desktop homeowner quota initiations.
Additionally, while getting shoppers through the quoting process is half the battle, forcing online shoppers to go offline and call to complete their sale is an antiquated and poor customer experience and we've been investing to add online buy button functionality to the progressive home direct property.
Are you offering with availability now approaching 40 states.
Recognizing the market opportunity ahead of us and the critical role that broadly available and competitively priced property products play in our future success, let's transition over to Dave Pratt for an update on progress with our property product development and exposure management initiatives.
Thanks Pat.
I'll review the results in the property insurance business, that's underwritten by progressive.
And then talk about the changes we're implementing to position this business for future growth and consistent profitability.
Pat described the huge market opportunity presented by the Robinson bundled customers.
Since progressive acquired a controlling interest in this in 2015, we've invested to leverage <unk> brand and distribution channels to attract and routine Robinson customers.
We have rebranded ESI has progressed at home.
Expanded the platinum agent program and built online quoting and buying capabilities as Pat just described.
These investments have helped us more than double the size of this business, reaching $2 2 billion in direct written premium last year.
We're now the 10th largest homeowners insurer in the United States.
While we're happy with the growth of the property business, we are not satisfied with its profitability.
We've seen a consistent pattern over the last five years.
Our underwriting expenses and non weather losses have been consistent with our forecasts.
But weather losses have been much higher than the estimates that we included in our pricing decisions.
In order to diagnose how to address this problem, we will look at our performance relative to the overall property insurance market.
I'll provide an overview of our country wide performance and then highlight a steep case study focusing on the actions we've taken in Texas.
When progressive acquired a controlling interest in ESI in 2015, 64% of the Companys homeowners premium came from Florida, Texas and Louisiana.
We have labeled those as legacy Cat states in the map here.
Gross in other states has reduced that legacy cat mix from.
From 64% to 41% in 2021 direct written premium.
But that's still a much heavier mix than the 22% at these states represent of the overall U S homeowners insurance market.
The challenges facing the Florida property market has been especially painful for progressive since it represents almost one quarter of our homeowners premium.
Our Florida direct loss ratio over the last five years is four points better than the overall industry.
But at 74, and a half it's still much higher than our target for the state.
We have grouped the remaining states based on their exposure to volatile weather perils the yellow states in the center of the country experienced significant hail losses.
Our mix of business in those states is consistent with their share of the total industry premium.
The Red states labeled moderate volatility or exposed to hurricane risk on the east coast and wildfires in California.
But there are less risky areas inland and away from the areas of the high wildfire risk.
Progressive was a new entrant in the California market in 2016, so our mix of business and the moderate volatility states is less than their share of the overall industry.
That leaves the less volatile states and green.
As you can see these more stable markets represented only 27% of our direct written premium last year much lower than they are 40% of total U S homeowners premium.
In order to build a more stable homeowners book of business.
We will limit growth in the volatile states and work to grow our share of premium in the less volatile markets.
You've seen this growth in profitability chart in the past for our auto insurance business.
It shows combined ratio on the X axis and premium growth and the Y axis each.
Each dot represents one of the top 10 insurers.
With the industry total represented by the Black Duck.
We want to be in the upper right quadrant, representing profitable growth.
Over the five years from 2017 through 2021.
The U S homeowners insurance market grew at a 5% annual rate.
Suffered a combined ratio over 100.
As we noted earlier, we're happy with progressive growth over that period, but we're certainly not satisfied with our position on the profitability axis.
I talked before about our heavier than industry mix of business in the legacy Cat States.
If we adjust progressive results by waiting or state level results using the industry's mix of premium by state.
Our combined ratio would match the industry.
Let's take one more look at our results over the last five years before moving onto our plans for shifting the mix to less volatile states.
This chart shows our 2017 through 2021 direct homeowners loss ratio.
For the groups of states described earlier.
As you would expect from the mix adjusted comparison of our results against the industry in the last page our loss ratios are close to industry results within each group of states.
This has been a difficult period for the industry in states with significant exposure to catastrophic weather.
In a relatively high mix of business in those states has driven our overall property results to be worse than the industry.
I should note that California accounts for 45% of total industry homeowners premium.
In the states that we've labeled moderate volatility.
But california is less than 20% of progressives premium from those states.
Well I'm happy to say that our loss ratio was better than the industry in five of those six states.
Our relatively low exposure to California's wildfires in 2017 and 2018.
Exaggerates, our relative performance advantage for this group of states.
It's encouraging to see that progress as loss ratio is very close to the industry average in the less volatile states.
Since we have relatively little experience operating in these markets.
We hope to see our relative performance improve as we roll out product model improvements.
These regional comparisons simply reinforces the point that we need to shift our mix of business to build a property book that is consistently profitable.
I'll talk next about the actions, we're taking to accomplish that shift.
As Tricia mentioned in her first quarter letter to shareholders.
We have begun implementing a plan to shrink our business in Florida.
And limit growth in the other states with significant exposure to catastrophes.
We've taken a number of actions in these states.
We've increased rates.
Particularly for homes with older roofs.
We've expanded underwriting eligibility restrictions to ensure that we're writing only business, we expect to be profitable.
We've introduced targeted non renewals in areas with concentrations of risk or segments that are unprofitable.
We've introduced cost sharing initiatives such as higher deductibles.
And actual cash value coverage on roofs that are nearing the end of their useful lives.
And we've improved agency management, including a reduction in our agency force in select markets.
While these changes are important they're not sufficient we can't shrink our way to success. So we also need to continue investing in product improvements that will support growth in the less volatile states.
Over the last four years, we've made significant investments to develop the organizational capability to build and deliver best in class property insurance products.
As you can see in the graph on the right. Our product teams have grown from just 21 people in September of 2018 to 134 people at the end of this year's second quarter.
We have added auto lake capabilities to a team with significant amount of property experience and expertise.
I will briefly describe the new teams that we've added in the product area.
In the second quarter of 2018, we introduced an underwriting analytics team.
Created to advance the science of underwriting and improve our risk selection.
In the fourth quarter of that year, we introduced a dedicated research and development organization.
To focus on product model development and segmentation improvements.
In the first quarter of 2019, we introduced a dedicated pricing team.
Yes.
And finally in the second quarter of last year, we introduced a new REIT revision and product delivery team to improve our speed to market. So that we can take these new model enhancements and roll them out more quickly.
These investments have helped us to improve our product offerings with more improvements still to come.
In 2019, I described our 4.0 property product.
Which added new coverage features and expanded eligibility to meet the expectations of preferred agencies outside of our legacy catch Dietz.
We have since introduced the 4.1 product model.
Which allowed us to price the water apparel more accurately.
These two product versions are now live in 41 states that represent 93% of our non Florida premium.
We will move to full bi peril rating was the five point O product model.
We've completed the research work for this new model and development work is in process now.
The first stage is scheduled to go live during the first half of 2023.
We expect five point O to offer more competitive rates for a majority of shoppers and allow us to further expand the range of risks that we can accept.
We will need these improvements to achieve our growth ambitions in the less volatile states.
Now, let's look at a case study for how these product improvements can help us improve results.
In 2017, our Texas business was too concentrated in the Dallas Fort worth area.
With that region, representing 40% of our Texas business compared with roughly 20% of the single family homes in the state.
We also had too many customers with low wind hail deductibles.
Especially in the northern half of Texas that experiences frequent hailstorms.
Our customers are often encouraged to file claims after the storms by aggressive marketing from roofers.
A free roof. Initially sounds appealing we found that customers with higher deductibles are less likely to file a claim for minor damage.
In order to address these problems are Texas product manager increased rates.
We introduced higher deductible requirements for new customers and improved price segmentation with the introduction of the 4.0 and then for one product models.
We have seen significant shifts in our Texas book of business as a result.
The Dallas Fort worth mix is now in line with that areas share of homes in the state.
Our average wind hail deductible is up 50%.
And we're attracting more bundled customers and fewer customers with roofs that are nearing the end of their useful life.
These changes have resulted in improved performance relative to our competitors in Texas.
In 2018 in 2019, our Texas combined ratio was 10 points worse than the industry.
As we've shifted the mix of business, we started to see improvement in 2020.
And our 2021 combined ratio was 15 points better than the overall industry in Texas.
We were able to accomplish these shifts without shrinking the total business in the state.
We now expect to achieve our target profit margins over time or in an average year.
But it's important to note the Texas homeowners results are naturally volatile due to the state's exposure to big Hurricane and hail events.
That's why we have decided to limit growth in Texas as part of our overall plan to shift our mix to less volatile states.
Texas is now well positioned for profitable growth.
But we wanted to represent a smaller share of our total property premium overtime.
I'll close with two topics that many of you have asked about.
The first is that the effect of inflation on our property business.
The table on the left on this page shows our filed rate changes over the last two and a half years in our core homeowners product.
But that table doesn't fully explain the changes in ultimate premiums that are renewing customers experience.
Let me explain that process in a little more detail.
When we sell a new homeowners insurance policy, we estimate the cost to replace the home in the event of a total loss.
We insist that the agent ensure the property for at least that amount to ensure adequate coverage for the customer.
We update this replacement cost at every renewal event.
If the estimated replacement cost has gone up we automatically increase the coverage limit to maintain adequate coverage.
Until recently these renewal adjustments typically increased coverage limits by two years to 3% at each policy renewal.
The Blue line in the chart on the right shows the average year over year change in these coverage limits by quarter.
And youll see that inflation driven cost increases during the second half of last year jumped from the traditional 2% to 3% to double digit increases in average coverage limits.
The Orange line shows the average renewal premium increase pay.
Paid by customers who've renewed with us in each quarter.
So that Orange line is a function not only of our filed rate change, but also the increases in coverage limit to ensure adequate coverage.
And then any mix changes that might have resulted from some segments of customers renewing with us.
Higher or lower rate as we've changed our product over time.
While we would certainly prefer to keep prices more stable for our customers.
This automatic adjustment to maintain appropriate coverage.
Helps us to maintain appropriate rate levels to compensate for increases in claims severity.
And finally I'll provide a brief update on our reinsurance program.
We use reinsurance to protect progressive capital in the event of an unusually severe catastrophic event.
In addition to protecting against unusually volatile property results.
Progressive is a large and consistent purchaser of coverage using both traditional reinsurance and ILS markets.
We have developed long term trading relationships with our reinsurance providers and we strive to keep them well informed about our business results and plans.
We currently retain the first $200 million in loss from a single catastrophe events.
With reinsurance coverage available above that amount up to a limit of $2 $6 billion for a single, Florida Hurricane.
We also have $175 million in coverage available for aggregate losses from 2022 catastrophe events in excess of $575 million.
While the total coverage limit and per event retention will continue to evolve to fit the growth of our business. We expect to remain a consistent purchaser of reinsurance coverage.
Consistent with its history, we were able to fully place our desired coverage at both the January one and June 1st renewal events.
So let me summarize briefly before we take your questions.
As Pat described earlier, a competitive property insurance product is required for progressive to attract and retain bundled auto and home customers.
And this segment represents a huge growth opportunity for progressive in the direct channel our multi carrier property agency and market, leading quote volume are driving success.
We're investing to improve the profitability in our underwritten property business to support continued Robinson growth in the independent agency channel.
Through rate increases coverage limitations and underwriting eligibility restrictions, we have improved results relative to our competitors.
Best in class product design will support growth in the less volatile states.
While a reduction in our Florida exposure and gross limits in our other states exposed to volatile catastrophe risk, we will reduce the volatility of our overall property results.
And we will continue to use reinsurance to protect progressed as capital from extreme events.
Yeah.
Thanks again for joining us. This morning, we will now begin a live question and answer session.
Yeah.
This concludes the previous recorded portion of todays event.
Members of our management team available live to answer questions, including presenters, Pat Callahan, and Dave Pratt, who can answer questions about the property presentation and Q&A session will be audio only and questions can be submitted over the phone by pressing star one one on the keypad in order to get to as many questions as possible. Please limit yourself to one question and one.
Follow up please.
Please note we have uploaded new pdfs of the presentation, which include all maps and match. The webcast. The these can be pulled from the webcast window and the supporting materials tab in the upper right corner, we apologize for the inconvenience, we will now take our first question.
Oh man.
And our first question will come from Elyse Greenspan of Wells Fargo.
Hi, Thanks, Good morning, My first question.
Is on personal auto Cys Echo, what you said last quarter that.
Your rates are where you need to.
Could be in in the majority of states, but we haven't really started to see your advertising pick up when we look at the expense ratio that was reported over the quarter.
So can you just kind of explain how.
How youre balancing advertising and a return to growth.
<unk> to where you are on the pricing side of things.
Absolutely I think the headline for our private passenger auto is we think trends are encouraging and it's playing out as we had hoped so.
Like we said we had the majority of the rates behind us with a caveat of a few larger states. If you look at the 10-Q, our direct prospects are up 5%. This quarter. They were down 11% last quarter and that is with the spend down 7% as you you've identified so we're spending less per new prospect with a ton of ups.
Side, because we still don't have local media on in 19 States that was 26 states in April we continue to be able to open up with local advertising.
So said another way competitors are less aggressive due to their profitability challenges, we've seen that play out with some of the Qs that have been reported and that allows us to acquire leads at a more efficient rate. So we'll continue to spend to get more of it we won't spend unnecessarily to create more business.
I think I don't usually talk about one month in a quarter.
It's important to know that the prospect value volume in June of 2022 was our largest June ever. So we're pretty pleased about incoming volume and excited about continuing that of course with the caveat of all things that could happen with this last couple of years.
I think another way to look at it.
In terms of are we positioned well and this might be a little bit further afield of your question, but we want to look at average written premiums. So if you look at average written premium over 'twenty 'twenty. One it was zero and 20 in first quarter. It was up about 6% second quarter up about 11%. So those are written.
And on average take forest month to earn in or hit the denominator for the combined ratio.
The numerator, increasing about 7% to 8% based on frequency and severity changes that we have post dead and so right now with the exception of a couple of states, where we need a fair amount of rate. We believe we will be able to take modest rate increases.
We've talked in the past.
With the exception of this year about taking small bites of the Apple we'd like to get into that because we know that our customers want stable rate. So we feel good about our position.
So feel really great about our continued investment in segmentation, so about 65% of our country ride premium or on a Saturday, we just rolled out a new product model eight eight in Iowa, and we'll have more information on that but overall, we feel great will advertise more and open up more local market.
As we feel.
And necessary and when we have the right rate and of course, each state is different but we feel pretty bullish.
Thanks, and maybe a follow up to that you just mentioned modest rate increases from here. When you make that comment like what are you assuming going forward for severity, how things will trend relative to what we've seen through the first half of the year and I know frequency rate was was negative in the second quarter and there is a benefit.
You guys called out on gas prices. So how are you thinking about severity and frequency from here. When you make the comment that you only expect to need to take modest rate increases.
Well, yeah frequency was down about 8%, we're going to continue to watch that we also look at vehicle miles traveled and March through May It was there it was.
It was down about 12% in June and into July we are seeing it down a little bit more we're not quite certain of all the reasons behind it we believe gas prices might be a little bit of that gas prices are fairly inelastic and we also know through surveys that maybe.
Maybe 15% to 20% of the population are still pretty nervous about going out and about so they still are fearful of COVID-19 and rightly. So so we look at that and I think what I'm watching closely and I don't know that we'll know for a couple of quarters is how work from home settled then so I know that.
And I talked to a lot of my appears in other industries and there's a lot less people coming in and could that change after the summer. We don't know so we're going to watch those those three things to look at vehicle miles traveled.
And frequency, so I'm going to more watch on those as far as severity. We look at the Manheim index for used car prices.
Ticked down a teeny bit, but still at all time high. So we'll continue to watch that as well as sort of secondary and tertiary things like.
Labor cost in body shops, techs are making more and if there is less of a supply of people fixing those cars, we know that rental.
Rentals could extend longer so again, we count.
Predict exactly whats going to happen from the severity trends, but.
But we do obviously account for every single data point as we as we continue to go and we look at when we're looking at.
Our increases we baked that in just want to add anything to that.
Okay.
So to answer your question Ali.
Yes that does thank you.
Okay.
In a moment.
And our next question will come from Michael Phillips of Morgan Stanley . Your line is open.
Thanks, Good morning, two questions on the on the home side.
Both kind of longer term questions.
I guess first on the distribution of homeowners you you went through the three kind of.
The captive independent direct you Didnt mentioned this and maybe that's the answer is do you see any growth opportunities through its broker institutional kind of clients are mortgage service providers hole motors and things like that for kind of longer term growth and I'm wondering.
Yeah, I would say, we look for any kind of growth. So I know that we've talked we've worked with construction.
Construction builders before and we've talked about mortgage companies, we've had actually some tests and things that we've done with the mortgage companies.
Rocket mortgage as an example, do you want to talk a little bit more about that Pat.
I think the embedded insurance into transactions or life events, where people are acquiring the underlying asset be it an auto be it a boat motorcycle RV or be it a home presents a shopping opportunity, where we absolutely want to position our products to both facilitate the transaction by ensuring that.
Collateral can transfer and be protected provided it's got some some outstanding loan or a paper on it but we are starting to work more with as you mentioned digital lenders as well as more traditional lenders through independent agents. So it is a growth opportunity for us and we are constant.
Looking at how to position our products best where consumers want them need them and frankly, our shopping for them. So we can participate in those transactions.
Okay, Perfect and then second one again kind of a longer term loan on homeowners.
And in auto.
Your snapshot and telematics, you've kind of been all the rage and that now that could change the pricing.
And auto.
Longer term is there kind of an analogy for that and homeowners that something could come in make pricing more accurate.
The company could start talking about that at some point, but sort of analogous to how we drive it harcar.
Yes, I think there are several analogy is obviously the ones that Dave talked about with the age of roof et cetera, but our water damage as a loss. If you can have on the systems in place that alert you to something if you're out of out of the home there's water damage, though we look at all of those things in terms of let's take water damage think security.
And think of number of people in the households, I think theres a lot of.
Of related items that we've looked at in the past several years and will continue.
To look at to understand kind of that same rate to risk in home as we have in our auto product.
Okay. Thank you very much thanks.
Thanks.
One moment.
And our next question will come from David <unk> of Evercore ISI. Your line is open.
Hi, good morning.
Tricia you had said that you don't have local media turned on in 19 States in June that was down versus 2006 to eight in April .
Just wondering how much premium do those 19 states represent where you don't have the local media advertising turned on and could you just talk about how far away you are from turning those on what sort of metrics youre looking at.
And I guess really just wondering how far away you are from turning those on.
Yeah. Each state is a little different animal and it really depends on when we got the rate that we needed and when its earning in and when we feel comfortable that we want to grow and grow profitably.
So, although we wouldn't share the aggregate premium or the states really necessarily for that matter.
Continue to assess that channel by channel state by state as we get the rate that we need in order to be adequate.
We can tell you.
It's well known that there are few key states, where we cannot get rate and those are significant states. So it's not a.
Small percentage.
The U S households that is not getting the local media promos. So it's a definite upside for us once we get rate adequate in those states.
Got it okay. That's that's.
Thats helpful.
And then if I just look at the severity up 16% year over year this quarter and I understand.
As a part of that but I'm just wondering if you can maybe just break out how much of that up 16% is being driven by used car prices specifically.
Yeah significant part is driven by car prices total losses costs to repair and I talked a little bit about.
The other parts of that that go along with that so parts prices are up around 5% labor rates are up around 3% and our rental cars are up between 5% and 1%. So all of those inclusive a lot of it has to do with car prices both from a total loss perspective in a used car.
Our perspective, and obviously if the used car prices are up and they are they're up significantly since pre COVID-19. Many of those won't be total then the repairs become more and more expensive.
A rough estimate for the impact of vehicle valuation on severity across our physical damage lines is around half. So that's not exact cars, but.
As they're walking around number.
Pretty close yes.
Severity is up 16% overall, but up in that 20 ish percent rate in both collision in PD.
Thank you.
Okay.
And our next question.
It will come from Iran. <unk> of Jefferies. Your line is open.
Thank you good morning, I wanted to turn back to the homeowners business for a second and maybe tying it to the Robinson so.
The presentation.
Kind of show Robinson is making up about 11% of your overall book.
Is that generally consistent across the country or is the weighting of Robinson is greater in the southeast in the more volatile states.
Yes, I'd say the weighting of Robinsons are greater in the states that we've grown in.
More historically from ASI from Air Act and that's also one of the reasons why we want to be able to expand through the country not just to derisk the portfolio, but theyre growing Robinsons, which is why we will likely add more platinum platinum agents in those states and reduce platinum agents in.
In the states we've had before you want to add anything Pat Yes, No I think that's the primary driver right. We've been in the auto business for 85 years, we've been expanding our property business over the last five to 10 to get to the 47, where we write today. So there's still a mismatch between kind of how long we've been in the market and how long we Frank.
They had competitive property offerings to bundle with our auto offerings.
Just for clarity there that that 11% includes our customers that are bundled with third party carriers. So we started offering bundles and our direct channel.
Well before the agency penetration, which we achieved with again.
<unk>.
So the distribution of the home is.
A little more aligned with countrywide because of the footprint of our direct business was obviously a country wide from the inception.
Direct and we had homeowner coverage pretty much across the country.
On the direct side.
I'll caveat that of course, there are a few markets that are troublesome for all carriers. So it's a little tighter there but.
But generally we're pretty well distributed for Robinson is on the direct side, a little more concentrated on the agency side.
Thank you that's helpful clarification, and I guess my follow up to that would be then on the goodwill impairment is that purely a function of higher than expected loss ratio or is it also a function of <unk>.
In reaction to that loss ratio slowing down growth in those more volatile states and I guess, what I'm trying to get to also with this question as I'm assuming that as you are looking to grow in the less volatile states. You are in count where you are going to encounter separate competition from national carriers that were probably less.
Interested in penetrating the southeast and in the volatile states.
Yes, I'll start with the latter part of your question, Yes, I think the competition will be greater in those states.
The goodwill impairment was based on just the significant catastrophic losses that we've had and when we purchase are actually had certain assumptions on combined ratios and of course, we have a cat load it's.
It's far surpass that as Dave talked about so it was that when we when we pair periodically look at goodwill when we looked at it we took into account.
The severe catastrophic.
Cat catastrophes, where we're concentrated as well as just some recent legislation.
Florida as you know we wanted to non renew about 60000 policies and Theres some new legislation that.
Requires us or where we will ask our customers. If they had a new roof are there the life of a roof is at least five years.
We will renew them, which would be good because that means they've gotten a new roof and it's something we'd want to right, but we're not sure exactly how many of those 60000, we will not renew but we took that into account when we're looking at the impairment.
Thanks for the helpful color.
And our next question will come from Andrew Kilgour Bank Credit Suisse. Your line is open.
Hey, good morning.
Starting with <unk>.
The bundling and the Robinson channel.
Independent agents.
By their nature have relationships with numerous carriers and so my question.
How does progressive.
Break into that ongoing effort, maybe tying in pricing.
Equation do you have to provide a significant discount and could you give a little color around that.
Yes, I mean, one of the reasons why the reasons, we purchased <unk> was to have access to those bundled customers in the independent agent channel. We now independent agents Love Our service Love, our you know our ability to.
Handle claims well, but what would happen is they would have to write with someone else that they wanted to bundle. So that was a big effort. We are very broadly distributed in our independent agent channel have over 40000 independent agents sell.
What we did was really tried to have a few or more of a scarcity model on the platinum program with certain agents that we wanted to have them write the Robinson, our auto home bundle and be the number one two or three carrier in there in their firm. So that's sort of how we look at that.
We also then had to make some changes whether it was compensation changes in the form of higher commissions.
As well as our writing 12 month auto policies to align with those 12 months.
Home policies. So there there's about 4000 platinum agents across the country, we work well with them and they consider us.
Preferred in their firms and and that's why we want to make sure that we're adequately priced on both auto and home to continue to grow with those agents.
In fact I was just with we have an agency council that we had an outgoing group in an incoming group and we talked a lot about efforts to grow and I'm bullish about being able to do that obviously in the right venues.
So attrition.
Discounting.
Cereal discounts.
And any color on that part of the equation.
Well, we right we right to have our target profit margin you get a multi product discount with with the when you have multi products but.
But we don't I don't know that we ever really talk specifically about that those amounts out.
To win in the agency channel, we have to have a a viable value proposition for both the clients of the agency and for the agents themselves. So on the client side, we have to have competitive and stable pricing. We have to have a quality product and we have to have really competitive pricing.
And that's where as Dave mentioned, we've got work to do to expand the apparel that we write improve the segmentation and frankly just have more competitive pricing for the agents clients and then on the agent side, we have to have great ease of use and competitive compensation for the effort. It takes to write a policy with progressive.
And that's where as Tricia mentioned in the platinum program has competitive offering of compensation for our agents that pays more based on how much and what quality of business or type of business, they're placing with us over time and then we're known for ease of use through great systems and technology over many many years so.
Not explicitly buying market share or as you said buying shelf space for our proxy we are competing based on our quality of a competitive product for the clients in the agency channel and our value proposition for the agents who sell it.
Got it very very helpful. And then just with regard to the auto side.
Non rate actions this quarter and any color that you could provide around that magnitude.
What types of non rate actions, you've been taking and claim to take.
Yeah, it's really dependent on each state. So in some states we've had some underwriting and build plan restrictions, obviously and easier way to go is what I've talked about in terms of how I'm turning to local media off.
And those are for the most part what we used to try to stalled growth a little bit when we don't have adequate rates.
Okay. Thank you. Thank you.
And our next question will come from <unk>.
Josh Shanker Bank of America. Your line is open.
Yes. Thank you in the prepared presentation, you made a comment that the average PLE of Robinson was about three times that of Bam.
Remember from presentation, maybe in 2013 or 2014, you made the comment that the lifetime value of a robyn.
Four to five times that of a fam you've had a decade of experience.
Now and obviously in this period of time, you've seen and disruptive pricing how quickly the fam.
Leaving the Robinson state can you talk about that.
Specific versus the lifetime value.
It would suggest there's a multiplier to lifetime value, maybe the ticket size or maybe you've updated your thoughts on the on the value proposition of the different segments.
Sure the lifetime value calculation would include not only the difference, but the average premium difference so we target.
Come in margins across segments of the business so for across the auto program, we're targeting similar margins.
But different segments have different average premiums as well as.
Policy life expectancy, and sort of multiply those together and Thats, how you come to a bigger lifetime value.
And that four to five they'll probably close to accurate.
That's.
Robert.
Look we have to go back and look at the specific math I would say probably general generally.
Alright, Thank you Anne and thinking about.
The next couple of years and looking back maybe 16 17 18 can we talk about the efficacy of our National AD campaign strategy versus.
Targeted.
Search spend and whatnot at the early stages when your pricing is adequate and the rest of the market pricing is still trying to play catch up what does that mean for the marketing strategy.
Then to get our customers to come to progressive or is there a period, where the customers elect to come because of your brand recognition and whatnot, where the acquisition costs are lower in the early stages of a hard market.
I think you do a little bit of both I mean, I think a lot of it depends on what the competition is doing so I talked when at least ask the question I talked about.
<unk> acquiring leads has to do with the competition in the digital space. So we the national brand is really important it is one of our our pillars of our strategic pillars. So we want to be the brand that talks about savings protection, we want to be known that gives consideration we want to be in.
Shortlist and then the local marketing really through most of online search that that's a nice lever to be able to turn off and on on when we want to grow but again, that's very dependent on supply and demand and whats happening in the industry with our competition. So I feel I feel like we're in a good position.
Now again, we have some states we wanted to turn on John talked about a couple of large states, we'd love to get adequate rates and so we can continue to grow but we feel like we're in a good position we have some levers and we've had a tremendous amount of growth in the last five years. In fact, we've added 7 million tests and <unk>.
Auto pests, 70%, so and that was coming off the last hard market.
I'm not going to say that we're going to grow that same amount in the next couple of years, but that's that's always been our playbook to position ourselves to get out ahead of rate have a lot of different levers on marketing and then move as quickly as we can.
I might add a little bit there I think that's a great question and I think the answer is plays to our strengths. So if you look at the percentage of folks coming to shop at progressive that we would attribute to mass media from the kind of a timeframe that you talked about today. It has shifted a lot too much more specific.
<unk> attributable media and we are great at analyzing the data fairly real time, and making decisions very quickly to be able to redeploy dollars to go to the most effective way of bringing people in so.
I think it's because of technology and the data available increasingly in a real time.
Basis that is allowing us to get more and more of our media spend really really effective mass media as Tricia mentioned and our brand are obviously the first step it's crucial to have that brand awareness, but then the agility.
The data and analysis that goes into really targeting.
Again, I think plays to our strengths and has allowed us to continue to grow advertising spend and be super efficient.
Thank you for all the answers.
Thanks, Josh.
And our next question will come from Tracy <unk> of Barclays. Your line is open.
Your line is open Tracy.
Okay didn't hear my full name thank you.
And my third question two quarters ago, you're telling me you have a first we have a first party total law Coolidge and youre going to pay that immediately.
Youll recognize the elevated cost of new and used car and real time, but on a third party perspective, there's often a delay in subrogation.
But an update on the lifecycle of clean how you feel about the strength of reserves for claims that you were notified last year.
The only be settling now and I guess ultimately I'm just trying to understand if you think auto is becoming more of a medium tail line. These days from short tail.
Yeah, I would say, it's still a short tail I think in the last couple of years. When you look at the data on subrogation from a property damage whether its incoming our outbound there's been delays for us for many different reasons and probably more recently.
In the last couple of quarters ban on staffing you know you've looked at the unemployment rate and I know myself along with many of my peers have wanted to really get a.
Get ahead of staffing and its been a little bit more challenging personally at progressive we feel like we're in a really good position right now I wouldn't necessarily say that a couple of quarters ago. So the timing depends on when youre able to settle that claim and then of course get the paperwork to the other company and of course for us either way for paying out to them or they are paying out to us.
I think it's still short tail I think that will hopefully we expect that will level out at some point when staffing is normalized across the industry and we get back to them.
I'm sort of claims as usual I will say that that is an important piece because anytime that you can get salvage or subrogation settled and more timely that hits. The bottom line. In fact, I was talking to our claims president a few weeks ago and we feel like we're very adequately staffed in claims and <unk>.
We're actually going to.
Move some people over to subrogation salvage towards ease in the near future until the end of the year to get some of those closed in a more timely fashion.
Okay. So can I infer from your comments on staffing that you feel good about the strength of the reserve for claims that you were notified last year. Yeah. I feel is settling now yes, I feel very comfortable Gary you can you can you comment on this we have our head of actuary here, but I feel very good about our strength.
<unk>.
To date, we are about six points on the CRM favorable we were favorable in this quarter and.
We feel really good and part of part of our reserving that we look into and Gary you can talk about this is we have a robust roll forward process, where we take into account in existing and new features inflationary factors.
Sure. Thanks, Tricia so a good question to Tricia's point.
Overall, we feel very good about our reserves right. Our goal is always adequate reserves minimal variation and our philosophy has been very consistent over the long term. We have developed unfavorably year year to date are about 0.6 points on the combined ratio.
Personal auto about three tenths of a point in commercial about 2%.
That's in line with where we've been in the past at midyear and if you look historically, we've ended the year generally within a 10th or two tenths of a point.
To tricia's point, and we do have a paper that we publish.
On our Investor site. So you can read more detail about our methodology, but we will look at about 25 or a little bit over 25% of the reserves are monthly and then on the other 75%.
We have an inflation factor that we apply so of any new features come in or existing features.
Im actually go up with inflation based off severity.
As features age as they become attorney wrapped et cetera.
Have automatic adjustments for those so we feel that we've kept up very well with the rising costs and to your point Tracy we have seen somewhat of a slowdown relative to closing claims compared to the past just with everything going out over the last couple of years, but.
Because of that mechanism, we have that we can adjust as they age and as they become attorney Repped et cetera, and naturally we have been able to keep up just as we would have intended.
Great color I'm also one of your large competitors is no longer selling the auto insurance in California. So I was wondering what your appetite is.
Great business in California.
We would love to write more business in California. It is the most populous state.
Unfortunately, right now, we don't we aren't able to get adequate rates and.
Once we are able to do that we are open for business and we'll write as much as we can right now there's about 30 auto programs, representing close to half the California market that have rate increases pending we have one pending in one of our auto programs from January will likely have at least another one in the near future.
Sure.
So if we can get the rate that we need to be adequately rated we want to write all the business we can.
The the moratorium on rate increases in California's unfortunate because we don't think it serves the consumers of California, and you only have a couple of things to do and there's a couple of levers that we talked about and we'll use those tactics to slow growth.
But we want to be a part of the future, California market and we'll do what we can to get there.
When you mentioned.
It doesn't serve California, consumer as well could you envision.
Our core market growing in California, Colorado.
It really becomes available.
Right.
I'm sorry could you repeat your question I didn't hear that.
Yes, you are seeing that.
The rule, there don't really start consumer as well and if there is a lack of appetite by auto insurers to write business in California.
Do you think there would be a residual market created.
Similar to what they workers' comp got it got it okay. We've.
We've seen residual markets come and go in various states over many decades and as you note generally when there is not.
Selling voluntary private market participation there has to be a backstop given the mandatory insurance requirements. So could there be growth of a residual market in California, absolutely and there it's up to the regulator to decide if if that's a path that they want to go down I think we've seen historically states like new.
Where it grew rapidly and then with voluntary participation you know there was better options more competition and consumers benefit when there's availability that brings competition that drives affordability and carriers compete on both price and service, whereas the backstop residual markets. Unfortunately.
<unk> typically provide a minimum level of both so is it possible absolutely is there precedent yeah, we've seen markets or voluntary participation shrinks and residual markets grow and therefore, it could happen in California.
Thank you.
And our next question will come from Ryan Tunis of AD anonymous research your line is open.
Hi, Thanks, good morning.
Patricia first question I think I heard you make the comment that.
You won't say you'll grow.
The next two years like you did.
Five years after that the last hard market. We had in 2016, when we think about the mid teens type of growth you had coming out of that last part market could you just kind of compare this hard market to that like what is what are some of the relative challenges.
Well I think in my point, Ryan was more of it's a really big ship now so it's a much bigger step than it was back in 2016, so as a percentage basis growth in a growing 70% and auto is going to be tough. The bottomline is we will grow as fast as we possibly can at or below our target.
<unk> margins and that's what we're going to do as the as the hard market continues its sort of hard to foreshadow what will happen right now because I feel like we're right in the midst of it and we have you know the rate that we're earning in yet to earn in and.
More advertising to open up and then of course, a lot of it depends on what the competition is doing so do my reason for saying that was just that we you know we have grown a tremendous amount and just you know any company when you get the size of us it's harder to grow as quickly on a percentage basis.
Makes sense and then I guess.
And my follow up is just trying to figure out what I'm missing and thinking about from a rate adequacy comments. So it sounds like you got about seven points of rate.
Hernan and how.
And you feel like you are done you still feel like you're done with most of the big actions you have to take but I think you mentioned that repair cost.
Adding.
Three to five points.
Frequency.
I think eight points lower today than it was a year ago and we are in a work from home environment.
No.
Is your rate adequacy comment or sort of backward looking or have you started thinking a little bit about what do you think prospective loss trend might be in 2023.
I mean, we're always thinking about the future, but we got out ahead of rates. So if you think about 2021, we had about eight points and most of that was in the second half.
We have nine points year to date with a five points, earning and so I feel that's why I said, we may have modest rate increases and again, we there are a couple of states, where we need a lot more rate and and Thats on average. So we know when we talk about the eight nine points in the five yet to earn in.
That is very different depending on different states.
But on average so that's why we feel good likely will have to take some modest rate increases as we watch the trends.
But we will do that as we see the trends unfold.
And I guess my last one is just.
Comment in the 10-Q about really focusing on retention, which makes sense.
<unk> declined but I was wondering if.
This strategy here, where you feel.
It makes more sense to pass through a little bit less rate on the renewal book and maybe.
Focus less on new business is that is that why you feel good about storing their 96 that the strategy is more shortly retention focus then.
The new App focus at this point I would just I just wanted to kind of clarify that comment next year, yes.
R R.
Where do we want to grow as pet growth and so that includes both new and renewal business and retention has always been our Holy Grail, you pay a lot to get a customer in and you want to keep them through stable rates and great service. Obviously, when you have to crank up rates a lot when trends change dramatically you're going to lose people. So we knew that would happen.
And but we want to keep everybody we can at at or below our target margins for the renewal business and then new business. Obviously, we want to come in because we wanted to take advantage of our competitive market when others are raising rates. After we've raised rates. So both are important to pip growth is our preferred measure of growth in that well.
Take a longer time new businesses more.
Precise more day to day Pip growth will take a little bit longer since we've had some degradation in PLE and we're looking forward to starting to ramp up <unk> growth.
Okay.
Thank you.
And our next question will come from Derek Hong K VW, Eric Your line is open.
Good morning. Thanks, just wanted to follow up on the last question, how should we think about the timeframe for reaccelerate that growth, especially as you pulled back in property.
I think it would be a little bit different likely in the different channels and I don't want to signal exactly when will we will see it.
So a lot of a lot will depend on the carve out so we've talked about with states opening up.
We're opening up and getting our error rates stable on I don't want to signal that I'll, let you know as it unfolds.
It's also very dependent upon the competitive market. So are we.
We've seen a few competitors.
Second quarter combined with over 100, where you have one competitor who is reporting their rate increases monthly we see another place where you are in large markets, we see very mature competitors taken multiple double digit increases.
And in very short periods. So it's it's an environment that's pretty hard.
If competitors continue to take aggressive action.
We're going to be able to get back to pip growth much faster than if they don't both obviously on the new side, but the retention is not only a function of our rate increases it's relative to what our consumers can find out in the marketplace. When they go shop and if competitors are all raise rates as well then our retention.
We'll improve so.
It's really difficult to project I think all of our product managers are taking the right actions at the local level.
And as we continue to note if we can get rate adequate in some key markets.
Be an even better position to grow.
Okay. That's really helpful. And then Tricia when do you see the most rate increases are behind you does that mean refiling with order implemented rate changes or something else.
Yeah. It just means that the majority of the rate increases that we were able to get again the caveat with a couple of states are on the street and and then that's why I wanted to try to walk through a little bit about how we think about them, earning in and so.
We do have the rate is going to take some time to earn in and we feel good about that we're in the heart of that and that we still have five more points to earn in as we speak.
Got it and then if I could just squeeze in one last question does your personal auto purchasing I assume the currently elevated overall inflation regulatory going to filter into the medical cost components.
Yeah, we look at we look at inflation differently with medical and physical damage, but we see.
Trends up a bit general damages, specifically with attorney routes and of course, we look at medical inflation as well when we look at our rates for each line coverage, whether it's medical payments or bodily injury.
Okay. Thank you for the color.
Thanks.
And our next question will come from Mike Zaremski of BMO. Your line is open.
Hey, great good morning.
First question I'm curious.
In light of your experience with air X over the past.
Years.
When we think about.
Progressive growth strategies.
And both on the commercial BOP side, specifically and then I guess in home as well.
Has that experience.
Change your view on M&A in terms of kind of large scale.
Actually I think all in over $1 billion.
Does that change your view on kind of where M&A fits in accelerating those growth strategies.
No I think we always learn every time, there's an acquisition and we haven't been.
A big acquirer over the years I think we've learned a lot of lessons I think any new product that you go into you learn and so you know when we went on that when we went direct we didn't make money for quite some time, because we were learning we do the same with every new product, but I think I look.
Look at acquisitions more AV is there is there is some technology that we want is there. Some access we want so air access was access is this an easy way to.
To continue our portfolio. So that's one of the reasons why we acquired protective on the commercial line side, because we knew we had the acumen to look at smaller fleets. They have medium to larger fleets. So that was something that was important to us as we grow into the fleet program. That's really how I look at it I think acquisitions.
If you don't do them very often you're always going to learn a lot one of the things that we have built since then is an area of the company, where we look at M&A and we look at what we need in order to be successful in that and and Thats within our strategy team and so we're getting our arms much better around that and I think thats.
What that's what Eric has taught US is that you have to have probably a lot more investments early on in order to get your arms around the product and we're doing that with protective I'm very excited about the protective acquisition, where we're at it it was much different than air access as a learning and how we can.
Leverage that much more quickly.
So I guess as a follow up question on the commercial BOP side, given youre entering a lot of new states with some new products do you feel comfortable with with your level of expertise.
Not at this point, we will get there first we know first we wanted to create the BOP products and we weren't really small so if you think about small business.
It's usually defined as 100 employees or loss were 20 employees or less we're very very surgical to understand that rate to risk and we wanted to expand it out to the states. So we're in 37 states. We are learning everyday as we learn more just like we have in many parts of our commercial business will be able to expand that so we get more and more.
Comfort every single day.
Okay, Great and my follow up is are pivoting to the.
Our presentation today, I think you mentioned over $1 billion of home premiums Brendan unaffiliated Karabell carrier balance sheets, just just curious maybe you could shed some light on those partnerships and just.
Some of that business.
In states you'd like to grow and it might be kind of up for grabs over time as you expand your appetite in certain states.
Yeah. We've had we've had we've called Progressive advantage agency for many many years and we continue to build a stable of carriers that can serve many different.
Value of homes in some of those are many of those are in places, where we're going to grow but the partnerships are really incredible and they want to grow with us and it's all about the right rate at the right time. So we continue to grow there we put it online with our home quote explorer, where we have a buy button.
And I forget how many states 38 for progress 38 for Progressive home. So yeah, we continue to invest in there and it's nice to have to have the partners to work with and again, we've always been about choice and we want to make sure if our rate isn't the best that we have opportunities to be able to have our customer.
There are still bundle with progressive auto and those partnerships.
Thank you.
Yes.
That appears to have been our final questions. So that concludes our event.
Call back over to you for closing.
Great.
This concludes the progressive Corporation's second quarter Investor event information about a replay of EBIT will be available on the Investor Relations section of Progressive website for the next year you may now disconnect.