Q4 2022 Progressive Corp Earnings Call
Speaker 1: Good morning and thank you for joining us today for Progressive Fourth Quarter Investor event.
Speaker 1: I am Doug Constantine, Director of Investor Relations, and I will be moderator for today's event.
Speaker 1: The company will not make detailed comments related to its results in addition to those provided in its annual report on Form 10K, quarterly reports on Form 10Q, and a letter to shareholders which have been posted to the company's website.
Speaker 1: This quarter includes a presentation on a specific portion of our business, followed by a question and answer session with members of our leadership team.
Speaker 1: introductory comments by our CEO and the presentation were previously recorded.
Speaker 1: Upon completion of the previously recorded remarks, we will use the balance of the 90-minute 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.
Speaker 1: 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.
Speaker 1: Additional information concerning those risks and uncertainties is available in our annual report on form 10K for the year ended December 31st, 2022, where you will find discussions of the risk factors affecting our businesses, safe harbor statements related to forward looking statements in other discussions of the challenges we face.
Speaker 1: These documents can be found via the Investor Relations section of our website at investors.progressive.com.
Speaker 1: To begin today, I am pleased to introduce our CEO , Trisha Griffith, who will kick us off with some introductory comments. Trisha?
Speaker 2: Good morning and thank you for joining us today.
Speaker 2: 2022 is among the toughest years of progressive 85 years.
Speaker 2: The continued effects of the pandemic, high inflation, and the largest hurricane in our history all played a role in the tumultuous environment.
Speaker 2: Throughout these challenges, progressive people came together in unity and delivered once again beating our goal of a calendar year 96 combined ratio while growing both written premiums and policies enforced.
Speaker 2: The pride that I feel in all of the people of progressive is indescribable.
Speaker 2: We have met all challenges head on and continue to deliver the best in class results our stakeholders expect.
Speaker 2: Our ability to meet these challenges is embedded in our culture, which is built on our newly updated four cornerstones, which are...
Speaker 2: Tuiar, which is our core values.
Speaker 2: Why we are here, which is our purpose.
Speaker 2: We revise our purpose to be, we exist to help people move forward and live fully.
Speaker 2: Our modified purpose builds on the legacy of our core values and our history of challenging the status quo to accelerate progress and equity.
Speaker 2: We modified the purpose to better unify and guide our organization.
Speaker 2: Where we are headed, which is our vision.
Speaker 2: We expanded our vision to include business owners, so it now provides a more holistic view of all the customers we are privileged to serve.
Speaker 2: And how we will get there, which is the four pillars of our strategy.
Speaker 2: We've updated these two cornerstones to better reflect the evolution of our company and to ensure our culture adapts to the ever changing environment we operate in.
Speaker 2: While our business will continue to progress, we will always seek to maintain the things that make progressives, progressives. In today's call, we will once again focus on the strategy quarterstone, and specifically we will discuss the pillar of competitive prices.
Speaker 2: Competitive prices means not just offering the best rate, but also the most accurate rate driven by pricing accuracy, expense discipline, and industry leading segmentation.
Speaker 2: As we have said for the last few quarters, we believe the major personal auto rate increases are likely behind us.
Speaker 2: In the fourth quarter, we continue to raise personal auto rates, but it pays slower than in late 2021 and early 2022.
Speaker 2: While some states are still waiting on filings to be approved by their respective regulators, we believe the majority of states are nearing rate adequacy, and our intent is to continue to increase rates to measure it with future lost trends.
Speaker 2: Based on public rate filings, we know that our competitors are raising rates to address their own profitability concerns, and as they have done so, we've seen our relative competitiveness improve, which is resulted in improving retention, strong quote growth, and high conversion.
Speaker 2: We've now actually seen some competitors surpass our post-COVID rate take, which should help us sustain those improvement trends.
Speaker 2: As a result, we finished 2022 with the best fourth quarter for personal auto, new application volume in our history, which contributed to growing our personal auto PES 3% in 2022, while also running a lower acquisition expense ratio than 2021.
Speaker 2: We're continuously evaluating our media budget and will continue to use media efficiently as we enter 2023 and we will look to capitalize on this hard market.
Speaker 2: The Higher Direct Equitation Expense Ratio in January is indicative of our opportunistic stance, and it reflects the confidence we have of current rate levels in most states at this time.
Speaker 2: Of course, at the last three years have taught us anything, it's that the future is unpredictable. So we will continue to monitor the business carefully and navigate as needed to grow as fast as possible while delivering a calendar year 96 combined ratio.
Speaker 2: As I said in my annual shareholders letter, segmentation is a key facet of our competitive price is pillar. And nowhere is that more evident that in our investment in usage-based insurance products, which will be the topic of today's presentation.
Speaker 2: Progressive was a first mover and usage-based insurance. We have had a UBI offering since 1996 when we launched our first product called Autograph.
Speaker 2: This first effort was limited by the technology of the time and required a professional mechanic to install equipment in the customer's car at a considerable expense.
Speaker 2: That first attempt evolved to trip sends in 2004, which was our first self-install option, and then in 2008 we launched MyRate, which is where we first employed cellular technology to upload data to our systems.
Speaker 2: And then in 2010, we launched a snapshot, which we consider the start of our modern UBI program.
Speaker 2: We moved from our discount only model to one that included the possibility of a surcharge in 2014 and in 2016 we launched the Snapshot app which allowed the customer to use a mobile phone app instead of the plug-in device.
Speaker 2: Our most recent addition is continuous monitoring, which began its rollout in the summer of 2022.
Speaker 2: In parallel to our efforts in personal lines, we were developing UBI for commercial auto products. This culminated in our first broad commercial offering of SmartHall in 2018, which allows us to provide usage-based insurance to truckers in partnership with providers of electronic logging devices. This culminated in our first broad commercial offering of electronic logging devices.
Speaker 2: We also expanded the snapshot program for commercial auto with snapshot preview in 2020, which includes fleet monitoring services to small businesses.
Speaker 2: Throughout our history of usage based insurance, we have collected billions of miles of data and invested in a process of continuous improvement in our UBI products.
Speaker 2: Today, UVIs are most predictive rating variable, and it provides unparalleled rate accuracy to our customers.
Speaker 2: Through this, we have continuously educated our customers where today UBI adoption is at near historical highs. To highlight our UBI products on this call, we've invited two progressive leaders who have played significant roles in our UBI development. We'll call it that.
Speaker 2: First to speak will be Jim Huzz, business leader for our personal auto usage based insurance.
Speaker 2: Jim is a 20-year progressive veteran and for the last five years he has led our personal auto UBI team.
Speaker 2: Jim will discuss the advances we have made in personal auto UBI.
Speaker 2: Following Jim will be Cory Fisher. Cory is a 19-year progressive veteran. For nine years Cory has been our business leader for commercial lines R&D. And as of last month Cory accepted a new role to lead our agency distribution group.
Speaker 2: During his tenure in commercial lines, Corey led R&D during the successful rollout of both our commercial auto-EBI products.
Speaker 2: Cory will be highlighting all of the advances we have made in commercial line GBI, once again, giving progressive first mover advantage in this important technology. Again, thank you for joining us this morning. I will now head over to Jim Hoss. Jim?
Speaker 2: as we have made in commercial line GBI, once again, giving progressive first mover advantage in this important technology. Again, thank you for joining us this morning. I will now head over to Jim Hoss. Jim? Thank you, Tricia.
Speaker 1: As Prisha mentioned, my name is Jim Hans and I lead progressive personal lives telematics efforts. Today I'd like to tell you about how we've built on that long history and telematics that Trisha discussed.
Speaker 1: Starting with how we've continued to improve our core snapshot program.
Speaker 3: Then moving on to discuss how we can now bring in data from outside sources to improve rating accuracy during the new business quote. And finally wrapping up with the discussion of some value-edited services we'll be bringing to market soon.
Speaker 3: First, let's recap how our program has worked for a number of years. Individual states may vary a bit, but I'll describe here how it works in most places. We or the agent present the customer with the offer to enroll in snapshot during their initial quote.
Speaker 3: If the customer elects the sign up, we'll receive an immediate discount of up to 10% for participating in staff shop that will be applied to that quote.
Speaker 3: So, as long as the customer stays in snapshot, that discount stays on the policy during the whole first term. During the quote, the customer also elects whether they want to monitor using an OED2 device that we send them or via an app on the smartphone.
Speaker 3: The customer then has 45 days to plug in the device or get the app setup.
Speaker 3: At that point all they need to do is drive.
Speaker 3: point all they need to do is drive, we'll let them know how they're doing along the way.
Speaker 3: Just before their policy comes up for renewal, we'll use the driving data collected during that first term to calculate the renewal discount or search arch.
Speaker 3: That rate of judgment will be included in the renewal quote and will be applied to future policy terms.
Speaker 3: At that point, the customer can delete the app or send us back to the device and it will be done monitoring.
Speaker 3: I mentioned that the rig could go down or it could go up. That is, we would apply a discount or a surcharge. But that's not how our program started.
Speaker 3: In the early days, the program was structured a little bit differently, but a customer's rate couldn't get worse by participating in snapshot.
Speaker 3: Customers could receive a discount of about 30%, but their rate couldn't go up no matter how risky they're driving what.
Speaker 3: Many companies still employ a model like this today. Of course, no rating variable in insurance only suggests giving discounts. It's about segmentation and matching rate to risk.
Speaker 3: So the data would suggest that some customers should see the rate increase while others should see a decrease.
Speaker 3: While only offering discounts might encourage more people to participate in the program, makes the economics a lot more challenging and limits the accuracy of the overall pricing.
Speaker 3: We all know that pricing accuracy is critical in auto insurance.
Speaker 3: So, starting in late 2014, we began introducing a search search. We set our factors so that about a fifth of customers received a search charge. I share that we've kept about the same over time. The search charge was small at first, but started on the path to greater accuracy.
Speaker 3: It's also when we introduce the participation discount, which is down 10% in most states. Over time, we've moved to price closer and closer to what the data would tell us. First, by increasing the maximum surcharge from 10% to 15%.
Speaker 3: then increasing it to 20% and finally to where we are today. We offer larger discounts than we did in the past, now up to 30%.
Speaker 3: But we also have larger potential surchargers than the past two. Now it's a 40%. We've come a long way since the days of only offering a discount. But it's important to note that about 75% of customers still receive a discount and only about a fifth receive a surcharge.
Speaker 3: Not surprisingly, we see better retention on customers who earn a discount and worse retention on those who are in a surcharge. Renewal rates for the safest drivers who are earning the biggest discounts are about 6% higher than average, while they're about 16% lower for the riskiest drivers who aren't receiving your tenho higher value in cases of low satisfying drivers.
Speaker 3: So the program systematically helps us retain lower risk drivers and shed higher risk ones. And because of the changes we made to our snapshot pricing over the years, we're more accurately priced than ever before on those customers that do stay with us.
Speaker 3: While these changes have certainly improved the accuracy of our pricing, there was still limitation to approach.
Speaker 3: We only use data from a single term, typically four to five months, to set the price for the life of the policy.
Speaker 3: This made it so we wouldn't know about material changes in an individual's driving behavior would lead to less accuracy over time.
Speaker 3: We had experimented with a continuous program a long time ago, back in the late 2000s.
Speaker 3: At the time, though, consumer acceptance of telematic generally was still growing and collecting data on an ongoing basis was quite expensive, so we decided to move forward with a partial model. Things have changed a lot since then, and in early 2022, we started migrating to a continuous version of staff shut.
Speaker 3: The basic process isn't all that different. Customers still choose whether and how to participate in snapshot during the quote, and they still receive a participation discount. The basic process isn't all that different.
Speaker 3: They still have 45 days to plug in the device or set up the app and then they can just drive
Speaker 3: The difference comes after the renewal. As instead of sending the device back or deleting the app, we ask them to continue to monitor. And we'll adjust their rate at each renewal to reflect their more recent driving.
Speaker 3: Additionally, that participation discount is larger now at 15% set of 10%, which encourages more people to participate in the program.
Speaker 3: Having more recent data also improves the predictive power of UBI, which means we can price even more aggressively. We've increased the size of the maximum potential discount to 45%, and the maximum potential surcharge to 60%.
Speaker 3: We're one of the few companies to combine a continuous model with the possibility of search charges.
Speaker 3: As of the end of 2022, we have deployed this new continuous model in 12 states, representing over a quarter of our network and premium, and plans roll out to most of the rest of the country during 2023.
Speaker 3: So I will even steepeting these factors and requiring longer monitoring to make our pricing even more accurate. What's happened to take great?
Speaker 3: The answer is that the share of our personal auto customers participating in Staff Shot has moved steadily upward.
Speaker 3: In fact, it's up nearly 40% across both channels combined since January of 2019. So today, more people participate in snapshot than ever before, providing data for longer periods of time that we can use to price more accurately than ever before. In fact, more people participate in snapshot than ever before.
Speaker 3: So that's the update on what's been going on with our core snapshot program, which provides great incremental segmentation over what is available via the attritional rating variables on renewal policy terms.
Speaker 3: Now I want to talk about how we're working to bring this pricing accuracy to where it's most useful at the time of the new business quote. Since in this scenario the customer is only now just coming to us, we'll have to use telematics data that was collected by others.
Speaker 3: Our long telematic experience has helped us learn how to use this data and how to make it predictive.
Speaker 3: We currently have two initiatives in market. The first is a lead generation program that works by inviting good drivers to come and quote with us.
Speaker 3: While the other begins when a customer comes to progressive directly to get a quote, we find an appropriate driving data from third parties into the right group present them.
Speaker 3: Let me start with the lead generation program. Here, a partner like CreditConma invites their customer to opt into collecting driving data to see if they could save money on their car insurance.
Speaker 3: In a privacy-friendly way where we don't receive personally identifiable information, we can let credit karma know who's likely to receive a discount so they can invite them to quote
Speaker 3: Only when the customer chooses to quote, are we able to personally identify that data and are then able to apply that discount to that individual's quote, improving pricing accuracy immediately?
Speaker 3: Our second program evolves working with data collected by automakers.
Speaker 3: Over the last several years, more and more of them have been equipping their vehicles with technology to collect driving data.
Speaker 3: They've been working to show the value of these programs to their customers so that they'll sign up to share that data with them.
Speaker 3: the value of these programs to their customers so that they'll find out to share that data with them. And we've been able to tap into that.
Speaker 3: When a customer comes to us to quote, and their driving data is available, we'd ask the customer if they'd like us to use it to determine their price. They say yes, we bring that data in and apply the UBI discount or surcharge to their quotes immediately. Again, pushing that rate accuracy to where it matters most, the new business quote. Because of our long experience with the UBI and working with both OBD and mobile data.
Speaker 3: and the fact that we attract so many insurance shoppers every year were well positioned to execute and benefit from this.
Speaker 3: To be clear, automakers around various, often early stages of getting the necessary equipment into their cars and making this data available to ensure.
Speaker 3: Additionally, just because new cars coming off the assembly line have the hardware takes a long time for the fleet to turn over. So this isn't common yet, but we're excited about the opportunity it represents. We're already working with two of the largest automakers, General Motors and Toyota, and it's clear that this population will grow over the coming years.
Speaker 3: Lastly, I'd like to share some exciting news that doesn't involve using telematics data to more accurately rate policies, but instead, it was upon our telematics heritage to provide a valuable service to our customers.
Speaker 3: Over the last couple of years, we've experimented with offering a service to detect and respond to major accidents to some of our snapshot customers to learn if they value the service and to better understand how it could be useful in handling claims.
Speaker 3: We've been encouraged on both fronts, as customers have consistently told us that this kind of service is something that they really do value. And our claims representatives have seen that telematics data can help them settle claims more quickly and efficiently. So we know that despite how times have changed, there's a large segment of customers who don't want their insurance premium to be based on their driving data.
Speaker 3: That means that if we limit this just to our snapshot customers, we'd be leaving out a lot of others. So in March, we plan to start making accident response available to all of our auto customers, not just those who are in snapshot.
Speaker 3: We'll use data from the sensors on the phone to detect when a serious crash is likely to have happened. We'll reach out to the customer to confirm the accident and to see if they need help.
Speaker 3: If we don't hear from a customer at all, and it seems particularly serious, LordQuest, that the police conduct a well check to make sure our customer is okay. Since we know the customer's location from the telematics data, we know just where to send them. We know there are other accident response services available. We think what we're offering has several key benefits, though, that distinguish it. First.
Speaker 3: Many services come at an additional monthly expense. R's will come included in the policy. There is no additional charge. This adds value to the customer's relationship with us and can become another reason to choose and to stay with progressive.
Speaker 3: Additionally, while other insurers offer crash detection to their UVI customers, we'll be making it available to all of our personalized auto customers, whether they're in snapshot or not.
Speaker 3: Third, we're deliberate about dispatching EMS.
Speaker 3: We certainly want to get EMS dispatched as quickly as we can when a customer needs it. But we also don't want to waste EMS resources and bother the customer when they don't.
Speaker 3: This can be challenging since the sensor data for a near-minus and an actual accident can look awfully similar.
Speaker 3: So, we try to contact the customer more than once using different methods so they can let us know if there was an accident and if they need help.
Speaker 3: We only send help if the customers requested or if we haven't been able to reach them after several tries and the accident looks severe.
Speaker 3: While most customers in these accents don't actually need an ambulance, many do need a tow truck. We're able to build on our roadside assistance experience to meet this need. Well understand that these tows are even more urgent than a typical roadside request.
Speaker 3: We can also help customers notify their family members. Lastly, after an accident, one of consumers' top concerns is how to get their medical bills paid and how to get their car back on the road. As they're insured, we're the ones positioned to help them get there.
Speaker 3: By detecting these accidents and having this telematics data available, we're able to get their claims started more quickly and able to handle it more efficiently.
Speaker 3: In fact, if an ambulance or tow is dispatched, we'll actually get that claim started on their half. Let me show you an example.
Speaker 3: This is a real claim that was detected via accident response. In the loss pictured here, our customer was driving on an urban boulevard when they hit some ice. Loss control the vehicle for striking barricade to their left before striking the barricade till on the right.
Speaker 3: Fortunately, no other vehicles were involved. As you can see, the airbag's deployed, and there was pretty severe damage to the front of our insured's vehicle. In fact, this vehicle is a total loss.
Speaker 3: Additionally, our customer and two of their passengers were injured in the crash. Within two minutes of the impact, we reached out to our customer. While they didn't respond to our initial push notification, they did respond to a subsequent call from a live agent, which occurred less than five minutes after the accident.
Speaker 3: That agent dispatched an amulet and a tow truck to the scene. Only a few minutes later the claim was filed. Altogether, it took only 10 minutes from the time of the accident doing the how to claim in our system. So.
Speaker 3: We've surveyed some of our acts and response customers when we've gotten some great feedback. For instance, this customer shared that they were, quote, unable to call for help at the time, but helped call me.
Speaker 3: The service helps us help our customers when they need it most.
Speaker 3: It's not just the immediate response to the accident that can help customers though.
Speaker 3: It's not just the immediate response to the accident that can help customers though. Here's another example.
Speaker 3: This customer collided with another vehicle in changing lanes. We detected this accident as well, the spatula towed for them, and had the claim filed within 12 minutes of the accident.
Speaker 3: What I want to highlight in this case though is that this customer had this accident just two days after buying their policy. Some of the first steps in handling any claim include establishing the facts of loss and determining if the loss was covered.
Speaker 3: Unfortunately, there are people who buy insurance after they've had an accident and then try to make a claim for it. This means that honest customers are inconvenienced as we need to take the time to verify that the accident happened when they told us it did. That was pretty easy in this case, however, since we detected the accident in the first place and arranged for the tow truck to pick up the car.
Speaker 3: and we could see from the telematics data that the crash happened where and importantly, when our customer said it did. Therefore, we were very confident that this loss did occur after and not before the customer purchased the policy, which let us move forward more quickly with getting the customer back on the road. So it's not just the accident or response service itself.
Speaker 3: but it's promised to improve the claims experience that can benefit our customers. Dave told us they value accident response and we're excited to make it available to them.
Speaker 3: We'll start that process in March and expect to make it available to all of our personal auto customers over the next year or so. To wrap up, we're not just jumping on the telematic span wagon. We have decades of experience here.
Speaker 3: We're clear-eyed about the challenges, but also see the great opportunities to Elmatic's offerings present. But this is just the personal insight of the story. My colleagues in commercial lines have been developing their own approach about how to use telematic data in their markets. And Cory Fisher, who's led commercial lines R&D for the better part of the last 10 years, is here to tell us about it. Cory.
Thanks Jim. As Trisha shared, I'm Cory Fisher and up until recently I was the business leader for Commercial Lines product research and development which includes responsibility for our commercial telematics efforts.
Today, I'd like to share the progress we've made since introducing our commercial telematics programs, some early observations, and how we're thinking about future investments in this space.
The chart on the lower left was shared in a prior Investor Relations call.
It's why we're excited and have been investing in telematics. Pricing segmentation is an important part of how we compete. The group I've worked with is charged with advancing our commercial auto segmentation leadership position in the market. Telematics is the most predictive rating variable we have, by a lot. To build on that segmentation leadership position, we need to be a...
service blocks.
The launch intentionally coincided with the federal mandate requiring these truckers to move from paper logbooks to electronic logging devices.
We recognized those devices provide continuous monitoring and capture very similar data to our snapshot devices, including location information.
With the customers consent, we use the data from the trucker's electronic logging device to generate the score and apply a rating factor. Ideally, we access the data during the quote process.
Just like the process Jim discussed using data to price new business. If we're not able to get the data, either there are newer ventures without driving history, or we don't have immediate access to their ELD vendor, we provide a participation discount on the quote.
Snapshot Pro view on the right is more similar to what progressive personal auto has offered.
Its target is essentially anyone that doesn't have an electronic logging device. We mark its snapshot-proview as safety and savings.
For customers that enroll, we provide a participation discount at new business and send a snapshot device that they can easily plug in.
Given how small businesses have employee turnover, this program has continuous monitoring. Well then use your driving data to generate a score and a factor that apply to renewal. This factor could be a discount or a search.
In addition, we provide access to a free driver portal. Our customer can see where their vehicles are and how they're being driven. It's a fairly simple way to keep tabs on their fleet and driving behavior. Since we deploy these programs, we've been monitoring a number of key metrics.
The chart on the right shows a version of take rate. That is percentage of new business apps and rolling into a telematics program.
We've seen from prior program launches, it can take a while and require a sustained effort to get meaningful adoption.
that we've identified opportunities for increasing take rate, or genuinely happy with how quickly adoption has occurred and the trajectory it's on. In addition to adoption, we've seen that when quotas enroll into a program, they convert at a higher rate than the cohort that's eligible, but chooses not to enroll.
We also see that a telematic book of business performs better from a profitability standpoint, even after the discount is applied. That's not the longer-term goal. Our intent is to accurately price all segments of target.
Between our significant footprint in the commercial auto market, healthy adoption rate and conversion lift, we've built a substantial commercial auto-telematics book of business.
That book would be a top 15 commercial auto insurance carrier on its own.
In summary, we're really pleased with the growth and performance of our telematics efforts.
But we've learned a lot since introducing these programs. One recognition, getting into telematics is not easy. It's not just as simple as adding a new rating variable.
It takes broader and sustained effort, new capabilities and investments. For example, we're asking our partners in the Independent Agent Channel to take additional steps to enroll customers, which can include a supplemental app.
and working through customer reservations with sharing their driving data.
That requires an incremental level of support and training.
With telemantics, we're now dealing with hardware and data transmission. We're also in the logistics business, sending out devices, tracking inventory levels, and recently dealing with global supply chain issues.
That's a different set of vendors, technical challenges, systems and business processes that we've had to work through. I think the biggest difference is the amount of data that these devices generate. We have to ensure that data is being managed effectively. It's imperative that the data is being transmitted and stored that it's handled securely.
Also, as the largest commercial autoinsure in the United States, we have a lot of data and a developed effective tools, processes, and skills to manage and model those more traditional data sets. Telematics is an entirely different situation.
One truck alone might generate over a million records per year.
Our traditional approaches aren't nearly as effective, transforming big data sets into variables that we can test and model off of. A big advantage to us is that personal auto, through its efforts and investments over the past 20 some years, has established a lot of these capabilities or learnings that we can leverage.
For example, our snapshot-proview program uses the personal auto snapshot device. Given the volume that personal auto has generated, we have a very competitive cost per device, and that device is already set up to transmit the data back to our secure storage solutions. In terms of big data.
Personal Auto helped us move to their cloud solution, essentially a highly scalable, cloud-based data storage and analysis service. This significantly reduces our processing time to analyze data and at a much lower cost than traditional alternatives.
They've also provided support as we upskill our team to use these new tools.
To summarize this slide, getting into telematics requires a lot of effort. A competitive advantage that we have in commercial lines is that our colleagues and gyms group have already laid a lot of that groundwork that we can either use or learn from.
It takes a lot to stand up a leading telematics program and to maintain that leadership takes an ongoing investment.
I'll share some of those ideas with this slide. Near-term, there's a lot that we can do to improve the experience. We have data that shows where customers drop out of the funnel or hit operational hurdles by granting data sharing consent or installing the plug-and-device. We have worked with our vendors and have new business processes that will improve both.
We have several manual processes in place that support these programs. By automating those, we will lower our program expenses and improve the customer or agent experience.
There are a few segments that aren't currently eligible for one of these programs. We're looking to expand eligibility.
One example is for our small fleet customers that have their own telematic service, but not electronic logging devices.
For example, it's for our small fleet customers that have their own telematic service, but not electronic logging devices. This could be a service fleet like plumbing.
Our intent is to enroll them into a program and access the data from their telematics service provider. Through these near-term plans, we'll continue to grow our telematics book and with that additional data, continue to refine and improve our scoring models. We're also excited about new data sources and applications. We're seeing better reception from segments that we target to having dashcans.
We've been doing a pilot with dash cams for over a year. There's data from video that we don't capture today, like following distance, which could be valuable. And as Jim shared, we're interested in how telematics can help with the claims process. Bascams would be an additional input that could be meaningful for claims.
We're also using the data to support our underwriting efforts. For now, that might mean verifying other information on the application, like radius of operations or garaging zip code, which are important for us to assess where the vehicle is operated.
Sometimes we need to follow up to confirm that the information on the application is correct. We can use telematics data to better target which risks we should follow up on. Our telematics score is currently bolted on to our core model. Given not everyone is in a telematics program, we solve our core model first.
and then add a telematic score factor for those in rules. Over time, we plan to move more of the telematic data into the core product, especially where we have those insights at time of quote. Here's an example. This shows one truck's driving pattern for 60 days.
On the application, the insurance address and garage in Zip is Elizabeth New Jersey, and they've listed their operating radius as 25 miles. Our model would use information closest to that address to determine a territory factor. Some customers I garage there might never go into New York City. This truck goes a lot to different places.
but it turns out there's a fairly regular pattern of going into the city.
fairly regular pattern of going into the city. It's hard to tell from this map.
But from the data. Let's say, 75% of the trips go from Elizabeth into new York City before turning around a territory factor that puts more weight on the New York City, experience would be more suitable. Part of our roadmap is to integrate telematics deeper into our model.
I don't see a time we have a telematics only model. We know we get valuable segmentation from non-telematics variables. But there are variables like garaging address and radius that proxy driving location and where the actual telematics data would be a superior solution. Rapping up, we've got a great start to a telematics journey.
We've got a significant benefit from the experience and investments our colleagues in personal auto have made And I'm really excited about how we'll continue to use telematics to drive competitive advantage going forward This concludes the previously recorded portion of today's event. We now have members of our management team available for a lot of available live to answer questions including...
Our first question for today comes from Michael Zeremski with BMO. Michael, go ahead with your question. Hey, great. Good morning and thanks for the presentation. A first question. Progressive personal auto accident frequency levels.
progress as a first mover and or one of the first movers in in telemedics so you know that the roughly should I guess improve.
progressives trend line versus industry if I'm thinking about things correctly, too, but I would love to hear more about that. Yeah, Mike, I think you're thinking about it in the right way. A couple of caveats. When we report frequency, we report incurred in a lot of our competitors report paid. But we've been seeing this trend more negative than the industry for a while.
We can't speculate on a lot of things. Obviously, segmentation is a big piece, we believe. We also believe that mix of business could play a role, and that could be mix in states, or mix overall from a preferred perspective. We talked in the fourth quarter, and in my letter about growth across all of our segments that we started to see increase in Q4.
We have seen growth again across all segments, but higher in the Dianns, right in Robinson. Again, we still see it in Stans, but it's higher. So it could be mixed as well. The good news is that we see this data change quickly. So if we need to change anything we're doing from a pricing perspective, we'll see it pretty quickly.
I think Jim Hodge was slide where he showed the retention of customers who were getting a search charge versus a discount is a great, you know, case in point of segmentation at work. So the folks who are getting a search charge, it's equal to going to be the higher frequency drivers and the folks who are getting a discount.
by profitability. We've raised rates considerably as we've shared. I will note that we have retained our underwriting restrictions fairly tight. So we've been able to manage that in this very competitive environment to a point where we're able to maintain the underwriting restrictions which generally speaking are pushing off the higher frequency customers.
and able to raise rates at the same time. So I think we're in a pretty good place, both from the right level perspective, but also continuing to...
I believe you used the word excited about the partnership. And I believe a lot of investors have felt that the automakers could represent a new kind of leg of competitiveness within the industry. So curious if you're having to, maybe you could shed more light on the partnerships. And if ultimately a progressivism.
is having to pay the automakers for this data why isn't a bit of a competitive threat as well, thanks.
Yeah, sure, Mike. All of Jim has talked a little bit more about that, but we, you know, we think competition across the board, whether it's with the OEs or within turtex is great. We also feel like when we have partnerships like Jim talked about, it's really important and it benefits most importantly the consumers. So Jim, do you want to add any color to that?
Sure. My gear rate we obviously pay for the data eventually goes to the automakers. It's a way for them to monetize that. They're putting all those hardware in the car at that cost money. This is a way for them to get some return on that. Some OEMs are going to want to get an insurance as we've seen. Some might not.
And so this is a different way for them to get value out of this, out of that data from us.
This is a different way for them to get value out of this, out of that data from us. Thank you. And by for our next question.
Our next question comes from David Monty-Madden with Evercore ISI. David, you have the floor.
Hi, thanks. Good morning. Tricia, I believe in August you told us that you thought auto piff growth in the next couple of years would be difficult to match.
The 70% type of piff growth you guys saw in the six years since the start of the last hard market in 2016. Just wondering if we could get an update on your thoughts on that front just given the challenges in the marketplace that some of your peers are seeing, some of the losses they reported.
and just how you're feeling with your rates and what you're seeing on the new apps. Just wondering how you, you know, do you still feel that way just on the type of growth that you think we could see over the next five to six years? Thanks David.
I will tell you, I feel a lot more bullish than I felt about four or five months ago. We went through reacting to severity trends that, frankly, we've never seen before. I can't predict what PIF growth will be because there's a lot of environmental things going on. What I've learned over the last three years is to anticipate that there's going to be things that we haven't prepared for, whether it's
start to earn into the book. We do feel good, but we're always watching what's happening and there's been an kind of an ever-evolving changing. So on the private passenger side, as you know, we took 13 and a half points last year. We still have about three points to that to earn in in this calendar year and just for some color, we took one and a half points in
because we have, there's a lot of shopping out there, a lot of prospects out there because our competitors have been now raising rates, so they're catching up, sometimes they're exceeding us, but we're in just a different position because we got out in front of it. So there's a lot of shopping, a lot of ambient shopping, which is really efficient for us. And what happens?
with what both Jim and Cory talked about, as well as other variables, we believe we have superior segmentation, so we're gonna grab onto as many customers and obviously keep as many customers as we can for as long as we can. However, this time frame in this hard market lasts. And of course, that segmentation and the adverse selection flywheel works in our favor because
as we possibly can, add our 96 combined race shell, and make sure we can take care of our customers. Great, that's very helpful. And maybe just following up there, it sounds like the, you know.
out of a 96 combined ratio and making sure we can take care of our customers. That's very helpful and maybe just following up there. It sounds like the continuous monitoring. That's...
You know, been an interesting development that you know, I'm interested to hear you know What sort of impact that has had on underwriting profitability And end growth in the 12 states where you've rolled it out And how we should think about that as you roll it out on on more states is you know Is that something where we can maybe see a step change?
in terms of profitability or frequency or anything from that perspective, just on just greater segmentation that you might get from that.
I mean, I think from a cost perspective, obviously, continuous is a little bit more expensive but those costs have gone down over the years. But I think what we're excited about and what Jim talked about, the excitement about is the services that we're going to provide, especially in some of the claims examples. So we will continue to evolve like we have.
So often we'll update you on where we're at with our UBI offerings.
Great. Thank you. Thank you, David. And bye for our next question.
Our next question comes from Alex Scott of Goldman Sachs. Alex, you have the floor. Hi, good morning. First question I had was just on all the potential new business, just looking at the application growth and so forth. How is... Uh...
How does the growth penalty from new business coming on look in this kind of environment maybe during prior periods?
Yeah, you know, I've been thinking about that a lot because in times where we have high growth, we often talk about the new business penalty and as I think about it, penalties from my perspective are something that is done to you because maybe you did something wrong. As an example, Sunday I was watching our youngest son play lacrosse.
He got a penalty for slashing. He knew it, he was emotional, he did it, he took a knee. We're a little bit different because the things that we do and the amount that we pay is all controllable. As you witness, when we pull back on media and did some other things to make sure we reached our 96. From my perspective, what we are paying, you saw the increase in January and our expense ratio specifically on the direct side because we front-load our acquisition costs there. It's really an investment in our future. It's an investment for our owners, investment for our customers. So it's something that we're excited to do in terms of how we manage the business. And again, we have the caveats with our ceiling of an aggregate.
all business lines, 96 combined ratios. So it's hard to compare from the past where we'll go, but we know that this has been a really volatile environment and we have the levers to pull back should we need to and throttle forward should we need to. So can't tell you the exact amount. I will tell you that we're pretty excited about the position we are in right now. And again, we're progressive, so we're never gonna be cocky and we're always gonna be really paranoid and we follow the data maniacally and talk about it all the time, but we are really excited about what we believe this hard market however long it lasts.
that it provides.
Is it expanded because of some of the things you're doing or some of these things that you're doing just allowing sort of your pricing advantage to be maintained as others begin to do more on the telematics front but not to the same degree or is it sort of diminishing as more competitors or just more broadly adopting telematics? I guess just high level if you could talk about that.
We were out ahead of it, obviously, nearly three decades ago. A couple of points, though, I think that, and one that Jim made is, you know, I think it's important to make sure that we're pricing rate to risk. So although customers are never happy when they get a surcharge, when they do, and if they go somewhere else again, that's adverse selection. So there's a...
is also an important piece. I think it's probably more important on the commercial lines side from the perspective of if I'm a good driver and I drive a truck, can I save money on my insurance, which is a big cost in the commercial line. So I don't know if Jim Recory, you want to add anything? Personal lines side. Yes, there's certainly more activity in UBI than there was 10 years ago, let's say.
We're just continuing to move our pricing forward, price more aggressively, take more advantage of that regardless of what anybody else is doing. We want to price this accurately as we can and give as many people into that program as we can. Yes, and that thanks Alex. For commercial auto, we are the largest commercial auto insurer, and we're also number one truck. And I think with that, we have a lot more data than anyone else. And so we have, we feel like a leadership position and segmentation.
I think telematics extends that leadership position relative to the marketplace. So there are some companies that are investing in telematics, but I think between our size, the amount of data we have, we believe we're increasing the lead through telematics. Just that. So over the history of the personal auto evolution in telematics, early on, we weren't pricing to the full curve. So we understood that a lot of people should be receiving surcharges, and some people should be receiving bigger desk.
game is never ending. We're always trying to continue to advance to find additional data to use that can keep us with a gap between us and the competition. And as Cory mentioned in the prepared comments with the slides, commercial lines is at an earlier stage, similar to where personal lines was. We still have a significant loss ratio benefit and aggregate for telematics and commercial lines.
which means we have further pricing options that we can play as competitors come to market with their offerings. So I think we're in a great place from a telematic standpoint. We're not at all at the end of the journey. We're going to continue to evolve and continue to advance our competitive advantage when it comes to pricing and telematics.
I'll add one last thing just because I think this is a subtle nuance that really important. And Cory mentioned a couple times when he's thinking about telematics in his role and his prior role in commercial lines. He's talking to Jim and their team. He referred to his colleagues and learnings that they have. This is really common and very specific. When you think about our strategic tellers, one is our people in our culture. Our culture is to go...
Although it's subtle and it's hard to measure, the way our culture is and the way our leaders work and the sharing of ideas and successes and opportunities is really important especially in something like telematics. Very helpful. Thank you. Thanks, Alex. And bye for our next question.
Our next question comes from Andrew Cleagerman with Credit Suisse. Andrew, you have the floor. Thanks a lot. It's a really, really odd.
I'd like to elaborate on it a bit. And just thinking about the fact that I don't know, maybe 80, 90 percent plus of the insurer, personal lines population utilizes Cambridge mobile telematics.
I understand that progressive data and analytics is incredibly robust, the segmentation. You talked about history and data use. But the competitors can see all that. So my question is, is this replicable in a very fast fashion? What do you do?
What makes it so hard not to replicate, given that you're all using a similar platform? Yeah, I'll let Jim talk about that more. Similar platform doesn't mean we're all using the same data or the same models or using the data in the same way. So one of it's expensive to get into this, you know, over this last 30 years we've been...
putting the same exact thing. Jim, do you want anything? Sure. Your right Cambridge mobile is our partner. We've had a great relationship with them. They provide the data collection mechanism that gets embedded in the app. And so we do get that data from from them. And your right most people use them in the industry. I think what's different is.
We own our own algorithm, we use that data the way we want to, and we've learned a lot over the years about how to make the most out of that data. And I think you mentioned like everybody can see that. That's not actually true. In the entire industry, most algorithms for UBI are filed confidentially in the states. So those are not shared with all the competitors. So we can't see, in other companies, algorithms, they can't see ours.
So we think we can, we've developed an advantage there and we can maintain that. We also have an OBD device which we offer, some of our customers pick, which gives us another source of data which we think helps calibrate some of that as well. Very, very helpful. And you know, that's pretty amazing. You're an accident response product with what you've got under 12 minutes to solve for some of this stuff. On site, I'm wondering if you could share with us the fact that, you know, the impact is on LAE and...
to start the claim going and get them back into the position they were before the accident and give them that peace of mind. That's pretty important and that could relate to a lot of great benefits in terms of retention et cetera. But again, way too soon to be able to share much on that and we'll probably have more in a few years.
And just real quickly, you mentioned 40% increased usage in UBI. Could you tell us the percent adoption, a percent of the overall book of business that you have? We're from the new perspective, which is what we share externally. It's higher indirect.
Jim, correct me if I'm wrong, about 15% in the agency channel. A little bit lower, okay, a little bit lower in the agency channel, then more in the direct. We offer it to everyone in the direct channel coming in and obviously we work with over 40,000 independent agents. Some feel more comfortable making that offering. Not all do it, but you've seen an increase since 2019, which makes sense. And it's a perfect...
Six, if you believe that you drive safely and maybe you're driving less often for new business across the board as other inflationary pressures hit consumers.
I just had that. So in the direct channel, this take rate is substantially higher than in the agency channel. It also offers that in the commercial space, the demand through the agency channel is very robust. So we're talking about, especially with smart hall, which is generally larger trucks that have higher average insurance costs, the benefit of enrolling in a program like this is substantial. So agents and consumers, or business owners in this case.
are way more likely to select that as an option and as Corey said is highly predictive in that channel as well. Please stand by for our next question. Our next question comes from Elise Greenfans with Wells Argo. Elise, you have the floor. Hi, thanks. My first question, Trisha, goes to some of your initial comments. You said that future rate would be driven by lost trend. I mean, I realize that it's a very volatile environment these days, but what are your expectations for lost trend when we think about 2023? You know, we will just continue to watch it. That's why I wanted to give you a little bit inside in January , taking one and a half points.
What we know is that we closely monitor a lot of these trends. And I mentioned a bunch of them. It's been such a volatile several years that we look at, you know, our internal data, UBI data, macroeconomic trends. All I can tell you is that we will be able to react quickly. And that's sort of embedded in everything that we've done in the last 85 years. So when we start to see those trends and experience those trends, we'll react quickly. And that's why we feel like we're in a good position because we were able to react quickly to the severity trends that we started to see in late 2021 and why we're sitting in the position.
the enviable positioner and now to be able to profitably grow. And then, I'm a UBI side. I thought most of this was opted into right for new business customers and I know that's where you just gained some of the percentage. If you're a current progressive customer at Renewal or just during the length of your policy, can you opt in and choose to use a snapshot product if you want to try to lower your rate? Yeah, and we actually did, you know, it was in...
When we saw COVID driving down materially and made an offer to our existing customers to save through snapshot and not many took us up on that offer. So it's open and available. Customers can do it. They just haven't taken us up on it significantly.
And then one more quick one. So you guys mentioned the new product is continuously monitoring. So the state that you're active in with that snapshot product, anyone that uses snapshot has to be continuously monitored or can they opt into a different monitoring period. So when they opt into the program, there's only continuous, you don't get to pick at that. Obviously, we can't force them to continue to monitor forever.
So we've got sort of the program designed around that and accommodates when people stop giving us data if they do, but we certainly encourage them to continue to grow that data on the biggest discounts are available that way. And the program's designed that would be you monitoring continuously. Stand by for our next question. Our next question comes from Tracy Ben Guigui with Barclays. Tracy, you have the floor. Thank you. Even though you feel like you've approached read advocacy in most states, I'm wondering since you're growing quite quickly with lower ads Ben, could you get away with getting even more rate? I mean you did mention that some-
from our underwriting perspective. So we still have more leverage from that perspective. But now for me, it is all about using the data and pricing accurately as quickly as possible to match each rate to risk. Got it. Could you also touch upon your initiative to raise retention amongst multi-product customers I was mentioned in your filing yesterday. What are the key tenants to achieve that? Well, we know that our customers and I think most consumers with insurance want stable rates. And so we want to be able to have, if possible, even in this kind of volatile environment, what we call small bites of the apple, to not have to increase rates like we had to.
necessarily fit where we're going to go on the commercial line side. We also use our products as well as others for small business, workers come, GL, etc. So it really is about following the customer and the more we're able to offer them, even with the progressive advantage agency where we work with a lot of different partners ranging from life insurance to travel insurance to jewelry insurance.
the more that the customers have and the more that we've earned their trust the longer they say. So retention continues to be the Holy Grail. We're seeing positive improvement. We'll continue to report on that as the quarters unfold. But we do know, you know, two parts of retention are really about having stable rates and having great service. Great. And is there a segment you're focusing more on, you know, agency? Will that be more focused versus direct? Now we focus across the board. You know, they're a little bit different.
of the Strashe was applying, those households stay with us a lot longer than single-product households and much longer than our historical court customer of SAM, who we call the inconsistently insured customer. So our book does continue to shift more towards the Robinson end of the spectrum.
which is actually the longer retaining end of the spectrum. We have, as Trisha also noted, seen a setback as we've had to raise rates aggressively, that is coming back. Our PLEs are starting to trend positively, at least on the trailing three, and our metric. And the trailing 12 is not yet fully turned, but certainly the trailing three is the leading indicator of the trailing 12. So we are definitely focusing on more multi-product households as we roll out new products in the personal auto space.
Increasingly, we find segmentation that can make us more competitive for those preferred customers. Our book continues to shift that way. And as we get to a more stable rating environment, I think you'll see our PLEs continue to grow as they had been before we had to take a lot of rate. Thank you. And our next question comes from Josh Binker at Bank of America. Josh, please go ahead with your question.
Thank you very much. Please give some insight. You have the policy, quote, conversion and new application numbers for the full year 2022, but it seems like something inflected in the fourth quarter. Can you give some indication on what's happening fourth quarter versus fourth quarter 2021 and quote conversion and new policy apps and maybe into 23 as well?
Yeah, we don't publish new apps on a quarterly basis, but we just want to show it for a year every year in the opening slides we had. Basically, what happened was shopping started, the hard market started, we were in a good position and there's a lot of prospects that began shopping and we had good coverage at great rates and we were able to convert. So that's, it's really sort of when we started to see things turn, we were in a good position for that from a staffing perspective on the sales side and the claims side, but yeah, that's really kind of when we saw the hard market turn. John , you want to add anything?
Sure, Josh, we do provide you a year-to-date numbers through the third quarter and the fourth quarter. So if you're just assuming equal weighting, you can come to a number. But we also in the presentation showed the actual charts of those. So you can't see exactly what the number is, but you can help pretty close by look at those charts. So the short story is conversion was up considerably and the fourth quarter prospects were up considerably in the fourth quarter. And obviously new apps as consequence were up a lot. Thank you very much. And a question for the commercial side. Since it's acquiring.
Mike Miller who's running protective, he came from the commercial line side and is now running that. So, you know, he'll be excited to have his growth plan in play. We've been focusing it in the last year, so really on integrating the company within progressive at large.
Thank you. And by our next question is coming from Meyer Shield with KBW.
Why are you have the score? Great. Two related questions, I think. This is on slide 26, so it's a 15% participation discount. The first is I was hoping you could talk us through what underpin the decision to raise the discount. I would have probably naively guessed that incremental information has less marginally utility. And the second question is, all of these clothes.
If I'm a bad driver, I get a surcharge, then I get a bigger participation discount. And how does that factor into, I guess, retention and profitability? Yeah, I'll let you talk about that. I think that the larger discount is what was jammer staying. We're pricing to the curve, to the full curve. And so we know those customers have great driving behaviors, and we're going to add them. And of course, the adverse selection is on the drivers that are not so good in the surcharges. Do you want anything, Jim? Sure. Sure, we raise participation discount part. We're going to continue as we're asking customers to do more in that case.
and we wanted to encourage them and the participation discount creates a larger incentive for that. As for how it would relate, if you ultimately got a surge charge on the renewal term, the participation discount is only for the first term, so it's removed when you get to the renewal. And so, you know, a bad driver is now getting a larger surge charge and they're getting a larger discount removed off the first term, which would get us priced more accurately on them in the subsequent terms, which is the goal. So, the participation discount is there to encourage people to participate and then we just price exactly as we can on the subsequent terms. Okay, fantastic. Let's help both. Thanks for clarifying that. Thank you, question. I'm thinking of California, but there may be other regions where reading flexibility is limited. It seems like the economic benefits are UBI monitoring our enormous. Is there a chance of getting us incorporated into the rating out of the budget? Other rhythms for more risk at stake.
We'd love to be in California. That's kind of a history from a lot of the proposition 103 things that came up many, many decades ago. We want to grow in California. We talked about that a lot. It's the most populous state. But in the meantime, we will continue to work with the department to get the rights that we need to make sure that we reach our target profit margins. Okay. Thank you. Next question. Our next question comes from Paul Newsom with Piper Sandler Paul.
effectively reactive environmental changes through the telematics product without actually changing the filing. Good question. Paul, I'll let Jim take that. Paul, your rate of the customer is continuously monitoring and they're driving changes dramatically.
like because of a pandemic or something like that. The telematics rating on the renewal would pick that up over time. In terms of the effect of that, you have to just remember, we just started to roll out continuous last year. For the first six months, it looks just like it did before. It's not until the renewal that it changes. A lot of the states we elevated towards the back half of the year. So they're just coming up on their first renewal. So.
And then you need to build up a bigger, that will grow over time to be a bigger share of the enforced book. But right now it's still early days of that. So it'll be a little while before that's like a really effective mechanism for that. Plus we would need to get ready on. All the people who aren't in UEI, we would do that through traditional means. Right. Can you talk about how quickly you can change the algorithm? Okay.
Yes, well, is that something that means that something can go into a filing or the effectively just change the algorithm for both the continuous and the non-continuous, if you see an environmental change? It's the type. Typically that's the refiling. We file the algorithm with the states confidentially and you've got to have that be done. Thank you, that was my questions. But these are wonderful calls. Thank you very much. Thanks, Bob.
And stand by for our next question. Our next question comes from Gregory Peter with Raymond James. Everyone, most of my telematics questions have been answered. Patricia, in one of your comments you talked about, media spend.
I know you guys go through an annual budget. Can you talk to us about your perspective on your advertising media budget for 23 versus 22? Yeah, so I mean we absolutely do a budget but then ongoing. We assess it based on the efficiency of the spend. We look at our target acquisition costs, our cost for sale and then and kind of where we're getting the business from. So I talked a little bit about ambient shopping which of course is really efficient.
before upfront. So those are kind of the spam, but we have a lot of flexibility, especially in the digital side, to both back should be need to, like you saw in the last year. So we have a budget. It's fluid and over the years it can go up or down depending on what we believe is in the best interest of profitably growing other companies.
If you would have asked me this last year, I thought it would be higher than year before, but it didn't end up being that because we had to make some flexibility. So, you know, we budget for what we think can happen with a lot of flexibility. A couple of ads there. So, I would characterize it as dynamic and opportunistic. So, to the extent we feel we're adequately priced, we're gonna spend a lot more on advertising. Again, with this, Trisha said, and I towards our...
targeted acquisition costs that we priced into the product and our lifetime economics on those policies. But if you look at our expense ratio, especially our direct expense ratio for January , as an example, you can see it was up. So clearly through the latter part of last year, as we were working hard to ensure we hit our 96 combined ratio for the year, you saw that expense ratio drop, which was driven to a large degree by lower advertising costs. In January , you saw that.
him weigh in.
Hi, yeah, thanks for the question on re insurance. I mean, I think we, particularly how we adapt to the placement at 1-1, we'll carry that forward to how we look to our June placement, which is really the core part of our program. We tend to be fairly conservative on how we want to retain property cat losses.
I think we'll continue that. We'll have to be flexible in what the market is willing to offer as far as how we can tailor that to what we decide to purchase. Does that mean you're going to have high or deductible or lower deductible? It's a little early to take exactly where we're going to land on that. Certainly, the bottom end of re-insurance programs have seen a lot of pressure not just this year, but over the last couple of years. We will be looking at other creative options if need be to manage our returns.
just curious if you have any data on the capabilities of the existing vehicles on the road in the US. It just seems like that might be limited to more newer vehicles with cellular data connections, which I get the sense might be, at least currently, might be a fairly small chunk of the vehicle population in the US, just given turnover. So, just wondering if you can elaborate on that at all.
I'm curious if you have any data on the capabilities of the existing vehicles on the road in the US. It just, it seems like that might be limited to more newer vehicles with cellular data connections, which I get the sense might be at least currently, might be a fairly small chunk of the vehicle population in the US, just given turnover. So, just wondering if you can elaborate on that at all. Yeah, you're correct, is.
The prior words I'm going to talk about depends upon vehicles with a cellular connection. We're referring to OEMs over the last several years have been investing in that. They're in really different places depending on the OEM. Some have had in there for a number of years. Some are still working on it. So it does take a while for the fleet to turn over. So it's very focused on a few OEMs and the most recent model years. But as we mentioned in there we've got relationships with GM and Toyota, which are two of the larger ones. They've got more of an installed base. And we expect almost every OEMs moving in this direction. So we expect that this population will grow over time. Okay, great. And then maybe could you discuss kind of the take up between OEM data versus using the mobile.
and so I'm just curious what might it be great for new customers then it is part of it just the competitors raising rates currently are the shopping's up. Yeah, I would just say, you know, it's one of the things that new business when you're asking for a bunch of data to kind of assess the rate to risk. When we, when I talked about the current customers, we were doing that in 2020 because
So it's just easier to do it in new business when we're acquiring all the information we need to incorporate accurate rates.
It's just easier to do it in new business when we're acquiring all the information we need to provide accurate rate. Thank you. Thanks.
Our next question comes from Ryan Tunis with Autonomous. Ryan, go ahead with your question. Thanks. Good morning. I had a couple on just the UBI stuff. So the first one, just thinking about the collision detection, I'm sure you said maybe that could potentially have some kind of impact on frequency because I would think that there'd be a lot of customers with kind of smaller dollar claims that wouldn't want to tell their insurance company they got in the crash and just to keep their rates where they are. So is there any possibilities that? Nope.
You know when did they gotten the crash the potentially lead to you actually getting more claims in the door? Good question In this particular case the way the the crash section algorithm works It's looking really for more severe accidents. It's not trying to pick up fender benders So these are claims that we fully expect would have gotten reported either way. These aren't small dollar claims rather that somebody might just choose
down to you, like 40%. What, if you look at the traditional insurance rating variables you use that are not in telemetric space, like I know zip code, like go whatever, can you draw any conclusions about like when you're giving really good things that sounds like customers?
which are the variables and do them kind of the shaky, it's predictive indicators, it's the first part. Then the other I was just curious about is, when you find yourself giving a search arch for the continuous.
You know, like six months later, you gave a discount, I was giving a search arch. What are the main reasons that you're finding that you're having to give a search arch after giving a discount? So on the first part of your question in terms of how, you know, what are the traditional variables and what it informs, the whole point of UBI that it's incremental to all of that. So if we could have seen that these variables without UBI.
you know, we're in an act or we would have fixed it. UBI gives us new information about that customer that the traditional variables didn't. So let's use segment further, not just even the zip code or they have this credit score, but this person within that is different than the other person that otherwise looks the same. So that's the point, it's improving the segmentation. In terms of a search charge, the discount we give is a participation discount, which is just for signing up. So if they move from the discount search charge, it's simply because we've then gotten that driving data and continuous model. Theoretically, people could move from one to the other. But...
In terms of why, when we get a search charge, our model, you know, is we kind of share on the website, and it uses things like hard breaking, how much you drive when you drive, variables like that. So folks who tend to get a search charge, you know, drive more and drive, have more hard breaks, this is a sign of how aggressively they're driving. Those are typically some of the variables that figure into that. I mean, just, I guess, following up, I hear you, it's incremental. But what about just in terms of conclusions, is it usually, can you say a little about, you know, those who...
We try to use UBI to sort out this preferred customer deserves an even bigger discount. This other preferred customer deserves maybe a surcharge. So it's really segmenting beyond what we already had. Thank you.
We've exhausted our schedule of time until that concludes our event. Stacey, I will hand the call back over to you for closing scripts. That concludes the Progressive Corporations Fourth Quarter Investor event. Information about a replay of the event will be available on the investor relations section of Progressive's website for the next years. You may now disconnect.
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