Q4 2024 Progressive Corp Earnings Call
Good morning and thank you for joining us today for Progressive's fourth quarter investor event. I'm Doug Constantine, Director of Investor Relations, and I will be moderator 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 and a letter to shareholders, which have been posted to the company's website.
John assumed the role of claims President in December 2021 after spending nearly seven years, that's progressive customer relationship management precedent.
In this role he responsible for all aspects of claims strategy and resolution across all product lines.
John joined Progressive as the claims represented a 1992.
During his initial tenure and claims he held various strategy process and operations roles across the country, including original claims manager.
Speaker Change: She'll implementation leader claims business leader and physical damage process business leader.
Mountain <unk>: After John we have mountain <unk> joining us today.
Mountain <unk>: Matt has been our claims business leader for data and analytics since may of 2022 after spending six years in personal lives managing our technology and innovation team.
Mountain <unk>: Indirect acquisition.
Mountain <unk>: In this role he's responsible for our claims data science business intelligence and data strategy teams to build solutions for all aspects of claims handling.
Matt: Matt joined Progressive in 2014, it's the I T manager after serving in the coast Guard cause.
Matt: Cause military career took them from various leadership positions on the ships patrolling in the Caribbean and Eastern Pacific to Washington D. C, where he worked on Capitol Hill and budget and program management.
Was the director of operations in key West, Florida, and ultimately to Cleveland, where he oversaw several business lines across the great Lakes region.
Matt: Again, thank you for joining us this morning, and I will now pass it on to John John.
John John: Thank you Trisha good morning, and thank you for joining us today over the next 40 minutes, you're going to hear a quick recap of 2024, which was a tremendous year for progress.
John John: We'll dive into two of our strategic pillars first people and culture, which is where our long history of success starts and then competitive pricing where I'll focus on the critical role that claims plays and creating a competitive advantage that helps fuel business growth.
John John: And finally, well sure just one of the many examples where the effective use of data and technology at progressive enhances our claims teams accuracy and efficiency.
John John: So before I get to the topics at hand, I wanted to acknowledge the devastating wildfires that ravaged the Los Angeles area in January.
John John: Our thoughts and prayers remain with those affected by this event.
John John: In that vein, we know our customers want and expect action to support their recovery.
John John: Our catastrophe services team responded quickly with empathy and respect to meet their needs.
John John: The majority of the claims we received are now resolved.
Continues to assist our customers however, they count.
John John: I also wanted to acknowledge our human resources and local leadership teams, who responded quickly to support our employees who were impacted by these fires.
John John: Senior leader in this organization, the urgency empathy and care that our collective team has shown here is an excellent example of our core values in action and fills me with incredible pride quicker.
John John: Quickly recapping 2024 in short this was arguably the greatest year in the 87 year history of progressive.
John John: Net premiums written grew approximately 21% year over year, finishing the year at 74.4 billion.
John John: Absolute dollars premium grew by nearly 13 billion in this single calendar year. So.
John John: Let me try and put that in perspective.
John John: But nearly $13 billion net written premium increase in 'twenty four is equivalent to adding the premium of the eighth largest auto insurer in the calendar year of 2023.
John John: For those who've been following us for a while the premium growth in 'twenty. Four is about 1 billion more than we wrote for the entire calendar year of 2003.
John John: Average written premium increases provided a little bit of a tailwind here, but the majority of this premium growth comes from customer growth, which is our preferred measure in 2024 was a record year here as well we.
John John: We increased active policies by more than 5 million this year.
John John: Which is more than twice the previous highest annual rate of policy growth in our history.
John John: As one important objective for us in profitability.
John John: You're well aware of our stated calendar year goal of a 96 combined ratio or below and in 2024, we produced a CR of 88.8, well below the 96 and also about six points lower than 2023.
John John: We often say that growing or generating a profit individually is fairly straightforward.
John John: To do both simultaneously and at the performance levels that we did in 2020 for significantly more challenging.
John John: True progressive fashion more than 65000 of US worked diligently together to deliver what may very well be the best combination of growth and profitability in the industry.
John John: While we celebrate these successes are excellent core value challenges us to continually improve for our teammates our customers partners and investors.
John John: I believe strategic investments in our people data processes and technology position us to perhaps have an even better 2025.
John John: The four cornerstones as a construct that we've shared in the past how we think about competitive advantage and defines how we win and winning the right way.
John John: We start with our core values of who we are.
John John: We're unifying statements that provide the very foundation of our company culture since the late 19 eighties mix.
John John: Next is our purpose for why we're here we evolved the statement in 2022 to build on the legacy of our core values.
John John: Our history of challenging the status quo to accelerate progress.
John John: Then we have our vision of where we're at at this company wide objective highlights the constituents that we feel so fortunate to serve and our never ending pursuit of becoming the number one destination.
John John: Finally, as our strategy or how we'll get there.
John John: These are the four important pillars of this strategy in two of them will be the focus of today's discussion.
John John: People and culture, which are collectively our most powerful source of competitive advantage and competitive pricing.
John John: This was driven by industry, leading segmentation claims accuracy and operational efficiency.
John John: Progressive people and culture are collectively our most powerful source of competitive advantage, a very well known and respected brand. He routinely recognized top work environment and sustained business success makes us an attractive option for folks in market looking for jobs.
John John: While our growth rate and staff over the past 10 years of legs Pip growth in premium growth it has been substantial.
John John: Our outstanding talent acquisition group generates robust candidate pools for our roles from which we then choose top talent with personal values that align with our core values.
John John: Due to the very significant number of people interested in working at progressive we're able to be highly selective in fact, we hire less than 3% of people who apply for jobs at progressive.
John John: The scale advantage allows us to bring additive skills and experiences to our team ensuring that we're always growing and always evolving.
John John: Our culture is built on the foundation of our core values and it has evolved beautifully with our people growth over several years.
John John: Transparent inclusive and forward thinking environment.
John John: Our people feel empowered welcomed valued and respected.
John John: The development focus allows our people to build careers.
John John: Some talented business leaders, who can drive enduring success for decades to come.
Speaker Change: The Gallup is a multinational analytics and advisory company well known for its public opinion polls and surveys conducted worldwide.
Speaker Change: Article published on January 14th of 2025, Gallup reported that U S employee engagement say to a 10 year low that is not the case at progressive.
Speaker Change: A progressive 'twenty 'twenty four marked a significant year of achievement.
Speaker Change: Engagement has surpassed previous records.
Speaker Change: Aggressive ranks in the 98 percentile of engagement and the 99 percentile and overall satisfaction.
Speaker Change: These results have us in the top 10 and top five respectively for U S companies in Gallops client database.
Speaker Change: As we look a little deeper into our 2024 survey results, we see year over year increases in every single question and then every 10 year bucket.
Speaker Change: As we explore the tens of thousands of comments from our team responses to the question. The one thing I like most generates themes of a positive work environment care for customers and colleagues strong leadership and support career growth and development flexibility and values.
You can see just a few of the comments here on this slide.
Speaker Change: Once again, consistent with our excellent core value and our desire to consistently improve we also ask you about things that should change the data that we collect from that question really all others are rich and guide our efforts to further nurture our special culture.
Speaker Change: We believe firmly that the investments we've made in our people and culture have fueled our growth and success for several years now we will continue to care for both to position us to be even better in the future.
Speaker Change: In prior presentations, we've discussed our ability to rapidly deploy risk selection and new product models, our segmentation excellence as well as efficient media and agency compensation each of which has had a positive impact on our rate competitiveness clay.
Speaker Change: Claims plays a very important role here as well the combination of loss cost and loss adjustment expenses typically represents between 70 and 75% of our total company expenditures.
Speaker Change: So we focus heavily on producing accurate claim outcomes, while optimizing efficiency customer experiences and employee engagement.
Speaker Change: We refer to these as our four guiding principles and they have helped inform our daily efforts investments and priorities in claims for more than two decades.
Speaker Change: On the left and right you see the two key constituencies that we are privileged to serve.
Speaker Change: In the middle are the two items that have the most a linear connection to our combined ratio and ultimately the rates that we then have in market. If we don't deliver here, we simply can't compete at the level, we'd become accustomed to and continue to aspire to.
Speaker Change: This chart is our theoretical cost curve and gives insight into how we approach our work.
Speaker Change: Axis represents a loss adjustment expenses or LAE, essentially what we spend to operate the claims organization. The Y axis represents a lost cost claims payments and reserves plus Lei <unk>.
Speaker Change: Like my commentary earlier about growth and profitability being accurate or being efficient individually are straightforward.
Speaker Change: Doing both at the same time is a far greater challenge and we believe we do it better than anyone in the industry.
Speaker Change: Now there are downsides to focusing too much on either side of this curve. If the sole objective was to be the lowest cost we couldnt make the investments in people data and technology that enable us to pay the right amount quality would suffer a cycle time would increase rentals would extend and ultimately loss costs would rise.
Speaker Change: Likewise <unk> accuracy was the sole objective you would need to overspend to eliminate the potential for errors likely spend on non value added activities and end up with a cost structure that would be uncompetitive.
Speaker Change: We leverage operational excellence to drive us down this curve.
Speaker Change: This is where having the best people in the industry, who are willing to get into the details investigate tirelessly and effectively and make the right decisions around coverage liability and damages really pays dividends and moves us down the left side of this curve.
Speaker Change: Empowering them with the right data processes and tools increases their efficiency and throughput moving us down the right side of this curve.
Speaker Change: So this view of driving down total cost is more about the journey and the incremental gains that come with it than any theoretical destination because no matter how good we get we will always seek to be better.
Speaker Change: Within the claims organization, we constantly measure accuracy and efficiency. So we always know how we're doing.
Speaker Change: <unk> assessments of the work provide valuable insights into how and where we can be even better.
Speaker Change: And while we're always trying to find the optimal spot on this curve. We also strategically target efforts to shift the curve to a better position for us and for our customers.
Speaker Change: You'll hear from Matt White shortly about how we invest in new technology data and processes to ship this curve.
Speaker Change: And this is what driving down and shifting the curve looks like in practical application.
Speaker Change: Perhaps the best measure of success for claims which is total cost.
Speaker Change: While claims supports all manufactured products across auto special lines commercial lines and home.
Speaker Change: Private passenger auto data here because it offers the cleanest comparison relative to industry.
Speaker Change: This graph is a visual representation of the competitive advantage our claims organization in conjunction with all other business areas brings to progressive and shows why we're able to grow faster and with better margins than the industry as a whole.
Speaker Change: Total cost is a combination of loss costs, which tied directly to accuracy in L. A which is our primary efficiency metric.
Speaker Change: This slide compares progressive reflected by the Blue line to the industry ex progressive which is an arch and shows that we've maintained an advantage for more than a decade.
Speaker Change: More recently, though you can see the gap widening.
Speaker Change: And while we don't have complete 2024 statutory data for the industry, yet we have loss ratio data through the first three quarters of 24, and we maintain a seven point advantage in loss ratio alone.
Speaker Change: As we compare our own results for 2024 to 2023 for total indemnity, we see near nine point improvement and finished the most recent year sub 70%.
Speaker Change: Back to our full set of guiding principles I'm proud to say that in 2024, our claims organization had the highest engagement in our history.
Speaker Change: The lowest LAE ratio in our history improved accuracy and generated the best customer satisfaction and retention that we have in several years.
Speaker Change: These results don't just happen and they don't happen overnight. This culture of execution excellence has been developed over years and isn't easily replicable, but we believe it can be improved upon.
Speaker Change: And now Matt White, our claims business leader of data and analytics is going to share with you, how we use data and technology to enable and enhance our human capital.
Speaker Change: While the efficiency and cost wins, you'll hear about our very significant it's our intentionality around also increasing accuracy that makes these efforts really valuable Matt.
Matt White: Thanks, very much John empowering our employees is indeed at the heart of our approach in claims.
Matt White: Besides by John and as Tricia States, often along with our culture. Our people are our greatest competitive advantage, we focus on enhancing not replacing their roles through technology. Similarly, we want to enable our customers with a user friendly digital options. So they can interact with us when where and how they choose.
Matt White: Sure some of those concepts and how our progressive DNA around digital experiences segmentation and data translate to claims and we'll dive deeper into a specific use case around photo estimating highlighting the progress made in our commitment to achieve the optimal balance of accuracy and efficiency.
Matt White: John showed how we stack up from a total loss and LAE perspective, Here's an alternative view of efficiency and indexed comparison of auto policy growth in the number of staff aligned to auto claims handling we continue to grow and higher but our scale and strategic investments have allowed us to grow staff.
Matt White: Slower rates and policies shown in the gray shaded area, indicating the growing gap.
We acknowledge that frequency declines in this period are a tailwind we're very pleased with the efficiency improvements we've been able to achieve.
Matt White: Market conditions may have us make specific calendar year staffing decisions to ensure we are positioned for the future but over the long term. We believe we can continue to become more efficient and selective with the human capital required to service our customers, while maintaining our competitive advantage. We believe our culture provides.
Matt White: In prior calls you've heard us talk about our large and growing media spend and how critical it is for us to manage it efficiently.
Matt White: Efficiency is also top of mind with our claims technology spend the vertical axis shows the indexed gap between auto policies and claims staff. The same gray area I highlighted on the previous slide in general we want to be higher on the vertical axis, indicating more efficiency in our staffing.
Matt White: Or is that all access is our claims IP spend a sub component of valley in this case, both indexed to 2007.
Matt White: You'll note that while we made some progress in growing that policy. The staff got from 2008 to 2016, when our technology spend was flat to down slightly.
Matt White: Grew notably faster with some strategic investment decisions after that point.
Matt White: The policy the staff gap grew by 50% from the index values of one to nearly one five and the nine year period from 2007 and 2016.
Matt White: But we've been able to grow it by 130% from one five to $3 four in the seven years since 2017.
Matt White: Our investments in technology to improve the claims process have shown through in clear efficiency gains and not unlike our media spend and we're willing to invest here as long as we can do so efficiently.
Matt White: You've heard us talk before about our digital capabilities and the acquisition and policy servicing.
Matt White: Obviously value we believe advanced product segmentation provides for our company results that progressive DNA and experience applies just as well to claims in fact, when it comes to the first notice of loss or the moment of truth, when a customer contacts us to report a claim we think about it similarly to our acquisition funnels.
Matt White: That said it is a bit more nuanced as its a funnel that then feeds our claims handling funnel from the point of assignment to resolution.
Matt White: That path can be nonlinear depending on the circumstances of the claim or what factors might emerge after initial assignment.
Matt White: Nonetheless, there are similar tradeoffs at first notice of loss is in our acquisition funnels.
Matt White: Asking a lot of questions might aid initial triage and segmentation, but it might also frustrate customers drive digital abandonment and increased call times in expense. So it's very important we gather as much accurate information as we can as efficiently as we can but limited to only what we truly need.
Matt White: John alluded to previously straightforward to do one it's much more complicated to do both at the same time.
Matt White: To be clear segmentation in this context is about the facts of the claim and not customer segments. We are not talking about Robinson our fans here.
Matt White: But not every claim or accident is the same knowing the number of vehicles and parties involved where their vehicles are likely total losses and whether there are injuries and how severe are just a few of the many important facts that allow us to segment income in claims and make assignment decisions to get the claim in the right hands faster.
Matt White: Getting it wrong can negatively impact cycle time, which can increase expenses, such as rental and storage fees. If we must spend time re triage and claims and our vehicles.
Matt White: It also can result in a sub optimal customer experience and even hurt retention.
Matt White: We believe there remains additional upside on the digital side of our first notice of loss funnel and have been investing accordingly industry data from <unk> suggests that digital adoption in the auto claims submission process averages about 25%.
Matt White: We are meaningfully above that industry data point, we think there remains additional opportunity given the long term trends, we've seen in acquisition and policy servicing.
Matt White: Many customers prefer interacting digitally and we will continue investing to ensure we have those options available.
Matt White: That said an accident is certainly a very different kind of life event than purchasing or modifying our policy and we will always be available for human to human contact with customers that prefer or need that channel.
Matt White: One of the reasons, we continue to invest in digital experiences for our customers and our employees as it further accelerates a virtuous data cycle, we've referenced in a variety of contexts over the years.
Matt White: As we work to resolve claims with our customers and employees generate a variety of interactions with each other and other involved parties historically across the industry. He was had been predominantly analog in their nature with lots of phone calls manual claim notes and relatively unstructured data.
Matt White: Progressive we've invested significantly in modern digital experiences those enable us to turn many of those unstructured processes and associated data into more structured information. Additionally, the very nature of digital interactions creates even more data that's not exclusive to a finite set of event.
Matt White: Our outcomes. They also provide experiential insights to how our customers and employees are using those systems.
Matt White: This data helps us identify areas for additional claims process and technology investment connecting back to John's description of how claims contributes to competitive pricing.
Matt White: Our operational efficiency improvements help lower L, a which enables lower rates powering additional business growth and scale generating even more data and enabling additional targeted investments. One example of these cycles and action has been photo estimating.
Matt White: Photo estimating as a digital experience who's adoption has grown significantly and it can be a convenient one for customers and claimants when they're uncertain as to the repair costs relative to any deductible or theyre not sure when or where they will get the vehicle repair from the comfort of their own home or workplace. They can submit photos, we guided digital.
Matt White: <unk> and get a repair estimate back quickly often within a day if not faster.
Matt White: If you recall the conceptual occur as John discussed photo estimating is a good example of a shift in the curve.
Matt White: We'll walk through even when we do achieve such a shift we continue to optimize so we can operate at the bottom of occur.
Matt White: The chart on the left shows annual photo estimate since 2016 over which time, we've enjoyed an 82% growth rate. While we are not showing actual numbers on the primary vertical axis no that in total this represents millions of photo based estimates written over the last eight years and Wizard of course tens of millions of customers.
Matt White: <unk> photos.
Speaker Change: On the secondary vertical axis as an indexed view of our estimate quality index plotted on the Orange line. These objective assessments of the work that John mentioned earlier are a core benchmark for quality and accuracy and an invaluable source of ground truth.
Speaker Change: Pfizer growing volume Theres been no material degradation in accuracy.
Speaker Change: So while we're pleased with the growth of photo estimating as a viable and efficient vehicle inspection channel. We are consistently measuring accuracy alongside the growth in volume to ensure the experience we're offering an outcomes, we're generating arent compromising the claims guiding principles John described earlier.
Speaker Change: The chart on the right indexes Bally estimates completed compared to traditional in person estimate completion in total we've seen we can complete two and a half times the number of estimates each day, making it our most efficient vehicle inspection channel.
Speaker Change: Once we achieved viable scale refined our processes organizational and data structures, we began to apply additional technology. So that we could potentially drive further down the cost curve.
Speaker Change: In this case, we're using machine vision models alongside a variety of other technologies to help us automate parts of the photo estimating process.
Speaker Change: These photos illustrates a process without disclosing actual customer images.
Speaker Change: At a high level, we're using deep learning models or neural networks alongside more traditional machine learning techniques to look at customer submitted photos like the example on the left identify the correct parts through segmentation masks and then identify the location and type of damage by apart.
Speaker Change: Generating an accurate estimate require several discrete predictions.
Speaker Change: Example, we moved to know not just the location of the damaged by a specific part but also the type of damage is it a dent scratch et cetera from there we need to decide whether we should repair or replace of the park and then the pace of repair how many labor hours do we believe it will take.
Speaker Change: These models, whose transformer architectures you may have heard about.
Speaker Change: Literally the second T and chat GPP, but they're trained very differently than some of the models, making headlines more recently these are.
Speaker Change: Our supervisor models that we've trained on our photos and our own curated data to ensure accuracy consistent with progressive estimating standards.
Speaker Change: Such models all benefit from very large claim and diverse data sets.
Speaker Change: It's nice to have all three in house without feeling a need to look externally.
Speaker Change: We began that ground truth data from objective assessments and our own people disciplined quality assurance processes and willingness to do the hard work to get it right give us the benefit of a very clean trustworthy and we believe differentiating historical dataset.
It's my experience that it's really the combination of technology and progressive talented people that makes the difference.
Speaker Change: On this solution our data science team works daily with our physical damage process. The combined it brings over 400 years of experience.
Speaker Change: Most of them have worked at every level of our claims organization. They have written estimates themselves worked in it alongside shops and deep understanding of all facets of vehicle repair.
Speaker Change: Difficult to replicate expertise alongside more advanced technology that really helps us deliver a competitive advantage.
Speaker Change: One quick example of why the details and subject matter expertise matters, let's consider a bumper.
Speaker Change: Not enough to be able to identify a bumper and the existence of damage on it you need to be able to distinguish between such things as upper and lower bumper covers depending on the year make and model and in this case the presence of bumper sensors.
Speaker Change: Left is a rendering of an example, with some of the things our solution does behind the scenes and relative real time in this case cropping. The bumper from the original image and then making a prediction as to whether it sees the small circular outlines that indicate the presence of sensors and the bumper of a particular car.
Speaker Change: This can be very hard for even a human eye to detect from a photo.
Speaker Change: But we must get such things right to ensure we get the accurate pardon my estimate in the first place and account for the incremental labor required as shown in the estimate example on the right.
Speaker Change: Of course, while machine vision is a very interesting technology, we are not in the business of winning data science competitions. We are in the business of insurance. So it's important we prove the value.
Speaker Change: Orange line here represents the index value of traditional in person estimates completed per day, the same value as before you can see the light Blue line as we introduced and then scaled photo estimate in getting to that original two and a half X increase in productivity that I mentioned previously.
Speaker Change: We began this journey in 2019, well before the current hype cycle as an R&D effort with a small group of our photo estimating representatives, we continue to iterate and refine our models and approach until such time that we were convinced one of the efficiency gains and to that we were able to generate equal or better Act.
Speaker Change: Merci results.
Speaker Change: Now the darker Blue line shows our estimates per day when enhanced by machine vision in 2022, we began expanding these capabilities throughout our photo estimating organization and fully rolled them out in 2023, having achieved an incremental two X increase in productivity.
Speaker Change: Put that in some context without these advances we would've needed around 200 additional staff in 2024.
Speaker Change: While it has been a multiyear journey the combination of data science and other automation techniques have now doubled the productivity of what as I mentioned was already our most efficient means of vehicle inspection and estimating.
Speaker Change: 100% of our photo estimates are now initially drafted by these solutions and then validated <unk> corrected by our estimating professionals.
Speaker Change: To be clear this is not full automation or straight through processing that you may see referenced across the industry. We have people involved.
Speaker Change: We do think full automation is possible at some point, but we won't do that until we're sure. We can do it consistent with our guiding principles and of course the applicable regulations.
Speaker Change: For now we're quite happy to continue empowering our people to be even more and more productive and we continue to see gains with nothing suggesting to us we've even had a feeling.
Speaker Change: I'll cover just two examples on how we're continuing to further refine our solution that we think will generate incremental games and accuracy and efficiency beyond even what we've already achieved.
Speaker Change: Around our peoples' efficiency, we also work to make our model training more efficient at our scale, we must keep up with a very diverse set of vehicles and in OEM market that theres always moving.
Speaker Change: One of the ways, we do that is with a semi supervised training approach called pseudo labeling. This is the practice of training a model on a small set of label data to label the rest of the data.
Speaker Change: Traditional machine vision use cases rely on a very large set of manually labeled photos as I mentioned.
Speaker Change: But as we've scaled our solution, we sought to improve the speed at which we can deliver value across a broader and ever evolving list of car parts for.
Speaker Change: For context, and while it certainly varies by manufacturer there are on average around 125 distinct external parts on most common vehicle types.
Speaker Change: Our process starts with our original segmentation model capable of identifying major parts, such as doors and quarter panels.
Speaker Change: From this base model trained on subject matter experts labels pseudo labels are generated on a much larger data set to create an initial base model, that's even better at those major parts.
Speaker Change: This improved base model has been fine tuned with even more detailed part labels from a diverse set of vehicles. This allows us to get more details about very specific parts of the vehicle like portions of the grille and emblems that can all vary in shape location or even existence, depending on the specific vehicle type.
Speaker Change: This new part segment patient model is a general template model that works reasonably well on all vehicles.
Speaker Change: But to ensure the most accurate outcome, we customize the model further for specific vehicle makes and models with only around 100 detailed label. Examples. We can apply these vehicle specific pseudo labels to hundreds of thousands more examples of that vehicle using a bootstrap technique to randomly Sam.
Speaker Change: Additional internal data.
Speaker Change: For computational efficiency within fine tune the model was that technique called low rank adaptation or Laura.
Speaker Change: Laura allows us to efficiently adapt large models to specific tasks enhancing precision without needing as much training data or training time.
Speaker Change: The point of all of this is shown in the images on the right well you might look at the top right image and suggest the damage is probably on the bumper or maybe the right front vendor the accurate view as the damage extends across three parts. The bumper front vendor and we are molding the details of which we achieved by much more fine grained part segment page.
Speaker Change: Current capability.
Speaker Change: Our approach ensures both broad applicability and precise customization across vehicle types, reducing the need for extensive labeled datasets.
Speaker Change: Has enabled us to achieve a 10 X speed improvement and training, while providing more accurate identification of all relevant external parts.
Speaker Change: It's important to recognize that such techniques are not possible without very trustworthy and accurate labels.
Speaker Change: And a large data set upon which to extend them our subject matter experts and tens of millions of available photos give us folks.
Speaker Change: This is obviously a very fast moving space, we continue to keep our eyes on this.
Speaker Change: This information illustrates a newer approach called <unk> Gaussian splattering. It allows us to transform two dimensional images into dynamic three dimensional models.
Speaker Change: Doing this well requires a lot of photos, but back to those tradeoffs of accuracy efficiency and customer experience, we can't reasonably ask customers to take hundreds of photos, but we do ask them to take a video in addition to around eight to 12 photos on average a one minute video at 30 frames per second of the car yields us around 18.
Speaker Change: <unk> frames and it's that data we are increasingly leveraging as part of our solution.
Speaker Change: Some research scientists have suggested that what large language models or detect garcia and splattering as to graphics and reconstruction.
Speaker Change: Ladder is what's interesting to us being able to reconstruct the vehicle as if we were in person to understand the full extent of damage free.
Speaker Change: <unk> Gaussian splattering builds on previous work in the field of reconstruction, such as neuro radiant fields, but it's much more computationally efficient and has a solution that meets our operational needs remember, we must be efficient and accurate.
While we won't walk through the math here there are four primary steps to this technique.
Speaker Change: First we use the underlying data again thousands of frames to understand the position of the camera to construct a three dimensional coordinate grid to understand the relative position of every pixel in the frame.
Speaker Change: In parallel with understanding camera position algorithmic techniques, such as structure promotion create a point cloud or mesh of the vehicle. This essentially gives us the centerpoint or main upon which to locate the Gaussian splat.
Speaker Change: On those points, we overlay Gaussian functions onto each pixel to simulate the physical characteristics of the vehicle surface. It can capture intricate details providing a more comprehensive reconstruction of the vehicle surface and geometry.
Speaker Change: Those three dimensional splash or blobs help us rendering the point cloud representing every point is a gaussian or normal distribution in three dimensional space.
Speaker Change: From there, we optimize using traditional graphic restoration techniques and adjusting the density of the Gaussian until we get results representative of your original training data.
Speaker Change: What's ultimately produced as a fully interactive three D model of the vehicle. This is important because it allows you to view the vehicle and damaged regions from novel angles and views, but may not have been fully captured in the original data.
Speaker Change: It can also provide for more accurate scale in distance measurement enabled by fully understanding the relative camera angles.
Speaker Change: Such approaches can enable more accurate labor hour predictions were the surface area and depth are very relevant to how long it'll take to repair apart.
Speaker Change: Longer term, we think it could enable virtual inspections of additional damage types vehicle conditioning in the case of total loss and perhaps enable leap decisions by anticipating and damage to interior parts that arent visible from external pictures alone because we have a more detailed understanding of damage depth.
John John: Lastly, I do want to reiterate that our progressive this isn't about cool science or Gaussian math for its own sake, it's about our excellence core values striving for continuous improvement and better business outcomes for our customers employees and investors and as John mentioned previously we are willing to dig deep and work hard to.
John John: Cheap those outcomes consistent with our core values.
John John: Before wrapping up I wanted to share our general approach when we consider build and buy decisions.
John John: First we think those are complementary and not competitive sides of the same coin.
John John: For example, our machine vision solution for photo estimating is powered by things we have built but also relies on very tight integrations with our estimate X platform partner to turn those predictions into their correct part numbers and actual estimates.
John John: When building or buying we prefer to keep things decoupled.
John John: Rather than monolithic solutions, good for one purpose, but perhaps difficult to change or modify for other purposes.
John John: We prefer to build or buy systems that are open or can be decoupled. So that some of the pieces and parts can be reassembled into something entirely new.
John John: This gives us the potential to earn outsized returns on the initial technology investment and provides flexibility when new technology solutions inevitably arise. We can use those couple of pieces to drive near term value, but it also allows us to be agile and adopting new solutions like pseudo labeling Gaussian splattering.
John John: And whatever maybe next we.
John John: We can also start to apply parts of the original solution to build something entirely new that we may not have even considered at the time.
Speaker Change: On the right is an example of that potential emerging when we began our firm commitment to our claims machine vision journey with photo estimating back in 2019, we were focused on photos that were submitted after first notice of loss from customers that had selected photo estimating as their vehicle inspection option.
Speaker Change: But as we iterate on that experience or funnel, we're now receiving hundreds of thousands of photos per year at first notice of loss and that at an accelerating rate as we optimize.
Speaker Change: This is before a customer may have decided to opt in for photo estimated.
Speaker Change: We can and do use those for photo estimating but we can also apply our existing machine vision capabilities in that initial triage and segmentation decision and not just photo estimating.
Speaker Change: It could allow us to make even more fine grained triage decisions based on a much more accurate damage estimate.
Speaker Change: We can also use those photos to enable more sophisticated review processes of estimates that weren't written through the photo estimating channel.
Speaker Change: We hope a few themes came through today as we conclude.
Speaker Change: First I'll remind again that the 2020 for companywide results John shared in our efforts and claims to help enable competitive pricing starts with our people and culture.
Speaker Change: And it or what makes such things possible.
Secondly, we remain tirelessly committed and energized to chase that ever elusive perfect cost curve balance while simultaneously investing strategically to shift it further downward and we see further opportunities ahead to continue doing just that.
Speaker Change: And as shared in our photo estimating example, we continue to exploit advanced technology by putting it in the hands of our people because we know where they will generate outcomes fully aligned with our progressive core values and claims guiding principles to keep those virtuous cycles turning.
Speaker Change: On behalf of Jon and I, and 65000, plus progressive teammates. Thank you for your attention.
Speaker Change: This concludes the previously recorded portion of today's event and all the members of our management team available live to answer questions, including presenters John Murphy, Matt White, who can answer questions about the presentation.
Speaker Change: M&A session will be audio only and questions can only be submitted over the phone by pressing star one on your keypad.
Speaker Change: In order to get to as many questions as possible. Please limit yourself to one question and one follow up we also ask that you use restraint and re entering the queue to ask additional questions. We will now take our first question.
Speaker Change: Thank you.
Speaker Change: Our first question comes from Michael Zaremski with BMO you May proceed.
Michael Zaremski: Hey, Thanks, good morning.
Speaker Change: First question.
Speaker Change: And John Murphy's I prepared remarks.
Speaker Change: And he set up perhaps have an even better 2025.
Speaker Change: I guess.
Speaker Change: It was good to hear that but a bit surprising given that the tailwind from pricing.
Speaker Change: Increases as it looks like it's meaningfully moderated.
Speaker Change: And if you want to comment on where pricing is.
Speaker Change: Roughly but it looks like low single digits at best So I thought it was fair to assume that combined ratio mean reverts higher and also the frequency tailwind you guys received as well and the industry in 2024. It seems like that was a much better than in a normal year.
Speaker Change: Yeah, I mean, I can I can comment overall on pricing and if you want to add anything Pat you can I feel like we are in a really great position pricing wise and more and more of the position that we have wanted to be in the last several years and I have talked frequently about small bites of the Apple So we've taken rates up slightly.
Speaker Change: And a handful of states, we've taken rate down slightly on a handful of states and that's really where we want to be to be able to allow our product managers to tweak as needed to make sure that we reach our target profit margins on that.
We obviously want to grow and grow as fast as we can so we always are balancing Dallas. So we felt really good about our pricing.
Speaker Change: And we'll continue to watch it very closely and we believe when we believe we can grow more that we want to let out some of that in terms of rate increases like we did in Florida will do so but we feel like we're in a really really good position and starting starting 2025, I think just in a position of strength.
Speaker Change: With all the we have done and I have to take the smell that okay. Thanks, 66000, plus progressive people on what we accomplished last year. It was a volatile year before.
Speaker Change: As we headed into 2024, but the fact and John referenced the fact that we grew premium 21% to nearly 75 billion at 18% and pest $5 3 million industrial test and an 88 is really nothing short of phenomenal, but more importantly, we did it with great where it is.
Speaker Change: All of our culture and engagement scores and all of those together are really difficult. It really takes a team.
Speaker Change: In unison, reaching for the same thing and of course everything is based on our core values.
Speaker Change: Thanks, Mike Mike also I wanted to comment I appreciate in your.
Speaker Change: Florida, a piece that looks good reading.
Speaker Change: Okay.
Speaker Change: Appreciate it.
Speaker Change: Can I ask one quick follow up sure Ken.
Speaker Change: On policy growth seasonality.
Speaker Change: Historically this time of the year exhibits faster growth any comments on whether that would or wouldn't be the case.
Speaker Change: In 25, just given I feel like the dynamics of the cycle as you know.
Speaker Change: There are always a bit different.
Speaker Change: Yeah, I think we are typically first quarter is higher you've got attacks tax payments dropping so people shop inside of the 18% increase in our January results.
Speaker Change: So we feel good about our growth.
Speaker Change: Our intended growth in the first quarter.
Speaker Change: We spent a lot of advertising last year, especially the second half a lot of that was because we saw an opportunity to gain share, especially when our competitors are not quiet on price then I'm like we had in all or quickly I think than others and so true basically we'll have to let that play out we're going to grow as fast as we can.
Speaker Change: So add to get to our target profit margins, but yes, I would say typically first quarter is a pretty big shopping season, especially in the private passenger auto part of the business.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from David Maura Maiden with Evercore ISI you May proceed.
Speaker Change: Thanks, Good morning.
Speaker Change: Trisha I just wanted to talk a little bit about your appetite for continuing to ramp the advertising spend and I think in August you had noted that the cost per sale was about I think it was like 25% below your targeted acquisition costs.
Speaker Change: Wondering where that is today and what sort of runway you think you can continue to grow.
Speaker Change: Increased ad spend to capitalize on the growth opportunity.
Speaker Change: Yeah, our Cps and attack are much closer than that now because of what we have spent and we also did invest and Q4 and some delayed response and so we did something that we called progress isn't overnight and so those are the things that we think about that really increase our brand and our presence in terms of you know hopefully retention. So those are a little delayed.
Speaker Change: Our sponsor were a little bit tighter now.
Speaker Change: We were actually talking about this before the call and we look at our budget for media at the beginning of the year and we work with Pat's team on upfront buys and things that we know we need to put into the system that we have to be very thoughtful about for the year and then we have a lot of ability to flex both ways they've seen it both ways.
Speaker Change: And put it up against our 96 and you saw it last year, when we were able to spend more so that's how we're going to look at it. This year, we're going to continue to spend.
Speaker Change: To the efficiency, we obviously want to keep our Cps below attack.
Speaker Change: Little bit closer now and a lot of it depends too on what competitors do and if there.
Speaker Change: In the in the auction that they're spending more they are spending a lot. So we're just going to react really quickly to all of those things like we have in the past.
Speaker Change: Got it thanks that's helpful.
Speaker Change: And then for my follow up.
Speaker Change: Yes, I noticed that the policy life expectancy.
Speaker Change: Continue to tick down.
Speaker Change: This quarter.
Speaker Change: Sort of has been moderating a bit but yes, I think if I look at the comps are pretty high comps a year ago could you just talk through how you guys are feeling on the retention side of things because it feels like the new business is definitely robust, but some of the retention numbers have been moderating a bit.
Speaker Change: Yeah, you are spot on with that and obviously you know retention is such a big piece of our growth and it really sort of the Holy Grail, we're not surprised because of the rate increase we have taken over the years that our retention has in depth.
Speaker Change: We're hopeful that they can turn it started to turn on the trailing three out of commercial auto so yeah.
Speaker Change: Yes.
Speaker Change: It's never great to have our Pls go down either on a Q3 or 12, we're working diligently and you heard a little bit about that Friday, John Murphy in terms of just making sure that we have this near perfect balance of our client is guiding principles and and what we know is when people have a claim they're more likely to say because of the service they get it.
Speaker Change: When we look at it from an NPS perspective, so what I would say is we're going to work diligently on turning that around I think one of the biggest things you can do is have stable rates for your customers.
Speaker Change: With all the things that have happened from an inflationary perspective people are shopping it's easy to shop, and there's a lot of shopping going on sale.
Speaker Change: So if we can keep these prices stable I think that is really a key when you get that renewal rate and you don't have to shop, because it stable or in some cases, even gone down. So that's really where we're at now we are we obviously want that to improve for our overall pet growth.
Speaker Change: Yeah.
Speaker Change: Great. Thank you. Thank you.
Speaker Change: Thank you. Our next question comes from mission, that's off with Wells Fargo. You May proceed.
Speaker Change: Oh, hi, good morning.
Speaker Change: So it's been very topical just to talk about like the tariffs and I think you called obviously lined up but they kind of go into effect. Today. So have you guys size the potential impact on margins. It seems like it's going to be more of a second half story, but I guess, how are you kind of balancing.
Speaker Change: Growing as fast as you can with something that's going to potentially push launch costs up in the second half I guess, where do you find the balance between the two.
Speaker Change: Yeah Super relevant and timely question and clearly typically tariffs are a one sided risk to our loss costs.
Speaker Change: Yes, we've been thinking about that a lot and in fact, our pricing team is working with our economics team at T. C M and they have been for a while to understand the implication of tariffs and so we have a lot of I'm not going to share with you. The raw data the assumption, we use but I will tell you about three weeks ago I was reading through some of.
Speaker Change: The materials are putting out is evolving every day and I called out to say what incredible work. These two groups are doing and just really diligent. So yes, we actually have what we think at this time percentages would be honest certain at certain tariffs happen now those will ultimately change and well be able to kind of flex our models it'll depend on.
Speaker Change: On the country as the products on the magnitude of severity, but ultimately we oil prices into our indications.
Speaker Change: There's a lot a lot of I think puts and takes to as things as I just thought I'd start with the tariffs that went into effect today will have to think about on new car prices are those prices to those prices get passed on from the OEM to our customer who does that mean to values.
Speaker Change: Obviously from both Mexico, and Canada, we get a lot of our parts to repair cars and if so when will those play out and I do agree with you I think.
Speaker Change: If things go as planned I think it'll be more second half and into 2026.
Speaker Change: And then theres some other things aren't thinking about that we're modeling and that is if there's terrorists on oil does that increase gas prices does that make people drive less does that change frequency.
Speaker Change: Even with immigration is there a talent shortage in the body shop industry that happened a couple of years ago.
Speaker Change: Good morning, it looks like there might be some additional tariffs.
Speaker Change: On lumber for our Canada at a minimum what is that due to kill on home prices and of course home repair prices and we've modeled that in as well as I talked about with fixing cars. So we're modeling all of that together and a lot of it will depend on how much inventory is out there.
Speaker Change: And then if you think about the future and I'm always trying to think about second and third order effects. If you think about the future and that was what I was watching CNBC. This morning, I thought well if we want to have more of our lumber that starts here in the United States than we're gonna need Senate Bill Marsano, So they're gonna that's that can't happen overnight.
Speaker Change: But what does that do to truck and lager since though it could be it could be a tailwind in terms of our commercial lines organization, because that's very much based on macroeconomic data, but here's where we're at we are left with a bunch of models, we were able to flex those models every time, we get a new piece of data or the data changes.
Speaker Change: Hi, David My GC and his team are reading through all of the executive orders and understanding how that affects us.
Speaker Change: And when there is disruption in pricing, we are really good to react really quickly and you've seen that and probably the last thing I'll say on this is that we are sitting in a good position because right now our margins are below our 96. So we're sitting on and the margins that we can kind of play this out as things evolve.
Speaker Change: Great. Thank you for the holistic response, and then for my follow ups for the AD spend so.
Speaker Change: It kind of sounds like it'll be maybe not to the same absolute dollar amount, but it sounds like the seasonality on the AD spend could you typically spend a little bit more in the first half it sounds like it will continue to be kind of like spread out as we go through the year and I understand there are some.
Speaker Change: Uncertainty with the tariffs so that could change drastically but is it kind of right to think about in terms of the past seasonality and AD spend seasonality kind of continuing to be skewed just given the higher customer shopping.
Speaker Change: I mean, yeah for the most part we will spend when people are shopping and people haven't typically shop in a corner, but we're gonna be really flexible to see what plays out a lot of it isn't just what we're doing and that's what the competitors are doing so like last year, we had a budget and then we increased it.
Speaker Change: They saw the opportunity to gain share when we cut and sew.
Speaker Change: That's a great part about the flexibility we don't we don't have a budget, where we say we have to spend as much or it's gone. The next year, it's flowing it's S. A and it changes depending on the needs of all our growth and watching what the competitors are doing and watching what's happening in pricing overall from both media.
Speaker Change: Spend as well as just overall pricing. So yeah. So we're flexible is what I'd say is as we talk about this all the time, what we need and why we need it and we're going to try to reach our main objective and that is grow as fast as we can at or below 96.
Speaker Change: Great. Thank you. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Our next question comes from Joshua Shanker with Bank of America. You May proceed.
Joshua Shanker: Yes, good morning, everybody.
Joshua Shanker: I'm going to ask similar question, maybe in a different way.
Joshua Shanker: The AD spending it seems like you've spent more in <unk> than you spent in <unk>.
Joshua Shanker: And the hip growth.
Joshua Shanker: Slowdown in November a little bit and then much in <unk>.
Joshua Shanker: Remember as we expect normal seasonality of it but you talked about this I guess delayed response advertising in some way.
Speaker Change: How does it work exactly and if we look at how should we can air AD spend growth what's the relationship there.
Speaker Change: Well, we look at when we spend we look at a measured it take the delayed response out we look at and measure called antisense as there's new prospects that are shopping you and then in the last six months and we look at MTS sex and how that increases. So we know people are shopping and we know their active so that's how we look at that in a car.
Speaker Change: We look at our targeted acquisition cost our cost per sale. So you can look at all of that together.
Speaker Change: And and that's for that's for the immediate response for the delayed response and this is something slightly new and John Murphy talked about at various sides. We have a new purpose statement that we developed a few years ago, and we started well the car anthem and that is progress isn't overnight.
Speaker Change: We spent some money on that in the fourth quarter, which which we you know it's going to be harder to measure and so we have some different measurements in that longer term I probably be able to share. This I think once we have them because all play out but that's.
Speaker Change: That's how we think about those two differently do you want to add anything pattern.
Speaker Change: Yeah.
Joshua Shanker: Thanks, Josh.
Joshua Shanker: Alright, and then on claims.
Joshua Shanker: Is there any evidence or numbers you can give that about cost per claim that the efficiencies you are building in our delivering a cheaper cost per claim than it would've been a year earlier under the same circumstances.
I think back 15 years ago, when you added the.
Speaker Change: The claw.
Speaker Change: Claim centers. This was a goal that the same claims would be satisfied more cheaply are there any just sticks or confidence you have around your ability to resolve the same claim cheaper with the same input costs.
Speaker Change: Yeah. So we have a we have a lot of data and care deeply I would say about or L. A but we look at.
Speaker Change: Cost per cost per feature for our claims and we look at features per day per FTE than you were thinking about a why it goes into all the different claimed features it's really getting it to the right person at the right time, and if we can do that throughput that's going to be a much more efficient.
Speaker Change: And as long as accuracy.
Speaker Change: Still great, but that's all we care about so we look at a lot of I'd say a lot of data across the board and my team and I talk a lot about efficiency and when I think about that I think about it from our non acquisition expense ratio, but how can we continue to get efficient because competitive prices.
Speaker Change: One of our strategic pillars, and so we have to continue to push that cost down and of course that curve as John said, we want to continue to push that down into the left.
Speaker Change: Thank you for taking my questions. Thank you.
Speaker Change: As a reminder, that if you like that.
Speaker Change: Question.
Speaker Change: Your line is open.
Speaker Change: Yeah.
Thank you. Our next question comes from Andrew Anderson with Jefferies. You May proceed.
Andrew Anderson: Hey, good morning could you maybe talk about any changes you're seeing in bundled rates and perhaps it would be helpful to break it down between and areas, where you are growing the property book.
Speaker Change: Areas, where youre de risking.
Speaker Change: Yeah. That's a great question, we've been talking a lot about this and we refer to this in the annual report documents when we talk about our blueprint for the future and so.
Speaker Change: It's a good time, I guess to step back a little bit now I'm going to read here. Our mission statement for property because he has really been evolving and it's really important and bundle is a big piece of that.
Speaker Change: So our mission statement is progressive home, primarily office products for owner occupied property bundles with progressive auto so that is going to be where permitted on the main thing we're going to have our we will restrict business coming in where we can to have it be calm bundle, whether its condo or home, we will build a diverse portfolio.
Speaker Change: We have products at partner agents, who understand our underwriting strategy and proactively support it when capacity is limited we use that capacity from panels are written with our partners in the agency channel. So that's the overarching mission statements that we'll be referring to that over the next few years as we continue.
Speaker Change: So you have our blueprint for the future of course first thing first I got to get the rate. We've named so we had I right into the system in 2024 and that will continue into 2025. Meanwhile, balancing that out with investments, we're making in people processes I T.
Speaker Change: Mentation and then we have the blueprint that talks about bundling, which I just talked about we want to accept any business with auto are homebound over a permitted we've talked I think a couple of times about exiting the DP three so we're at with Axa in 44 states and that is I think.
Speaker Change: Rents on properties.
Speaker Change: And really our agent alignment of holding our agent partners.
Speaker Change: To volume and quality bundled and we have very specific expectations for our agents and then yeah.
Speaker Change: We have the cost share with our insurers.
Speaker Change: <unk> home insurance and maintenance I'm products salary cost share with mandatory wind and hail deductibles and then what we call roofing materials payment schedule. Thank a lot.
Speaker Change: The sliding scale on roof depreciation as a roof Asia and then we've talked a lot in the last couple of years about on Derisking and making sure that our portfolio across the board, so I'm not going to share specifics on Pandora.
Speaker Change: Majority of our our homes are bundled with our auto I will tell you that lunch and I think probably another data that I won't share either but it's a very high percentage and.
Speaker Change: I'm not sure a very much a majority is how many of our rental policies are bundled with auto so think of what we call future Robinson and so these are people that are already bundled with us and as they do buy a home the next step and get to be progressive home in their auto so that's that.
Speaker Change: As a reason to believe in the future that will continue to bundle, our auto and home and there's a lot in the pipeline for us has been crowd.
Speaker Change: Thank you.
Speaker Change: Just going back to tariffs.
Speaker Change: Suppose you can't prospectively reflected in pricing, but the extent to which you start to see it how many quarters or periods, where you'd have to take before you would kind of be allowed to reflect that in our rate filing and have it be approved.
Speaker Change: Well, it's a little bit different in different states, but as soon as we see the data we try to put that into our pricing indications that are and that of course is state by state and then we work and there's different regulations and different departments, who wear to work with each department to get that in there as soon as possible.
Speaker Change: So it could be relatively quickly I suppose once there is an impact potentially as soon as we see it in our data we're able to we're well able to present it to other departments of insurance and tried to get the necessary rate.
Speaker Change: Great. Thank you.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: That appears to have been a final question. So that concludes our event, Josh I will hand, the call back over to you for the closing scripts.
Speaker Change: That concludes the progressive Corporation's fourth quarter Investor event information about a replay of the event will be available on the Investor Relations section of Progressives website for the next year you may now disconnect.
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