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Progressive Case Study.Scm
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Progressive CorporationA Case Study
Scott Campbell - Christina Connolly - Maureen Stafford
MBAM 6192/16/09
P.E.S.T. Analysis
Persian Gulf War
How the Government Dealt With Past Recessions. New York Times. January 26, 2009.
•Economy was weakened by a credit crunch in commercial and housing market•Inflation was on the rise
Hurricane Andrew- 1992
Consumers See an Increase in Taxes
Federal Government Revenue, in Billions, by Major Source, 1965–2008
2008 Federal Reserve & Spending Book of Charts
More Government control on taxes and regulations.
Driving Trends
Transportation Services Index
Bureau of Transportation Statistics
We see an steady growth in the number of drivers on the road.
Assigned Risk Plan: Requirement of carriers to underwriting non-standard risks
1983: The high accident rate of younger drivers prompts provisional licensing of drivers between ages 16 an 18.
1984: A new financial responsibility law requires that uninsured drivers involved in a vehicle accident have their driver licenses suspended for a year.
1988: Proposition 103
1991: The Vehicle License Fee classification was assessed based on the vehicle market value or vehicle purchase price
Department of Motor Vehicles
DMV Milestones
Technology
• Nationwide voice/data system: faster communication btwn agents & headquarters, increase process claims by 30%
• Express Quote Service: list of competitors’ pricing available to consumers
• Immediate Response System: “office on wheels”
Competition
Company Services Standard/Non-standard Strength Employees
State Farm property/casualty, life & health Standard agents can cross sell all products, highly liquid in-house agency force
Allstate property/casualty, life Standard/Non-standardbrand name, exclusive sales force, proprietary data base
full-time sales force & independent agencies
GEICO property/casualty Standard/Non-standardtargeting customers by mail/phone, Berkshire Hathaway investment
commissioned contract agents
Progressive property/casualty Non-standard
more risk categories, Express Quote Service, Immediate Response System independent agents
Competitive Analysis
Competitors Competitive Advantages
State Farm Largest market shareIn-house agency forceA++ ratingExcellent liquidity position
Allstate Brand nameExclusive sales forceBroad distriubtion systemA- ratingLocation in Sears stores
Geico Government employee angleDirect targeting through phone and mail
Auto Insurance Industry Value Chain
Insurance Provider(Progressive / State Farm /
Allstate / GEICO)
Independent AgencyWriter
Customer (Driver)(80-90% “Standard” /
10-20% “Non-Standard”)
Direct Writer(Internal Sales Force
or Mail / Phone / Internet)
Sources: Siggelkow, Nicolaj. “Progressive Corporation,” Harvard Business School Case. Rev. 5/14/98
http://www.iii.org/media/hottopics/insurance/distribution/ (Accessed 2/13/09)
Auto Insurance Industry Value Chain
Source: Siggelkow, Nicolaj. “Progressive Corporation,” Harvard Business School Case. Rev. 5/14/98
Industry Analysis
Threat of Substitutes
Low threat of substitute due to the legal requirement of auto insurance and the limited number of competitors in the non-standard market
Threat of New Entrants
Low barrier of entry for established insurance companies desiring to target non-standard customers, as demonstrated by Allstate Indemnity
Power of Customers
Non-standard customers did not hold much power due to the necessity of the service and limited companies willing to meet their needs
Growth
Rapid industry growth is not likely, and becoming less lucrative due to legislation
General customer movement was between
providers
Competitive Environment
Competition is extremely high, necessitating innovation of tactics and infrastructure to win over customers and maintain profit under new legislation
Value Creating Activities
Inbound Logistics
Marketing/Sales
After-Sale ServiceHuman Resources
Infrastructure
Technology
Marketing/Sales
After-Sale Service
Human Resources
Infrastructure
Inbound Logistics “The Prince of Smart Pricing”
• Utilized database to price policies appropriately to risk
• Developed 14,000 premiums under which to classify
Technology“Agents’ mispricing policies was identified
as a major cost driver.”
• Computer system to facilitate fast communication with headquarters– Shorter processing time– Decreased operating expenses– Expedited claims process
Marketing/Sales “It’s the difference between a tricycle
and a Boeing 747.”
• Used independent agents to maximize coverage while minimizing fixed costs
• Express Quote Service– Promoted Progressive’s awareness of
consumers
• Channel Options– Open an account with an independent agent
or directly with Progressive via phone– Walk-in customer service centers– Drive-in service center
• Increased brand awareness
After-Sale Service “Most people start out not trusting their insurance company. But if you are there
right away… fewer people will go to lawyers.”
• Immediate Response system– Progressive accident victims who used an
attorney decreased 20%– Rental car duration decreased– Duration a car remained in storage
decreased– Word of mouth promotion– Reduction in fraudulent activity (previously
10-15%of insurance losses)
After-Sales Service Cont’d
• Office on Wheels– Reduced employee and administrative costs– Decreased customers who turned to an
attorney– Decreased number of open claims 50%
• Innovative Cost Containment– Offering special options to decrease
premiums by 12-20% opened up to a greater number of users
Human Resources“The transition towards a service-oriented
insurance company proved to be difficult.”
• Hired “blank slate” employees and trained to their standards
• Great responsibility level• Brought in amenities for a
comfortable working environment• High pay
Infrastructure“We will go for profit, not simply for
growth.”
• Profit prioritized over growth• 4% underwriting target• Nonstandard culture• No regard for industry standard