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Mention Progressive Corp. to most folks, and chances are they'll recognize it as the quirky car-insurance company that provides customers with price quotes from three other leading insurers, even if those rates are better. But what seems quirky to an outsider is just part of the culture at Progressive (PGR
), where obsession with the customer runs high. "We know how hard it is to shop for insurance, and we're willing to share that information to make it easier for our customers," says CEO Glenn M. Renwick.
This customer focus, combined with innovation and the use of cutting-edge, data-driven models, has helped Progressive become the No. 3 auto insurer behind industry giants State Farm and Allstate (ALL
). Today, Progressive has a 6% market share, compared with just 1.5% 10 years ago, when it ranked a distant ninth.
Its stock had a total return of 167% in the last three years, and that helped make it the fifth-best performer in the BusinessWeek ranking of the top 50 companies in the S&P 500-stock index. Its net income in 2002 rose 62%, to $667 million, on revenues of $9.5 billion, up 30% from the previous year.
HIGH-RISK CUSTOMERS. Of course, the current stock price of around $60, a tad shy of its 52-week and record high, shows that investors are already impressed by Progressive's strategy. Of 13 analysts who cover the company, 10 have a hold rating on the stock, and one analyst has a sell, mostly based on the view that Progressive doesn't have much upside left at its current rich valuation of nearly 20 times forward earnings estimates. But for investors who want a stake in this industry, Progressive is likely a solid long-term holding.
Based in Mayfield Village, Ohio, Progressive has long been known as a maverick, run for many years by Peter Lewis, an eccentric but visionary leader. Lewis, who inherited the company from his father in 1965, had bold ideas and implemented them with gusto. He and his team were successful at devising mathematical formulas to profitably insure high-risk auto drivers, who were avoided by the rest of the industry.
Over the years, Progressive became the first insurance company to introduce customers to all kinds of conveniences, such as a 24-hour toll-free service or a Web site that allowed people to buy insurance online. Today, it's known for using new technologies to make pricing auto insurance even more of an exact science. "This company is always willing to experiment, and is constantly coming up with new ways of approaching any problem," says Michael A. Smith, an insurance analyst at Bear Stearns.
"FANATICAL." Renwick, who became CEO in 2000 after Lewis took a back seat for health reasons, is carrying on that vision. Soon after he took the top job, Renwick went ahead with a painful decision to raise insurance rates, even as competitors continued to offer low rates. Wall Street criticized him, and his net new business grew just 2% in 2000, and net income fell 84%, to $46 million. Why did he do it? "We're fanatical about maintaining accurate prices," answers Renwick.
His fanaticism turned out to be on target. Last year, Progressive reaped new customers as competitors like giant State Farm Insurance reported a net loss of $2.6 billion for 2002, its second consecutive annual loss. As State Farm started raising rates aggressively, Progressive could afford to go a little slow with on pricing, and that helped get a 30% increase in new-insurance premiums totaling $2.5 billion.
Renwick is especially proud of a process he's now pushing that he says is "a fundamental change" in the way any auto insurer handles claims. Progressive's research showed that car-insurance companies have the least degree of control over the process when a customer's anxiety level is at its highest -- when the person's car is damaged. To alleviate that, Progressive has started centers where an owner can bring in the damaged car and get a replacement car immediately and also get a beeper so that the insurer can get in touch with the customer when the car is ready.
FORWARD-LOOKING. Today, Progressive has seven of these centers and is planning to roll out 27 more this year. "If other companies adopt this system, it would be more to lower claims costs rather than make customers happier, which is the fundamental difference with Progressive," says Smith of Bear.
Progressive is also known to keep its eye on the horizon. It started a program in Texas last year of tracking actual car usage via satellite to help it set rates. For example, someone who drives only on the weekends or drives in less-densely populated suburban areas might find their rates sharply lowered. While this program is at its nascent stage, Renwick expects it to ramp up over the next five years or so as more cars come equipped with global-positioning systems.
The aptly named Progressive is a company to look out for, especially if you're in the market for the long haul.
MARCH 24, 2003 |
Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.
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