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Q: Progressive is often cited by info-tech gurus as being one of the best examples of how technology has transformed a traditional business. Talk to me about that for a moment, and start from the beginning. A: The company started in 1937...by my father, and he sort of fell into it. He was a lawyer but he got an idea. Car insurance at that time was rather novel -- it was only sold in the carriage trades. And he said, "I'm going to sell it to factory workers and let them pay for it on time" -- both of those were innovative -- and, "I'm going to have a whole set of policies that are very different." And the company started out as a maverick company. It had no money, no capital -- but by the time I got involved with it and grew up with it, I had the sort of thing where you have to keep changing things. I kept observing as Dad would come home. Every innovation was driven by pragmatism. Q: Let's fast-forward. When did information technology start to drive some of that innovation? A: We changed our thinking in November of 1988. That was when, in California, they passed Proposition 103. Proposition 103 was a law designed by consumers to punish auto-insurance companies. It was passed by the initiative process. The insurance industry spent $60 million to beat it. Proponents of it, led by Ralph Nader, spent $2 million, and they won handily. I was scared. But I also recognized that it was passed by consumers who were pissed off at auto-insurance companies. And Ralph Nader happened to be a classmate of mine at college. And we were friends, so I called him. Ralph convinced me that we had to change ourselves because consumers took a wet rag and hit us with it in California. I started to think what could we do first. And I realized claim service, which is the central service that car insurance gives, was inadequate. So I decided we needed to change our delivery. When a claim happens, I decided, let's be there right away. And we invented then what we call Immediate Response Claims. Nobody else had ever done it. At first, my colleagues at the company said I was out of my mind. Our costs, they said, would go up -- but I saw a competitive opportunity: If we do it first and better, we're going to get all the business. Why? Two things happen when you deliver fast: You give better service, and the better you do things, the less they cost in our business. The faster we get to the losses, the fewer the lawyers that get on the other side. So we started implementing speed. We got a fleet of emergency response vehicles, we hooked them up to global positioning satellites and equipped them with laptops and printers and cell phones and, recently, Net connections -- and all of that helps us get claim reps to the scene fast, estimates fast, settlement checks written on-site and all sorts of other advantages. The first one debuted in 1994-95. Q: That's a big shift from what you had been before. A: Yes. I had a lot of internal opposition. People resist change. That's human. We told people who had been used to working 9-to-5, five days a week that we were now going to figure out how they could work around the clock because now we were going to respond everywhere, anytime -- and in person. We had a huge turnover in our claim-adjusting force because a lot of people didn't want to do that. Then I had a series of meetings with consumer organizations and the executives of state consumer organizations. I wanted to hear what they thought we could do better and win their support, to take advantage of this backlash to provide us with a competitive edge. Q: O.K., but how does speed pay? A: You're saving a lot of money and a lot of time. Everybody wins. Customers who have claims generally aren't happy. Giving good service in the insurance industry creates a customer who's shocked -- and talks to people about it. They say, "They get there before the police, before the tow truck. It's amazing!" And we have thousands of word-of-mouth stories like that. Secondly, speed gives you fewer lawyers to deal with because you say to the injured party -- somebody, say, who our insured hits -- that we're sorry, we ask them how they are and offer to help them, too. We tell them, "You can get a lawyer anytime, but we're going to take care of you. And anytime you think we're not right, get your lawyer. You don't have to sign anything. We're going to pay, we're going to expedite settlement." See, we're out to take a lot of lawyers out of the system. We're out-ambulance-chasing the ambulance chasers. That's exactly what we're doing. And without technology, we couldn't do that. Q: Were you always a tech-junkie? A: I joined the company full time in 1955, almost the same day we got our first punch-card machines. We didn't have computers. We had our first card machines. We weren't early with computers. But the obsession my father had, and later that I had, of thinking that we could always be better, and having the freedom to experiment -- to figure out how -- kept my eyes open. I was 31 years old when I made CEO. My father had died suddenly, and there I was. From the beginning, the first thing I did was hire a guy from Travelers who had been in their data-processing unit. I recognized that getting in the lead on this stuff would be a competitive opportunity. And, since insurance costs to the industry continuously have gone up, I wanted to find a way to provide more for less. So therefore, technology became increasingly important to innovation. This was in '93. I met with these consumers and I said, "Tell me why people don't like car insurance.'' And they told me, "It's not competitive.'' This was in a hotel in Washington, me and 14 consumers. And I said, "You're crazy. There are 350 insurance companies. If we move our price just a little bit, it changes the flow of business dramatically. It is, therefore, competitive." I actually came to the edge of being angry enough to walk out. But what I realized after more conversation is that we were competitive -- but that the consumer could not access the competition. The process of getting [car insurance] for yourself was impossible to do, so no one did it. We relied on agents to do it, and they were irresponsible in how they did it. So I thought to myself, it would be great if we could give people comparison quotations. Glen Renwick, our tech guy, said he thought he could do that. And he did. We were producing quotes in 40 some states: ourselves, State Farm, Allstate, and the next largest company in that state, in 1994. So we got into the comparative-quoting business, and that was very tech-based. We went online with it, early. We kept developing stuff like this, analytical tools, and then eventually, automated a lot of the claims process. These emergency-response vehicles, we call them ERVS, were then able to tap into our claims system from the truck, remotely, from anywhere at anytime and that, to me, is miraculous technology. The technology supports the services. Q: O.K., but how did the speed mantra evolve in this context? A: Our motive by then was to delight the customer, maybe even shock the consumer a little for competitive advantage. We wanted to deliver the unexpected. So that's where it came from. It wasn't easy. We had to learn to operate call centers, and routing, and GPS, and we're still learning the Internet. But all this technology was pragmatically motivated. We believe that how much money you make is a direct reflection of how well you do for customers: The more you make, the better you're doing. Q: Right now, you're testing a new insurance policy based on actual miles driven and speeds and so forth. This is going on in Texas, right? Tell me about it. A: We call it Autograph. Someone came into my office one day and said, "Here's this technology. Couldn't we use it to have a different way to price and measure risk? We know that mileage is the key thing, mileage and driving patterns. We could charge the customers more for every violation they do, because we could program into the system traffic laws and stuff. We could charge then for all kinds of things and make it so that the lowest-risk drivers pay less than the higher-risk ones -- but based on their actual habits, not guesstimates. We're very good price segmenters. We built our business by outsegmenting the competition. Example: We're now the largest insurer of motorcycles in the world. We insure more motorcycles than anybody else in the world. We got into the motorcycle insurance business in 1969. At the time, people who wrote motorcycle insurance did it based on the size of the motorcycle. We figured out how to also write it based on the age of the driver. What happened when we started adding that bit of information into the equation is that we got all the old drivers -- and the other companies got all the younger ones. The older ones are better risks. Competitors at the time got their clocks cleaned, so they raised their prices. See, they didn't have the information to show them how their mix of customers was shifting. We did. We were the first to use discounts for four-doors and add surcharges for convertibles. Using information, we've been able to outsegment everyone else. Now we're always looking for new ways to use information to segment prices. Q: So Autograph is a way to use satellites and the Web to do this very finely, right? A: Absolutely. It's about being able to charge them for whatever happens instead of what they say is happening. So what will happen? We'll get all the people who hardly ever drive, and our competitors will get stuck with the higher risks. Q: Your in-house culture also seems to be somewhat unusual -- a huge, controversial modern art collection that pokes fun at authority and, ironically, capitalism and so forth. Also, there are quite a few people who work here who hold a new job every couple of years -- sometimes completely unrelated to the work they did previously. What's the idea behind the culture you've built here? A: Innovation, pure and simple. You can't innovate if your culture won't let you take risks or do something different, or continuously demand from you new ideas and free thinking. I have a theory that if we don't reorganize internally annually, we'll probably be behind the curve. What do I mean by that? Give people different functions, different jobs, different orientations, depending on the business needs and opportunities at the time -- and they'll keep changing and growing as the company does. It's all about flexibility. You can't innovate without it. A business organization is like an accordion. When you're flourishing, you tend to delegate, and spread out authority and push innovation. When things aren't going so well, you tend to centralize. Our idea is to act mentally like you're flourishing all the time. Our attitude is that we will try almost anything that makes sense and we'll stop it when it stops making sense. We've spent a lot of money on dumb ideas, but we had the flexibility to stop it early -- and the conversation and idea-storming going on constantly to catch a bad idea when it went sour, or at the moment it did, rather than sit on it. It's ingrained in the culture to experiment, but to do so responsibly. We reward people for taking risks but punish them for not spotting bad ones early enough to pull the plug. But it's not always about saving money immediately. Our Immediate Response System initially took our claims costs from 9.5% to 14% and caused us to have a huge turnover in claims reps... If you're very Darwinian about your own ideas, you can try almost anything. That requires a couple of things in an organization: one, encouragement to try your ideas -- celebration of people trying and no punishment when they fail. But there's got to be a reward, too, for seeing a lousy idea first and [stopping] it, and [to] learn from it. If you don't, if you're one of these guys who rationalizes your innovation until you're bankrupt, you're out of here. Q: So what's next for Progressive? A: We redefined the business 12 years ago. We got out of the car-insurance business, and we got into the business of reducing human trauma and the economic cost of auto accidents in a cost-effective and profitable way. The down-the-road logical outcome of our objective is that there will be no more insurance business in the future. I'm convinced that if we are the leader at doing this, we will make a fortune in the process of dying as a type of business. You see, information technology will help us evolve the industry into other services. Q: Are these going to be technology-based? A: Totally tech-based. There are human service aspects, of course. We can't be put out of business as long as there are claims. But you can't adjust claims with a computer. You've got to have humans in there to help other humans. It's just that our guys are more like nurses than they are like claim adjusters. That's the psychology. Although we fight lawyers and body shops and so forth, we can do it successfully because we have claims smarts gained by how we use information technology. Q: But I thought the Net was supposed to wipe out insurance middlemen. What's your view? A: What we have is this: 80% of our business comes from independent insurance agents. We are the largest writer of auto insurance for independent agents. We have 10% of that market. It's a shrinking market. It ought to be a cash cow because it's a dying distribution system, but there's a lot of opportunity there for the next 20 years. Our objective is to be consumers' first choice for auto insurance -- not to be No. 1, because to be No. 1 you have to have people over the age of 45, and they don't change auto insurance. State Farm has most of these older people. Until they all pass on, we won't be the largest. But today we're selling more new auto insurance policies than any other auto insurer. Our objective is to be the No. 1 choice -- but you don't get there unless you give people the best deal. And that gets to service innovation. You can't have innovation that isn't technology-based today. Q: Now, some insurance companies are doing what you guys began -- showing up on the scene. Does that worry you? A: Nope. So far, competitors, and only a very few, say they provide emergency response. But that's mostly bunk. They advertise. We actually show up. And a lot of times, we show up at the scene when it would be stupid to show up. Why? It's a little bit of showbiz, but it impresses customers, it inspires the people our guys hit to sign up with us, too -- and it keeps our own people inspired. Technology is just a tool, but you can turn it into a weapon against competitors if you focus on a single mantra -- in our case, speed -- and keep innovative around it. It has worked well for us and will continue to do so. It's like the quality mantra of the '70s. Providing better service is never a bad idea, just like providing better quality. Everyone wins. |
