Progressive 2007 Annual Report Download - page 11

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The reality is that the standard of pricing sophistication among our most important
competitors has improved, as has the technology used to present rates and make the sale.
More often, our Agency rates are being presented to consumers alongside competitors’.
This means that it is imperative that we redouble our efforts to lead in the application
of rating and segmentation skills, while maintaining our low-cost position for non-claims
expenses and excellent claims resolution quality.
Our Direct business had more favorable outcomes from our rate reductions. The per-
centage of shoppers who became customers after seeking a quote increased, as did the
expected tenure of current customers. As we better understand this channel and the
consumers who favor it, our activities fall into two primary areas of opportunity:
One is to maximize the likelihood of having the customer buy. We can do this by pro-
viding a clear presentation of the options available, without overwhelming them, and
better meeting their needs for related products, such as homeowners insurance, even if
they are not “manufactured” by Progressive.
The second is to increase the overall number of shoppers seeking a Progressive quote.
Our brand development efforts, while producing many encouraging signs in 2007, have
not yet put Progressive consistently at the top-of-mind levels for consumers that we
believe will be necessary to meet our growth aspirations.
Policy growth in Special Lines and Commercial Auto was 8% and 7%, respectively.
While we would take more growth in a heartbeat, each of these lines has products with
market-leading share positions, making growth just that much harder to come by. It is
also abundantly clear that these two successful parts of our business face increasingly
intense competition. This forces us to challenge ourselves continuously to ensure our
leadership in product design and exceptional service delivery.
I believe that Progressive, and many of
our competitors, have now almost fully
adjusted pricing to reflect the favorable
accident frequency of the past several years
and rates and losses now appear to be
coming more in balance.
We have openly communicated that we
expect to see a higher likelihood of increas-
ing rates to match inflation in our claims
costs, primarily driven by bodily injury
severities. This is in contrast to what has
been a period of about a year and a half of
widespread reductions in insurance rates.
If this holds true, we will be operating in
what I would call more normal conditions.
Under these conditions, the challenge is
to price accurately and react quickly to
market trends, something that has tradi-
tionally been a strength for us. We enter
this market with the added benefit of the
investments we’ve made in Claims over
the past several years that are now produc-
ing high-quality claims resolutions, better
customer experiences and impressive pro-
ductivity advances.