Progressive 2013 Annual Report Download - page 61

The Direct business includes business written directly by Progressive on the Internet, through mobile devices, and over the
phone. As discussed above, new applications in our Direct auto business increased for 2013, especially toward the latter
part of the year, reflecting an increase in demand, along with rate decreases taken in several large Direct auto states in
response to ongoing market reviews. Out of our top 10 Direct auto states, nine states experienced an increase in new auto
applications in 2013, compared to four states in both 2012 and 2011.
Written premium per policy for our Direct auto business increased in both 2013 and 2012, primarily due to rate increases
taken during 2012. Written premium per policy on both our new and renewal Direct auto business increased in 2013, with
the increase for new business about 2% higher than the increase for renewal business. The decline in written premium per
policy in 2011 reflected shifts in the mix of our business (e.g., older age vehicles, state mix, and drivers with proof of prior
insurance).
The decline in policy life expectancy in our Direct auto business for both 2013 and 2012 also reflects the rate increases
taken primarily in the second half of 2012. Similarly, the decline in policy life expectancy for 2011 reflects rate increases
taken in Florida and Massachusetts, as well as changes in bill plan presentation, which led to more customers paying in
installments and, historically, these customers tend to retain for shorter periods.
On a year-over-year basis, the total number of quotes in the Direct business increased 15%, reflecting our strong brand,
compelling creative execution, and an increase in advertising spend, which had a positive impact on our new business
application growth. Direct auto quotes decreased 4% and 3% in 2012 and 2011, respectively, reflecting decreases in both
Internet quotes and quotes generated via the phone. The total Direct business conversion rate decreased in 2013,
particularly in conversion for Internet-initiated business, driven by the 2012 rate increases and an increase in the number of
quotes generated on a mobile device, which have a lower conversion rate. The rate of conversion in our Direct auto
business was relatively flat in both 2012 and 2011, compared to the prior years.
The underwriting expense ratio for our Direct business decreased 0.5 points for 2013 and 1.3 points for 2012, compared to
the prior year. Higher earned premium in both 2013 and 2012, compared to the prior years, was a primary contributor to the
decrease in the underwriting expense ratio in both years. Year-over-year, total advertising spend was up 13% in 2013 and
remained relatively flat in 2012. We remain focused on maintaining a well-respected brand and will continue to spend on
advertising as long as we achieve our profitability targets. During 2013, we launched a campaign to promote the benefits of
Snapshot to engage the consumer and communicate how this product offering is relevant to them. This campaign joined our
advertisements that continue to use “Flo” both in and out of the “Superstore.” In addition, during the year, we released an
added dimension to our branding efforts to attempt to show consumers more about the company and values behind our
product offerings. This new dimension is represented by the apron, which Progressive people metaphorically tie on as they
work to improve the customer experience.
D. Commercial Lines
Growth Over Prior Year
2013 2012 2011
Net premiums written 2% 13% 6%
Net premiums earned 7% 12% 0%
Policies in force (1)% 2% 0%
New applications (6)% 3% (2)%
Renewal applications 0% 1% (1)%
Written premium per policy 5% 10% 5%
Policy life expectancy 2% 0% 0%
Progressive’s Commercial Lines business writes primary liability, physical damage, and other auto-related insurance for
automobiles and trucks owned and/or operated predominantly by small businesses, with the majority of our customers
insuring two or fewer vehicles. Our Commercial Lines business represented 10% of our total net premiums written in both
2013 and 2011 and 11% in 2012. This business is primarily distributed through independent agents and operates in the
following business market targets:
•Business auto – autos, vans, and pick-up trucks used by small businesses, such as retailing, farming, services,
and private trucking
App.-A-61