Progressive 2014 Annual Report Download - page 61

The Direct business includes business written directly by Progressive on the Internet, through mobile devices, and over the
phone. We experienced new application growth in our Direct auto business for 2014 due to an increase in demand, as well
as improvement in conversion. Out of our top 10 Direct auto states, eight states experienced an increase in new auto
applications in 2014, compared to nine states in 2013 and four states in 2012.
Written premium per policy for our Direct auto business increased in each of the last three years, primarily due to rate
increases. Written premium per policy on both our new and renewal Direct auto business increased in 2014, with the
increase for new business about 2% higher than the increase for renewal business.
Policy life expectancy decreased for 2014, using a trailing 3-month measure, reflecting rate increases taken in early 2014,
but increased using a trailing 12-month measure due to large gains in the first half of 2014 from rate decreases taken in
2013.
In 2014, the total number of quotes in our Direct auto business reached new highs and increased 8%, on a year-over-year
basis, driven by an increase in advertising, as well as increased quoting from mobile devices. In 2013, Direct auto quotes
increased 15%, reflecting our strong brand, and an increase in advertising spend, which had a positive impact on our new
business application growth. Direct auto quotes decreased 4% in 2012, reflecting decreases in both Internet quotes and
quotes generated via the phone. The total Direct auto business conversion rate increased slightly in 2014, reflecting
increases in conversion for both phone and Internet-initiated business. The rate of conversion in our Direct auto business
decreased in 2013, particularly in conversion for Internet-initiated business, driven by 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 2012, compared to the prior year.
The underwriting expense ratio for our Direct business decreased 0.6 points for 2014 and 0.5 points for 2013, compared to
the prior year. Higher earned premium in both 2014 and 2013, 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 10% and 13% in
2014 and 2013, respectively. We remain focused on maintaining a well-respected brand and will continue to spend on
advertising as long as we achieve our profitability targets. We continued to use “Flo” both in and out of the “Superstore” to
provide fresh and engaging messages. During 2014, our Superstore campaign created and débuted its 100th commercial.
In addition, we continued with our branding efforts utilizing the apron, which Progressive people metaphorically tie on as
they work to improve the customer experience.
D. Commercial Lines
Growth Over Prior Year
2014 2013 2012
Net premiums written 7% 2% 13%
Net premiums earned 4% 7% 12%
Policies in force 0% (1)% 2%
New applications 1% (6)% 3%
Renewal applications 1% 0% 1%
Written premium per policy 4% 5% 10%
Policy life expectancy – trailing 12-months 0% (3)% 6%
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 approximately two vehicles. Our Commercial Lines business represented 10% of our total net premiums written in
both 2014 and 2013 and 11% in 2012. Even though we continue to write over 90% of our Commercial Lines business
through the Agency channel, net premiums written through the Direct channel increased by 13% in 2014.
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