Progressive Insurance Swot Analysis

Over decades operating in a highly competitive environment, the key strategy that makes Progressive the top three in the $165 billion US private passenger auto insurance industry is focusing on innovations and customer satisfaction. Established in 1937, from the beginning, Progressive approached the market with an innovative method by providing customers drive-in claims service and the ability to make monthly installment payments. That, on one hand, appealed more opportunities for people who could not afford paying insurance in lump sum to have their vehicles protected.

Besides, it helped Progressive enter the market with competitive advantage to approach more potential customers. In 1957, by positioning the market correctly and understanding all market segments’ potential benefits that had not been realized by competitors, Progressive was willing to take risk to enter the nonstandard segment, which includes drivers with poor driving records or high risk profiles.

This strategy, in turn, increased the company’s sales significantly and turned Progressive into a major brand in the insurance industry.

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The fierce competition of Allstate in the nonstandard market in 1985 and the approval of the Preposition 103 mandating insurance rate cuts of 20% in 1989 caused a crisis at Progressive. The company attempted to reduce cost by firing 1,300 employees. In addition, the efforts in understanding consumers’ perception and behaviors facilitated the company to launch its new strategy called Immediate Response in 1990 with the attempt to build trust in consumers. The main advantage of this strategy was that it speed claims process and increased customer satisfaction when accidents occurred. Immediate Response could be considered as one of the major improvements and transitions of Progressive that could help the company improve customer retention.

Facing the intense competition, along with launching Immediate Response, in 1990, Progressive also focused on diversifying its product line by running experiment to write standard policies.

The investment in training agents and changing their selling behaviors raised considerably consumers’ awareness of the company’s products in the preferred and standard segments, which consequently increased the company’s revenues significantly. In addition, the introduction of Express Quote in 1993, which provided quotes from the top eight local competitors, turned Progressive into a full line supplier. This approach also helped the company have more chance to sell its products directly to consumers. The invention of Internet in 1995 facilitated Progressive to be the first company in the insurance industry selling its products online. This created competitive advantage for Progressive to compete when the company launched its website to help customers manage their policies as well as increase quoting and policy application processes. Progressive has never stopped innovating in its products. The application of GPS (Global Positioning Satellite) devices in 1998 to track customers’ driving behaviors and the introduction of the new program called TripSense in 2000 helped the company implement usage based charging method.

By offering discounts to drivers who got involved into these programs, the company tried to raise consumers’ awareness of the correlation between driving behaviors and risk of accidents. Customer satisfaction has always been the key metric driving Progressive’s strategy over time. In 2000, Concierge Service was launched to serve customers better in case of accidents. Instead of waiting for their damaged cars fixed, customers were now provided an instant replacement car while the repair was done. That way, Progressive could save time for customers and save storage and rental car cost for the company. Not only that, Progressive continued to introduce Total Loss Concierge service, which replaced cars that had been totaled. This strategy did not only help the company reduce turnaround time and replacing cars for profitable value but also increase customer satisfaction considerably. In the effort to diversify its product line and exploit more benefits from the current customers, in 2000, Progressive started offering homeowner’s policies.

The purpose was to attract and retain current auto consumers who wanted to have their auto and home protected from the same insurance provider. However, the strategy confronted the problem of lacking data that help create a pricing advantage. Since 2000 until now, the company has had major changes in many different aspects such as management, company organization, information technology, human resources. Among those, it is that Glenn Renwick took over the role of Peter Lewis in the company’s executive management put the company in the harder challenge of competition. Notably, in 2006, while the insurance market was softening, the strategy to keep the price firm caused Progressive some disadvantages. On the other hand, the fierce competition from strong competitors such as Allstate, State Farm and GEICO, whose advertising campaigns have been so aggressive that Progressive has to always keep an eye on them and keep improving.

SWOT Analysis

Strengths

Firstly, Progressive is among one of the top leading automobile insurers in the United States. It has a strong position in both personal automobile and commercial automobile markets. Progressive's use of risk analysis among all automobile users has enabled it to increase the larger customer acceptance in comparison to its competitors. Secondly, progressive's use of technology and data is excellent. Progressive was the first insurer to go online. The company invested heavily in information technology. Progressive used detail data on drivers to price its policies and could claim to be industry's first. Progressive used website effectively to help customers get quick and information. Moreover, an online quote is helpful, easy and quick to compare prices when customers shop for home insurance without having to wait for an agent. Thirdly, Progressive had a strong distribution channel. It focused on direct sales and independent agents, which helped to expand its market share in the United States. In addition, progressive used innovative approaches to increase customer satisfaction.

Total Loss Concierge level of claims service was designed to provide total auto physical damage losses. Customers could opt for a different car, and pay the difference if the value of the totaled car was less. Fourthly, Progressive has a strong and reliable workforce. Progressive has over 28,000 employees. When recruiting, company makes sure that the individuals can embrace technology and are comfortable with change. The company invests a great deal in training. Employees work in claims and are trained with skills related to Progressive careers.

Weaknesses

One of the weaknesses of progressive is operation expenses. Lewis's principle “hire the best” and “pay the most” with the purpose to pay at the top end of industry pay scales for good employees’ performance can increase company’s expenses. In addition, this can create competitive pressures among the employees, which could result in negativity in the company. The other weakness of progressive is its inability to create brand awareness. Its competitors like GEICO, State Farm and Allstate were better able to create customer awareness through advertisement campaigns. The company needs to focus on building a better brand awareness if it wants to increase its market share in the auto insurance industry. Another weakness of progressive is its failure to cope with pressure associated with competition from its competitors. Big players like, State Farm, Allstate and GEICO have created competitive pressure directly to Progressive.

For example, Allstate’s low cost structure caused Progressive crisis and 1,300 employees fired Furthermore, progressive's difficulty to smooth management transition is another weakness. When Peter Lewis stepped down as president in 2000 and Glenn Renwick took up the post, company went through some tough times. Renwick's decision to raise insurance rate affected growth and profits adversely.

Opportunities

Innovation has and will create great opportunities for growth. Greater innovation can bring Progressive the chance to get more unique products and services in order to meet customers’ needs better. Many innovative services such as Express Quote, Concierge Service have helped the Company to serve and satisfy clients better. Furthermore, the firm was in top CIO Magazine’s CIO-100 list in recognition of its innovative practices and products. In addition, its website usually rated as the best one, facilitates to accesses information more easily.

Moreover, Internet is another area that has potential for growth. The development of Internet offers Progressive the chance to expand their business and access directly to customers. They also can market to a much broader user for relatively less price.

Homeowner Insurance is another area that offers opportunity for growth for progressive. In 2000, progressive started offering homeowners policies. However, the company was unable to generate enough data to have pricing advantage so they cancelled the entire initiative in 2002. Now, with the advent of technological advancement progressive could once again explore this area to generate more revenue in the future.

One other area that provides great opportunity for expansion and growth is Emerging markets. Emerging markets like China, India, Russia and Brazil are expanding at the rate of knots. Although there are various risks factors associated with doing business in these countries, there are also greater rewards that come with it.

Threats

One of the threats Progressive faces is intense competition from its competitors. The insurance markets in the US are more and more competitive with a large number of players supplying a broad range of products and services. Progressive Corporation has to face fierce competition with these players. The three biggest rivals of the Corporation include State Farm, Allstate, and GEICO. “State Farm was number one in the personal auto insurance industry with a market share of 18% in 2006 and also the leading home insurer”. The follower is Allstate, the second largest player I both personal auto and homeowners’ industries with market shares of 11%-12% in each in 2006. Moreover, GEICO was the fourth largest personal auto insurer with a market share of 6.7% in the same year. The other threat Progressive face is changing rules and regulations. Insurance regulations vary considerably among different States of the United States. This varying regulation has great impact on the firm's operation. For example, the Proportion 103 was passed on November 8, 1988 in California, which mandated rate cuts of 20% in 1989. Due to this Proportion, the company had to pay out $50 million to 260,000 policyholders.

The benefit was seriously affected, along with the strong reduction of market share in California market. Increasing nature natural disasters is another threat that affects all insurance companies including Progressive. Natural disasters cause damage to both house and vehicle, which increases expense for the company. As predication, “major climate changes are likely to occur in the coming decades”. Therefore, insurers have a risk of facing with a trend toward higher losses due to more claims relating to natural disasters. Reduction in insurance rates and use of sophisticated data mining techniques are other threats to progressive. While insurance rates are softening, Progressive is determined to hold prices firm. This decision could make the customers get away to other insurers, whose rates are lower. “Everyone was using sophisticated data mining techniques and focusing on better claim support”. This reduces the chance of being distinguished from other suppliers.

Recommendations

Innovation has historically proven to be a vital tool for progressive insurance. Therefore, the company should continue to put more weight on innovation. An innovation offers the company a chance to improve its products and services whereby it can gain competitive advantage over its competitors. Progressive should also invest money in advertising in order to increase customer awareness. Progressive already has a larger customer base, but if it wants to compete with the industry giants like Allstate and State Farm, it needs to invest more in advertisement to attract and engage more customers. Developing and expanding the company’s market in foreign countries is one-area progressive insurance needs to focus on if they are to reduce financial risks. Expanding the market in other countries enables progressive to maintain a stable finances in case the U.S economy goes down. Furthermore, progressive needs to work on new lines of products and services if they are to thrive in a highly competitive industry. In addition, expanding business to other areas like providing financial services or home security systems provides Progressive Corporation with opportunity to diversify its income sources.