Progressive Corp

NYSE:PGR

Earnings Call Transcript 2018-Q2

[Operator]

Welcome to The Progressive Corporation's Second Quarter Investor Event. The company will not make detailed comments related to quarterly results in addition to those provided in its quarterly report on Form 10-Q and the letter to shareholders, which have been posted to the company's website and will use this event to respond to questions after the prepared presentation by the company. This event is available via moderated conference call line and a live webcast with a brief delay. Webcast participants will be able to view the presentation slides live or download them from the webcast website.

Participants on the phone can access the slides from the events pages at planned by investor.progressive.com. In the event, we encounter any technical difficulty with the webcast transmission, webcast participants can connect through the conference call line. The dial-in information and passcode are available on the Events page at investor.progressive.com. Acting as moderator for the event will be Julia Hornack.

At this time, I will turn the event over to Ms. Harnack.

[Julia Hornack, IR Contact]

Thank you, Andrew, and good afternoon to all. Today, We'll begin our event with a presentation on customer experience. After that presentation, we will be -- we will have a Q&A session with our CEO, Tricia Griffith; our CFO, John Sauerland; and our guest speakers today, John Murphy and Steve Brose. Our Chief Investment Officer, Bill Cody, will also join us by phone for Q&A. This event is scheduled to last 90 minutes.

As always, discussions in this event may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events to differ materially from those discussed during the event today. Additional information concerning those risks and uncertainties is available on our 2017 annual report on Form 10-K, where you will find discussions of the risk factors affecting our businesses, safe harbor statements related to forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investors page of our website progressive.com.

It's my pleasure to introduce to you our CEO, Tricia Griffith.

[Susan Griffith, President, CEO & Director]

Good afternoon, and welcome to Progressive Second Quarter Webcast. We are thrilled to be able to talk to you about the investments we've been making for and on behalf of our customers and our customer relationship management group. If you read my letter to shareholders, I outlined several other investments that we're making on behalf of our customer on the claim side.

We've been talking about for a couple of years, and we are excited to tell you that a lot of the things that we had in place were come to fruition, and we're really pleased with how they're coming along. But before we get to that, I have to mention an accomplishment that has been over 10 years in the making, and that is getting our #3 ranking in the private passenger auto back.

It's been a lot of hard work, and we're really excited and thrilled to be able to celebrate this accomplishment. And of course, it leads us to get even closer to our ultimate vision of becoming consumer's #1 choice. So we're really proud of that accomplishment, and I want to take just a moment to thank the over 36,000 Progressive people for their hard work, their dedication and their commitment to our core values. I want to thank our shareholders for their confidence in us. And ultimately, I want to thank our customers that were so privilege and honor to serve.

So let me set up the day. You will have seen in this construct before, this is the third time we've talked about it. This is what we call our 4 cornerstones. Our core values, who we are; our purpose, why we're here. Our purpose statement is true to our name progressive; our vision, where we're headed, I just talked about that becoming consumer's #1 choice and destination for auto and other insurance; and our strategy, how we're going to get there. We focused a lot on the strategy because that's really kind of the meat of how we will achieve our mission. We have 4-strategy pillars.

Today, we're going to hit on 2 of them. The first line is meeting the broader needs of our customers throughout their lifetime. We want to be available, where, when and how customers want to shop and be served. You're going to hear a lot about that today, because really not about us saying, here is what we're giving to give and customers you kind of figure out how to work with us, we really follow the customer. We'll continue to evolve, as technology involves and customer's needs evolve. The other pillar we're going to talk about is maintaining a leading brand, specifically experiences that instill confidence.

When the customer calls to add a policy, add a coverage, have a claim, at the end of that experience, we want them to say, I'm so confident, I made the right choice when I chose Progressive. That is so critical to us. And so those 2 wearily be on the footprint of what we're talking about today. I'm going to have two of my direct reports in tagteam this deep dive session into our customer relationship management our focus.

John Murphy, you haven't met in before, but he has been around for Progressive for over 25 years. The majority of his career was spending claims, and I've known for decades. He lived around the country in many high-level leadership positions and ultimately, before becoming the President of CRM, ran our customer service centers.

When I met John and have watched his career along the way, what I really noticed about him is his passion for the customer, and his ability to always kind of see what we needed to do to continue to innovate and be more creative. And he has done just that in CRM. He has been in CRM as a President for 3 years, and I'm really thrilled to be able to have him highlight what he has been working on.

He will tag team with our Chief Information Officer, Steven Broz. You've met Steven before in this setting. Steve grew up in the Product Group, ultimately going into GM of our personal lines. He has also been in IT as a project Manager and claims is a process Manager, and now he his leading ID for the last couple of years.

You might ask why I have these 2 together. It really is about establishing how we work at Progressive in terms of the business and IT, and we're really handing together. When we think about investments, especially with the customer. And you'll see how when they speak, we just -- we all the things that are about our business, and we don't separate that. In fact, we often recall the technology company that happened to sell insurance, and you will see that technology the underpinning, but it's not separate. It is together, and that's the thing what makes our whole team really powerful that we look at everything together to make sure that we continue to profitably grow. I hope you enjoy reading in the shareholders letter. We're very proud of our results for this quarter and actually year-to-date and more proud of the momentum we have and the excitement about the opportunities that lie ahead office.

So with that, John Murphy come up and join me and talk about what he has been working on, the results of that and just going forward how we think about our customers.

[John Murphy, Customer Relationship Management President]

Great. Thank you, Tricia, and good afternoon, everyone. Over the past 3 years, we've been on a very deliberate journey to customer centricity. No longer just auto an insurance company, but instead a customer company that really specializes in insurance products and services to meet customers needs where as they long as they have them.

To fuel ongoing sustained and now accelerating growth, we've may retaining our existing customers as large a priority as acquiring new ones. And that business mandate is really the catalyst for the changes that Steve and I are going to discuss today. So we're going to start with some foundational adjustments that are attended to position us really well near- and long-term for success. And then we will refresh you on our preferred measure of retention, policy life expectancy as well as how we think about it and approach it. We'll spend much of our time on the technology-related investments that we've made for or on behalf of our customers, going across the lifecycle, while also giving you some insights into how we choose what we're going to invest in. And then finally, we're going to share how customers are rewarding us for the improvements that we delivered. And I think, you will see that the return on these investments has been really substantial.

Now historically speaking, sustained improvements in retention have been elusive for us as they have been for many others. Knowing that we wanted to see both significant and sustainable progress going forward, we felt it necessary to make some foundational adjustments to position us to deliver in that matter.

Now this list that you will see here is far from comprehensive, but we want to give you just review into few meaningful changes that we've made. We're going to start with our company-wide mission. So we've long had this objective to become #1. Our excellence in marketing and new business acquisition practices have really allowed us to appeal to large segments of consumers and increase market share.

Previously, our company-wide mission to become consumer's #1 choice for auto insurance. And this is how we've evolved. To become consumer's #1 choice and destination for auto and other insurance, this current statement really reflects the understanding that in order to become a destination insurer, we must have the products and the services to meet customers needs as they move across the insurance journey. We must go beyond new business, where we've been best-in-class for many years and deliver a more compelling comprehensive customer value proposition that really allows us to become the true destination insurer. And so to this end, we made some major changes to our business, products and services.

So as you know we've made the purchase of ASI, an acquisition that we have been extremely pleased with and we've rebranded at Progressive home. With Progressive home, we have broad geographic coverage in both the agency and direct channels and are position to offer the sophisticated rate segmentation that is really been the hallmark of our auto product for coverage that protects our customers most valuable asset. This acquisition has been instrumental to our substantial Robinson growth and the mix shift that we're going to talk about later in this presentation.

Now of course, to fulfill this destination vision, we needed to offer a breadth of products so customers didn't need to look elsewhere. So we expanded our product to include many products that were in demand, meet the most broader needs of our customers and ultimately extend policy life. We refer to these as our advantage products, and sales are on the climb. In fact, they are up more than 40% relative to this time last year.

Now we know customers have higher expectations of brands that they engage with frequently. They expect an easy experience, one that really recognizes who they are, respects their time and makes recommendations that are right for them. So we enhanced our service offerings to deliver what's important to both our current and our future customers, inspiring trust and instilling confidence that they chose the right insurer. As we stand here today, we believe firmly that we can now meet customers' needs throughout their lifetimes.

So our vision and the tactics to broaden our vision, we're an important first step. But what the vision changes came and need to really look within to assess our organizational structure and ask ourselves whether or not we were set up to achieve this vision. Historically, customer relationship management organization was the operations arm of Personal Lines and thus heavily focused on new business acquisition. But in order to create parity among consumers and customers and to position CRM to serve as an advocate for our customers, our organization became a standalone business unit, now also reporting to pressure.

And by adding experience design responsibilities to our traditional delivery role, we can really embrace the and CRM and focus our time on starting, deepening and extending many more customer relationships. This customer focus leadership has allowed us to really challenge traditional beliefs to generate healthy debates and ultimately to create better solutions for customers who trust us to meet our needs not only our purchase, but throughout the ownership experience.

So with the new organizing principle and sponsorship of customer first conversations among our entire senior team, it became clear that we have to have a single definition of the ideal customer experience. So next I'm going to talk about this unifying experience -- effort that we referred to internally as our target customer experience.

Now the functional nature and alignment of our business groups has really allowed us to optimize the experience within our individual areas. But as a result, the experience is not been quite as cohesive as we moved across the life cycle. So to generate much greater consistency, we created a single vision for how we take care of customers. Our target customer experience provides an end-to-end view, and it goes across the brand by service and claims functions, while applying to all channels contains a common definition and experience Northstar for our collective design teams to pursue.

This was drafted by senior leaders representing each business function. It has really strong buying as a result, and it serves to inform our technology investment strategy. In just a few minutes, Steve is going to talk about some of the specific investments that we've made with this is our guide and with the intent of delivering easy, personal and caring experiences.

So now with an expanded view -- I'm sorry, with expanded vision, new organizational structure and shared experience strategy, the final piece for us was really to expand our capabilities. So these are functional processes and people-related investments that were intended to create a customer-centric environment, where we can really excel for the customers that we are so privileged to serve. We created a customer experience design organization to really lead these efforts. We had a digital expertise to enable self service and allow our customers to engage when, where and how they choose.

We invested in data science and predictive modeling to guide interaction frequency and content, and we enhanced our voice of customer platform, providing real-time and robust insights to inform our hypothesis. We applied the testing approach in rigor that has been so effective for us in acquisition to the servicing experience. And with the development of research and testing lab, we are able to quickly understand the effectiveness of personalized treatments. We found opportunities to leverage newly imported skills to build applications that capitalized on these learnings quickly. Examples that you heard about in the past, include chai or homegrown chat capability, which really leverages our artificial intelligence and the customer relationship assistant, which allows a contextually relevant and personal experiences going across engagement channels.

And we've grown our in-house agency. We refer to that as a Progressive Advantage Agency, not as to expand our multiproduct service offering. And by integrating the ASI insurance operations, we are going to be able to deliver a truly bundle experience for the Robinsons.

So to this point, you've heard about a handful of foundational adjustments that we've made to really position us for success. We enhanced our vision to reflect our ultimate destination and expanded our product suite to meet the broader needs of our customers. We adjusted our organizational design to elevate the importance of the customer relationship taken an end-to-end view to ensure both consistency and across the journey, and we've added capabilities that provide deep insights, analytics and testing to enhance our experience delivery efforts.

And we've made a lot of progress during these past few years, which for a company of our size and scale is markedly fast. As you come to expect from Progressive, we make a commitment to something, we execute and we make it happen. Now with solid operating plan is critical to increasing retention, but there is this cultural element that we're driving hereto. Operational excellence supply to discrete transactions are not just really key moments in successful long-term relationships, and we are seeking a really, really long lasting relationships. In fact, we're pursuing relationships lasting for decades. We've moved beyond individual policies and now think about households, the relationship that we formed and that was that's been in placed in us to protect our customers most valuable assets. This cultural shift that we're driving is really built on a foundation of our core values, integrity, always doing the right thing, golden rule, treating people the way they want to be treated and excellence, and never ending pursuit of constant continuous improvement. This encourages our folks to stop and ask, am I solidifying this relationship? And am I performing in a manner that will generate a relationship that's going to last a really long time, in fact, even decades? As a company who reviews data and goal setting, we choose to set an aspirational target around this relationships. And since 2015, we've seen a 33% increase in the number of households that have chosen us to stay with us for a decade along.

Now our decade customer measure is a motivating organizational metric, but the true KPI for our customer retention efforts is policy life expectancy. So I'm going to refresh you on the measurement and talk about how we approach driving it. So policy life expectancy is really the average length of time and new customer states with us. PLA describes our retention efforts in one number, taking into account mix and tenure. Let me remind you of the calculation. On this graph, the blue bar shows retention results by month. Each point, on the orange line, reflects the past 12 months and then we calculate that area under the curve, the result is the average time that we expect the new customer to stay.

Now you've heard us refer to PLE in the past is our holy and in the Destination Era, this is truly our currency. So to improve PLE, our strategy leverages the 3 major drivers of retention, and we pursue process and systems improvements to try and change the shape of this curve. The 3 major drivers of nature, nurture and price. Think of nature is the mix of our customer segments. We talked about the Sams, Dianes, Wrights and Robinsons in prior meanings, and they have very different PLEs.

So we are able to positively shift overall PLE by significantly growing the longest retaining segment, which for us is the Robinsons. Now nurture is about the experience we deliver. Through advancements here, we can give customers reasons to stay with Progressive longer and thus create even greater value.

Now for many price or product competitiveness is the reason they choose a company, choose to shop or choose to stay. On our last call, we talked about the gains that we've made in operating efficiency that we use to generate a pricing advantage. Next quarter personalized President, Pat Callahan is conduct about segmentation. So for today, we're going to focus our comments on nature and nurture.

So again nature is the mix of customers. And the graph on the left shows policies in force growth by segment of the past 5 years. The broadening of our product suite and the distribution of those products through multiple initiatives, including platinum, our enhanced independent agent program, HomeQuote Explorer or online HomeQuote aggregator and the Full-service Progressive Advantage Agency have helped us grow all segments, while the Robinsons segment in particular is growing the fastest and has been accelerating.

On the right side of the page, you will find the PLE relativity is by segment and considering that the Robinsons have a much longer PLE, our efforts to shift mix are both really worthwhile and also really paying off.

Now nurture is the experience we deliver. And when we design experiences, we do so from the customer point of view, considering the 3 notions they tell us they value, easy, personnel and carrying. Insurance can be complicated, as you know. So execution for our customers just can't be. So we develop processes and tools to enable self-service, while also educating or outstanding customer care consultants to operate in an advisory capacity when customers look for guidance. Easy to understand and easy to execute, that's where we start. And we know that individual wants and needs can significantly. And many large organizations really struggle to move beyond a single experience overall. But for us by using internal and external data, leveraging our systems and predictive models, we're able to really know our customers so that we can personalize it scale. And then caring comes down to our people, our culture, our values and our overwhelming desire to fulfill the promises that we make to be here when our customers need us and to always do the right thing. When we deliver on these 3 things, we're able to instill confidence and trust and ultimately extend customer relationships.

Now the graph on the right shows the contribution that our nurture experience improvements have made to lifetime earned premium over the past several quarters. We didn't measure this prior to 2016, but we're able to now. And relative to that first quarter in 2016, we've increased our contribution 18 fold. Now we know our experience contribution because we conduct controlled experiments that allow us to measure our specific impact. So before Steve talks about the investments we've made to generate retention improvements, let's spend some time talking about how we measure the impact of these nurture enhancements and decide ultimately what we'll invest in.

Hypotheses are informed by extensive research, voice of customer insights and our business experiences. Taking a page from our acquisition playbook, we conduct rigorous calls testing using an AB framework, which allows us to then validate, which process changes, tools or treatments are truly valued by our customers. Now those resulting in a behavioral change are the things we choose to invest in. This combination of art and science is how we make decisions. Customers tell us where they want to go. We test, validate and then go there.

So now I'd like to invite Steve up to talk about some of the technology investments that we've made to really help drive the experience. Steve?

[Steven Broz, Steven Broz]

Thank you, John. Good afternoon. Let's kick off our discussion here with the Slide that John shared a few minutes ago. Becoming a destination insurer for our customers requires an investment in product breadth. Adding products to our portfolio allows us to meet the broader needs of our customers over their lifetime. And if you look at the PLE data on the right here, it's clear that no product is more important to add than homeowner sending. It increases auto PLE more than any other additional products we sell.

Going back to the graph on the left, John rightly pointed out how much Robinsons have grown. I just want to add another piece of here which Diane's on the Wrights are the largest customer segments in terms of policies in force and seeing growth there is important too, because they are the Robinsons of the future. We've been talking about Robinsons a lot, so let's talk about where Robinsons come from.

Some Robinsons are is a fully bundled customer. They bundle their home and their auto from the moment they join Progressive. For these customers, it's really important that we're really good at marketing to prospective customers and consumers. Many Robinsons come through graduation. They start at Progressive with either auto policy or their home policy. And as their needs evolve overtime, they have the other policy along the way.

No matter how they get there, we call all of the groups Robinsons. And to be clear, the second line on this diagram is the largest source of Robinsons for us. Those who first buy their auto policy with Progressive and later by their homes, and this means that marketing to current customers is every bit is important as marketing to potential customers.

Whether you're current customer or potential customer, we believe you should be able to buy homeowner insurance the way you wish. Just like we do an auto insurance, we offer home insurance through the independent agent channel, online at progressive.com or on the phones at 1-800-Progressive. We'll cover each of these channels separately. But before we do that, let's take a step back and look at the homeowners and auto insurance industry as a whole.

What you see here our 2017's private passenger auto and homeowners insurance premiums segmented by channel and by customer segment. One opportunity really stands out for us. I would say more than half of the total premium is Robinsons. This is another reason why homeowners insurance is such an important piece of the product portfolio.

Furthermore, more than half of that premium is in the captive agent channel, an agent that -- channel we don't do business in. So our goal is to move that premium to the right. We believe independent agents are well positioned to compete with captive agents for this market. After all, their local just like captives, and we would argue that the offer a better customer value proposition.

Captive agents represent one company, and our independent agents represent multiple companies, truly looking across their companies for the right combination of coverage and price for their customers.

We think direct can take share from the captives as well. Specially, as digital natives come of age and begin purchasing their first cars and their first homes, and be honest a homeowner's insurance product is long been dominated by agents, and as that product adapts to perform better in the direct channel, we think the direct channel will grow significantly here as well.

John talked about the customer journey and investments we have made all along the way. We won't touch much on brand today to learn more about that, you can look back at our fourth quarter 2017, investor event or talked about branding at great length.

But let's start talking about buying specifically, buying homeowners insurance so that we change the mix of our customers to those customers that retain longest. Both channels are important, but let's start with direct. If you look at industry premiums, we can see that across the industry, direct, the direct carriers have a much lower share in homeowners than they do in auto insurance. In the long run, we believe these numbers will converge. And it's not because private passenger autos are going to go down, because homeowners insurance is become more direct.

We look forward to leading the industry in this change and taking more than our fair share of that growth. One of the key investments we've made to increase and direct homeowners sales is HomeQuote Explorer, or HQX. It launched in March 2017, and its goal is to really make shopping and buying homeowners insurance online intuitive and simple.

Some of the ways that those are shown here. In the top box, it says info we found, and that just highlights in order to make the quote easier and faster for our customers, we some data. We don't that data to be secret from our customers, so we give an opportunity to see what we found and to verify its accuracy. And below that you can see sections on wall construction and roof type. And here we try to use clear visuals and concise language to help customers through some questions that can be a little tricky for them. The more we keep them engage with the quote, the more they can answer the questions they need to, to move through this quote the more successful this funnel is for us.

Finally, we take all that information and we compare rates across multiple carriers to find the right price and the right coverage for our customers. And in true Progressive form, we returned the rates of all the carriers even when Progressive is in the lowest. In this case, you'll see Progressive Home, second from the right, with the second Bottom line for us is we believe no other offering gives customers an option to enter the information just once and so quickly and easily get rates from multiple homeowners carriers. And the impact it's had on our ongoing home of the sales has been dramatic. We've seen big increases since HQX and elevated in the first quarter 2017. Our strong branding has made us -- long made us the leader in online homeowners quotes and HQX simply made that sales funnel much more efficient. We all believe this is a fantastic return on our investment.

HQX is also given us a nice feature to promoting our ads. The 2 TV ads that are featured HQX have been year-to-date, and they both done a nice job driving new auto and home sales. We think there is room for improvement here. We have a couple of carriers, who had a buy button on HQX, which allows the customer to buy the policy online and with carriers add that functionality, we see an increase in sales of about 10%. We're thrilled to say that Progressive Home added it's first buy and its first date in May. We're excited to bring that option to customers to be able to buy Progressive Home policy online and thrilled to add the direct capability to Progressive Home, formerly ASI and continue to extract value from that acquisition.

Some customers, as I said earlier, they want to buy the home and auto at the same time. And for them, we have multiproduct It's exactly what it sounds like. You can quote your home and your auto in one seamless quote and buy them both too. In this case, it's important to note that our home quote here is connected to HQX. So these guys the same HomeQuote taking experience that we just reviewed.

The results here have been fantastic too. It's another investment that's produced great returns for us. We've seen multiproduct coding, homeowners sales increased dramatically in the last 2 years. And finally in the direct channel, we'll talk about the option for customers, who want to call. They might call because they want to start a quote or they might call to finish a quote that they started online. In any case, when they call, they end of contacting people in our in-house agency, the Progressive Advantage Agency.

And the results here are truly amazing. And the truth is that for most people insuring their home is insuring their most valuable asset. And they get some confidence from talking to a real person and knowing that someone understands their needs and has taken the time to match their needs to the right carrier, right coverage and the right price.

Technology is certainly help this growth. If you look at this inflection point in 2017, that's when we turned on HQX and improved the sales funnel dramatically through technology. But with that being said, none of this would be possible without the great work that John and his team has done. They started this team from scratch. They it up overtime and scaled it up as well, and these results couldn't happen without their great work.

Now that we cover direct, let's switch to independent agents and talk about our results there. You can see in the independent agent channel, the Robinson sales and have grown at a very healthy rate. Unit sales up more than 6x in the last 2 years, policies in force have nearly tripled for Robinsons and the independent agent channel.

One of the key drivers, and John mentioned this earlier, is the product -- is the broad geographic distribution of our Progressive Home product. You can see in 2013, Progressive Home was in about 24 states and was called ASI then, of course. And in 2018, Progressive Home, we're happy to say, is in 45 states. To be fair, many other things that contributed to the growth of Robinsons and the independent agency channel. For example, agent distribution and the agent compensation.

We don't have time to cover all of that today, so again I'd encourage you if you would like to learn more to look back at presentation that had today at our third quarter 2017 investor event. We've done well in growing agency Robins, but we believe we can do better. Portfolio quoting the soon and extend our lead in the independent agent channel, where we've long been recognized as a leader and technology and ease of use. Portfolio quoting allows agents to seamlessly quote and bind multiple products, including homeowners and special lines and of course, auto. On this screen, an agent simply selects the products she wishes to quote for the customer and bundle and enter portfolio quote. After working through an integrated a seamless quoting processes, the customer and agent end up here and returns rates for multiple products at once. In this example, you can see there is an auto, home and a motorcycle policy being rated. And the information makes it easy for the agent to highlight savings to the customer, you see those on the top, in the middle and green, the bundled savings and additional offers the agent might want to make for the customer. You see those in the blue on the top right. In this case, it's snapshot of an umbrella policy. We'll elevate portfolio quoting soon, so we don't have actual results to share.

We do, however, have a feedback from -- that we've collected from agents in our usability lab where they had ability to use portfolio quoting, and their response has been fantastic. So game changer is beautiful and clean, intuitive and easy. We have distanced ourselves from the competition and this last one is my favorite, can you please elevate in my state first. There is an eager want among independent agents, who have seen portfolio quoting in action, and this overwhelming positive agent feedback makes us very optimistic about the impact that technology can have on agency Robinson growth.

Now that we've talked about direct and independent agency channel, and how Robinsons have grown each of them, let's wrap this discussion up by bringing that story together and talk about how successful we've been in shifting the mix of our customers to those customers who stay the longest to Robinsons. The best summary measure we have is to talk about our mix, our share of the household Robinsons households. And you can see here that over the last few years, our share of Robinsons householdsHQXas more than doubled. And as exciting as that is, growth has accelerated year-over-year. We're thrilled about the progress we have made, but it's fair to say that we're even more excited about the room we have to grow. The homeowners insurance industry has been around for nearly a century and before long it's been around people have been battling home and auto together. We're relatively new to this game, but really jumping in, in the last few years, and we're really excited about the progress we have made. And we're excited about what the future holds as well.

We've touched on buying and we talked about how bundling home insurance can change the mix of customers and increase policy life expectancy, now it's time to spend some time talking about servicing. I'll start with the comment that John made. He talked about how our shifting from product-centric culture, one that asked the question, who can we sell this product to? To customer-centric culture, but the question becomes, which products to our customers need? To translate this cultural change into action at scale, we think we need 3 key ingredients and the first ingredient is the right data.

This year, we completed a foundational investment in customer data that we call customer hub. We purchased the solution and integrated with our systems. In the process, we modernized our customer systems and retired decades old homegrown systems. Customer have simply allowed us to know the customer and the household much, much better.

The second ingredient is a robust product portfolio. So far we focused on homeowners and rightfully so, it is the most important additional product we can sell. But to truly become a destination insurer across the customer lifetime, we have to be able to offer other products as well. And in 2013, we offered just a handful of such products, but by 2018, we tripled the number of additional products we offer.

This typically extend beyond property-casualty insurance and sometimes beyond insurance is itself. the manufacturing by others and distributed by Progressive. This is in part and often to play a video get paid commission on the sales, but it's also a defensive play. We want customers to think about their Progressive relationship first and have confidence that we can fulfill their needs over their lifetime. This will prevent them from developing relationships with other firms, who I'm sure. We'll gladly take the auto and home premium. So far we have two key ingredients, data from customer hub that allows us to know the household much better and an expanded portfolio of products that increased right product to offer at the right time.

The last ingredient in determining this cultural change direction and scale is the means to offer these products to customers in the right context. And that's where customer relationship assistant comes in, CRA. When customers contact us for other reasons, CRA helps us make the right offer to the right customer at the right time. The CRM data science team builds a rapid prototype of CRA using machine learning in late 2016. And during 2017, we iterated on that product until we feel confident that we could roll it out to all of our customer care consultants, which we did in early 2018. And since then, we've also started to added to our digital channels.

Over that time period from late 2016 until now, we've seen the offer rate for just -- rate for just one of our offers. The offer to get home insurance, quote increased by more than 20%. That's a substantial increase when you consider the fact that this is an offer we make, millions of times per year. Take those 3 things together, the right customer knowledge, a rich product portfolio and an intelligent delivery mechanism for those products, and we think we're going to continue to increase the number of products per customer. This should in turn to higher retention.

Now it certainly announces the customer experience to get the right offer at the right time, core customer transactions like paying a bill, changing a vehicle or adding a driver are important too. Our investments here focus on 3 areas, as they always do. They focus on people and process and technology. But today, we're here to talk about technology and the around of technology, we really focused on two things when it comes to core customer transactions. One is mobile and the other is online.

When it comes to mobile, one of our goals is to make sure that our customers can do everything that on phone that they can do online. You can see we made steady progress towards that goal over the last few years and while there are a few transactions that you can't do on your phone right now, those transactions are in frequent.

And we'll continue to chip away with this as our priorities indicate is the right thing to do. The other thing we want to do with the mobile devices make sure we take advantage of the capabilities that the device offers. And one of the simple capabilities it has, but powerful as well is its ability to recognize a fingerprint and our faces.

Customers can use face ID and touch ID to log into the app and also to pay bills through Google Pay or Apple Pay. If I can, I'd like to share a story of my own to show you how powerful this can be. A few months ago, my older son Parker got his driver's license. It was a Friday afternoon, and he texted me, of course, from the DMV with a picture probably portraying him with this new driver's license. I texted him right back and say congratulations, nice job and then I thought, oh my gosh, I need to change his status on the policy from being a permanent driver to driver. The great thing was without putting my phone down, I could do with walking from one meeting to the next, use my thumbprint to log into the app, changes with just 2 types of my fingers and then use my thumbprint to pay the additional premium. That's so easy and that's our goal. We think that during life events like this, any friction we introduce to the transaction increases the likelihood that our customer will shop and potentially live Progressive and making the process this simple and easy for our customers is a great step forward.

We're thrilled about how mobile option is going. When you look at app downloads by our customers, which are quadrupled in the last few years or mobile option as a percentage of which also quadrupled the last few years, we're thrilled about the growth we're seeing in mobile adoption. Even with this being true though in the second quarter of this year, we saw a record number of logins to our online servicing site.

So online servicing is still really important, and we're reinventing online servicing. But you can see here as a previous expense that we had online, where customer feedback and customer actions that we have observed show that they struggle to navigate through this. Navigation was inconsistent from page to page. It was hard for customers to find the policy that they were looking for. And so we change things around on the right side, I can zoom in for you to see it better, we're reinventing policy servicing. And what you can see here, the visible changes are clear information hierarchy, the interactions and text are much are much clearer and navigation if you could see the next page is consistent throughout the site. We've seen customer feedback from usability testing, it's very positive. They find us new architecture clean and easy to use. As important as these visible changes are, there is some invisible changes that are equally important. Behind the scenes is a customer centric architecture built for the Destination Era and the multi-policy experience. Tasks and content can be prioritized and personalized depending up with a customer, who is visiting the page. And the flexibility that John's team uses to conduct that AB testing is enhanced in this architecture. It means that John's team can conduct those experiments faster and faster, and we can accelerate our learning to improve the customer experience.

The bottom line here is that we look to understand customer needs and solve their problems, and then we find the right delivery mechanism for the solution. Sometimes it's the app, sometimes it's online and sometimes it's both. We expect our investments in mobile and an online servicing to increase retention and increase self-service as well.

Finally, we come to the last leg of the customer journey for some customers and that's claims. This is a moment of truth for our customers and a chance for us to fulfill the promise we've long made to them. Our significant investments in claims technology give our customers enhanced visibility, communication and control during their claim experience. And I can't go into detail because time won't allow me into all the changes we made, but Tricia several paragraphs in our quarterly shareholder's letter to this topic. I encourage you to read it, if you haven't done so already. I'll summarize here by saying that we've added a lot of digital capabilities, you see those on the right, for customers and employees. And then you will see on the left that adoption of these new capabilities has been very fast and continues to grow. Now that we reviewed the technology investments across the customer journey and highlighted the significant returns that they have created. I'd like to invite John backup to wrap things up. John?

[John Sauerland, VP & CFO]

Thank you, Steve. So in summary, to fuel ongoing and sustained growth, we've made retaining our existing customers as large a priority as acquiring new ones. We've made foundational and cultural adjustments to really position us for near- and long-term success. We've shifted our mix to longer retaining customers, while continuing to grow all segments and delivered significant and measurable improvements to the experience, and these improvements go across the customer journey. Now we would not be nearly as successful, but for the really strong partnerships like the ones that Steve and I have and our teams have working toward a common objective.

So after hearing our story today, we suspect you might be wondering how are we doing? And the answer is exceptionally well. Policy life expectancy is at an all-time high. We've increased at more than 20% in just 3 years, and this increase in retention equates to well more than $10 billion in life time on premium across our entire book of business. And this is not a one-year phenomenon. We made steady progress in 2016 and built on it again in 2017.

We saw significant and sustained improvements and that is exactly what we've delivered. And while we're proud of the progress we made of the past 3 years, we are far more excited about what the future holds, because we believe firmly that we have just scratched the surface of what's possible. So on behalf on Steve and I, thank you very much for your time today. And now, please give Tricia and John a few moments to set up for the Q&A.

[Julia Hornack, IR Contact]

Thank you. [Operator Instructions]. And with that, Andrew, please introduce our first participant from the conference call line.

[Operator]

[Operator Instructions]. Our first question comes from the line of Amit Kumar with Buckingham Research.

[Amit Kumar, The Buckingham Research]

Good afternoon, thanks for that great presentation. Two quick questions. The first question goes back to, I guess, with the discussion on HQX and MPQ. It's been a year since HQX came online, and I was sort of broadly thinking of what kind of customer would respond to this product? Now that past, do you think younger, I guess, Sam or Diane is responding more than what you might have anticipated? And now that you have to sit and watch and on into our Robinsons? Or maybe talk about, I guess, the percentage share by the names you have as to how they are responded to this product?

[Susan Griffith, President, CEO & Director]

I would say rather than thinking about from a demographic, likely wouldn't be the Sam necessarily, Diane graduate, it would be someone is going to become a Robinsons anyway because they have a home. So I think when I think of customers that want to go through the HQX process, it's people that are digitally savvy and they want to make it easy and they want to make sure there is a place where they can go and they understand very clearly with pictures, what kind of rules they have. We can take publicly available data and input. It's really take the customer 20 years ago that started searching for auto online, these direct peoples are no one is going to ever search for auto online, but of course, that happened. Think of that customer, and that's what we think it will grow, because ultimately it's a customer that's just digitally savvy, and they want to do all of their business online.

[Amit Kumar, The Buckingham Research]

The second question sort of shifting gears, you're talking about growth. Recently last month a number of auto manufacturers in fact, revise their outlook as the impact of tariffs comes in. I was going through some all old transcripts, and if you go back to '08, '09, Glenn and others have talked about the impact of slowing auto sales in terms of margins. What is your view on that impact from here?

[Susan Griffith, President, CEO & Director]

We're not sure what we with the Obviously, we're watching that closely, and if there is less autos to ensure that affects the industry. However, we have a very small share of that addressable market. So when you think about that $300-plus billion in auto and home, we have 10%. So we believe even if the pie shrinks, it actually grew 8% last year. Even if the prior shrinks, we believe with where we're positioned that we will be able to have a bigger piece of that pie.

[Julia Hornack, IR Contact]

Thank you. Andrew, can we take the next caller please?

[Operator]

Our next question comes from the line of Greg Peters with Raymond James.

[Greg Peters, Raymond James & Associates]

Going back to HomeQuote Explorer, I was wondering if you could provide some additional current around the number of carriers that are participating in that product? And I know recently there were some news there around curtailing its partnership with Progressive. And I'm wondering if you could take your discussion around HomeQuote Explorer and the number of carriers and also comment on the announcement?

[Susan Griffith, President, CEO & Director]

Sure, Greg. Currently on HQX, we have four carriers, including Progressive Home. And for we've been working with them for years in our Progressive Advantage Agency and although the news came out this week for us is all news. We've been working with them at a price for over a year now to convert that business and upon nonrenewable be able to give them our rate for Progressive Home and other unaffiliated partners. The majority has gone to Progressive Home, and some to the partners, but we're happy about we continue to do around every month as things and that will continue through 2019. We're really impressed with the retention rate of those customers once they change their business from over to Progressive Home.

[Greg Peters, Raymond James & Associates]

And then another specific question. I found your discussion around mobile adoption quite interesting. And I'm not sure you're going to be willing to give me what percentage of your total customers have adopted a mobile solution for your company. But maybe you could -- and maybe you will answer that, but if you don't, may be you could provide us some color around the split of mobile adoption between the segments, including the Robinsons?

[Susan Griffith, President, CEO & Director]

We don't really share that, I would say, mobile adoption continues to increase and have probably come out a little bit more on the channels. So on direct channel, obviously that's a customer that wants to go directly as well. So that is a much higher rate of adoption than say our agency channel Although in talking to agents, they're continuing to talk to our customers, our collective customers to get them to do some of these things like Steve talked about on the mobile device. So they really -- if they don't need to call the agent there, they don't have to.

[Greg Peters, Raymond James & Associates]

Just maybe can you give us a sense, is it more auto versus home? Or am I just get nowhere with this?

[Susan Griffith, President, CEO & Director]

No. No. It is more auto versus our home goal, of course, when John talked about the targeted customer experiences to be able to have everything you have whether it is on Progressive paper or not. Mobile device, we're not there yet we continue to invest. I would say, it's a much higher percentage on auto.

[John Sauerland, VP & CFO]

I think we previously shared that a very large percentage of our direct customers, who quote online are now doing so via the mobile device. So our earliest our adoption of mobile was in quoting and buying as we've added functionality to the mobile app, the uptick there has been really impressive. So we found, as we build it, they will come, if you will, is predominantly been faster in the direct channel, not surprisingly. But increasingly agent customers are picking up on mobile as well. So one clarification I want to make on earlier comments on share for a home and auto, so Steve I think it was $325 billion market place of home and auto today, we're at about 10% share of the auto, think about 1 percentage of the home, $335 million is sort of 2/3 auto, 1/3 home, just a clarification.

[Susan Griffith, President, CEO & Director]

I remember several years back, it was actually while I did a presentation for the yearly IR presentation on imagine Diane. And Diana, I showed a graph of whole mobile payments. We talked about when Diane becomes a Robinsons, she is not going to certain start paying the check. So we to invest way back then into having more of those future Robinsons, we're able to do as much as they can on mobile.

[Julia Hornack, IR Contact]

Great. Andrew, can we take the next caller from the line, please.

[Operator]

Our next question comes from the line of Bob Glasspiegel with Janney Montgomery Scott.

[Robert Glasspiegel, Janney Montgomery Scott]

I was wondering if you could give us some dynamics in the homeowners rollout? What percentage is direct versus agency? And what is the relative profitability metrics of the 2 and growth as well?

[Susan Griffith, President, CEO & Director]

First of all, I'll start with the fact that my daughter, her first accident was backing into At the time, I was running claims I was CEO. I can get worse than that right. That dynamics of the home, we continue to do roll out more and more agents, so that is growing on the direct side. Clearly, the HQX has been a big key that we rolled out last year that you can see sort of the hockey stick of where we're growing with that. So we're growing in both channels. We don't talk necessarily about profit or the target margins, I should say, in that aspect we always, I'm sure for 96 in the aggregate. So we don't talk publicly about where we're targeting either channel.

[John Sauerland, VP & CFO]

Just for clarification, Bob. The property results we report in our monthly releases are the premium we're writing them through what we're not Progressive Home family as. We Steve, I believe mentioned also receiving commissions from the business that we write direct with our number of other carriers. But we also think the benefit of the currency we previously discussed around homeowners as being that auto PLE. So we showed you the relative policy life expectancy across Robinsons, Wrights, Diane and Sam, and the reason we are in the home is to get to that at least half of the marketplace, but to keep those auto customers, we've historically have been really good at bringing in those new customers to keep them for their lifetime for decades. That's the currency of the home. Obviously, that's, we previously talked about, the invisible balance sheet that we're building as a result of that PLE gain, but that's underline the profitability of your bill of home.

[Robert Glasspiegel, Janney Montgomery Scott]

What the discount you give to someone that buys both

[John Sauerland, VP & CFO]

So the discount varies by product. There is a discount -- and generally speaking across states on both the home and auto, it varies by state and it varies by channel as well.

[Robert Glasspiegel, Janney Montgomery Scott]

It would be great before too long we get the homeowners broken up by agency and directly auto so that we can track the relative growth and profitabilities?

[Susan Griffith, President, CEO & Director]

Yes. It is a little bit of tough, because to what John said in terms of not all of its on our paper. So where we have four homeowner carriers on one to be in Progressive Home, we have multiple on Progressive Advantage Agency. get a little tough look at premium even though getting commissions on some of those, but again auto PLE is our currency for that.

[Julia Hornack, IR Contact]

Thank you. Andrew, can we take the next call from the conference line, please.

[Operator]

Our next question comes from the line of Kai Pan with Morgan Stanley.

[Kai Pan, Morgan Stanley]

I just want to also say congratulations to Steve by adding one more customers to your $17 million customer base. So my first question is on your last slide. If you look at PLE have a tremendous growth, but seems like kind of reaching a plateau in the last couple of months. Your second quarter 3-month PLE data or increase have also slowed down from previous quarters. I was wondering are you reaching the limits or seasonality? How much more room to grow there?

[Susan Griffith, President, CEO & Director]

I can't predict the future in that We obviously we've have grown a lot and so to continue to grow is our goal and to continue to keep customers for decades is our goal. Part of want the FX PLE and John Murphy had on this a little bit on price. So people care about the price watching that closely, because lot of our competition has increased prices those are slowing down a little bit. What I will tell you from the perspective of business is we're finding our new business conversion is still really strong. And so we're going to continue to look at PLE from the nature and nurture price expect and to continue to him make sure that we give our customers what they need to stay and understand that.

[Kai Pan, Morgan Stanley]

Okay. My second question, Tricia, back to your shareholders letter for the 6 months results. You achieved remarkable like 90% commodity ratio, 20%-plus premium growth. You normally have one-off either of them having not of both. But going forward, do you think you will back on some of these margins or faster growth? Or do you think the growth rate is that as much as you can handle given the infrastructure, remember couple of years ago, in your ramp up your staffing to anticipate for this growth? So I was just wondering margin going to deteriorate for you to grow faster on top line? Or you want to keep the top line growth rate at it is and let the margin through?

[Susan Griffith, President, CEO & Director]

That's a great question. Let's go back to our goal, and that is to grow fast as we can we are making at least $0.04 of underwriting profits. So when we have that ability to grow like we have and we have the margins like we have, we are really happy. We're really firing on all cylinders, and I think that's the key part here. We have a great infrastructure, an incredible brand, a competitive cost structure, and we have had no problem hiring great people across the company. So we don't believe where we have any need to slow down. Now when you step back and you look state-by-state, channel-by-channel, product-by-product, you started looking say we're still able to grow these margins. And if we don't believe we can grow then we will determine what we need to do to grow. But again, we look at it so surgically across so many variables, but again, I can't predict the future we're sitting in a great position right now, we're really bullish and excited about what we continue to do and again that momentum. So for me we're happy about our growth. Obviously, we're happy with our margin. We're going to continue to achieve our goal, and that is to -- our vision to become consumer's #1 choice and to grow as fast as we can, make $0.04 and take care of our customers. Anything, John?

[John Sauerland, VP & CFO]

I think you have it. I would reiterate the success we had with staffing and attention to people has been remarkable. There have been points in the past where we're growing very quickly, and we were challenged by having appropriately trained mature staff to handle the claims an example to take the calls and John Murphy's organization, customer relationship management has done a fabulous job getting ahead of the projected need. Our service levels have been outstanding. And at the level of growth, where we are enjoying, that's really impressive. And the claim sites, similarly we have had a little benefit there and the fact that claims frequency has been dropping a bit. So we haven't had to add people quite as quickly in claims. We also found some efficiencies, the stuff like photo estimating. But in short, we feel great about quality metrics and claims. We feel great about service levels in our customer relationship management organization. So as Tricia said, we're sort of firing on all cylinders right now and want to continue to grow as rapidly as we can.

[Susan Griffith, President, CEO & Director]

Yes. And think about we talk about, so we're excited about our Robinsons growth and we have less than 2% of shares. So I mean to think of the runway with that. We're well positioned and our mix shift is changing as well. So we've had our 83 Project we thought was fantastic to get more preferred customers end, our 84 project was even better and now we have 85 coming on the streets. So we're continually excited about our ability to attract and retain our preferred business. And so that mix shift changes, we believe there is lot of opportunities as well.

[John Sauerland, VP & CFO]

And if 84 and 85 don't mean a lot to you, wait a quarter, we'll have Vice President give you a lot more to tell around our product, iterations, which we are happy to say we're hitting the market even faster than we had previously.

[Susan Griffith, President, CEO & Director]

Yes. We're creating a lot of ways on how name our products.

[Julia Hornack, IR Contact]

Thanks. Andrew, can we take the next call from the conference call line, please.

[Operator]

Our next question comes from the line of Elyse Greenspan with Wells Fargo.

[Elyse Greenspan, Wells Fargo Securities]

My question for a second quarter in a row, you guys pointed to favorable frequency trend. And we see that throughout the industry, I guess, a couple of questions, following on another quarter the favorable trends, what you guys think is driving the favorable auto frequency that we've seen in the industry? And when do you think we get to a point or maybe we say it's more of a new normal that the trends that persisted? What made the time to need to declare kind of a new home frequency base for the industry?

[Susan Griffith, President, CEO & Director]

Yes. I have a lot of things going in frequency. It's really tough to pinpoint in particular, I just talked about clearly our mix shift is changing. You can go into a vehicle miles driven. If you look a lot of macroeconomic data, and it's hard to react quickly because things change along the way. So we're watching closely things like gas prices and unemployment and things like that. So you can change in any given quarter, and I can't tell you exactly when we'll say, okay, this is a new normal and we're going to price because prices severity. But we do watch those to kind of understand, where we're priced and what's happening in the macroeconomic atmosphere.

[John Sauerland, VP & CFO]

We get this question often and Tricia pointed out, it's very difficult for us to even -- with the data we have around miles driven, types of miles driven, the economic data is such even explaining frequency changes that are past it's difficult for us, it's even more difficult to project them. We do know that the long-term trend has been negative. We expect it to be negative. When I say long-term, I'm talking about the past 4 decades. But if you look back within that 4-decade period, what you see is a lot of what variability. In the '80s, frequency was dropping dramatically. The '90s, it went back up and almost got back to where it was at the beginning of the '80s and it culminated with 2,000 combined ratio for the industry something like 112. We were a little below that, where we had 104-ish. You get to a point. After that frequency drops very quickly over the past decade or so, it's been fairly flat up or down a Bit. But I think those experiences even though the long-term trend is negative, make the industry less likely to quickly price to a drop in frequency. We have had six straight quarters now, I believe, frequency drop. But again, when you look back at the history, there is reason to be cautious and the key for us, I think, is ensuring that we are very agile, where we think things have changed. We act very quickly and make those changes in the marketplace. And I think that's a big piece how we win

[Elyse Greenspan, Wells Fargo Securities]

Okay. And then there is a slide in the deck where you guys highlighted all the products that you are now offering to customers and compared back '18 to 2017. And so if you go back before you guys made ASI acquisition you always are identified opportunity to bundle with the auto and home customer, that was driving force there. Is there anything on this list that as you think about maybe to future acquisitions, something that you guys are not writing directly today, but providing to insurance that might the list of something you would want to take on the underwriting risk completely yourself?

[Susan Griffith, President, CEO & Director]

I think for now, we're happy with Progressive Advantage Agency products. And -- or I should say over the products that were on the paper that are given to our insurance. If we believe we need to access like we did with ASI and we start with the partnership, that to us is important, because we knew in the homeowners area. We started out and we actually after with a great career, but just in market agency channel started a partnership with ASI knew they were on the same values as us. So that made sense to purchase, because we didn't have access to those customers and agency channel. We feel very comfortable with the product offering that we have and our ability to again extend our auto policies with the products on that side that we necessarily have to right on a paper.

[Elyse Greenspan, Wells Fargo Securities]

And if I get one more quick one in. What's on the new money yield on the investment portfolio today?

[Susan Griffith, President, CEO & Director]

Bill, you want to take that one? New money yield investment portfolio today.

[William Cody, CIO]

The New money yield on the investment portfolio, start with this that we run the portfolio in a total return basis, and we don't necessarily target a new money yield. In the second quarter, it was just a little bit over 3.5%. So going forward, I would just say, duration is around the same as 3-year treasury. And if you add a spread on top of that high quality, fixed-income bonds, you can get reasonable proximation of what money looks like.

[Julia Hornack, IR Contact]

Andrew, can we take the next call from the conference call line, please.

[Operator]

Our next question comes from the line of Mike Zaremski with Crédit Suisse. Your line is now open.

[Michael Zaremski, Crédit Suisse]

Yes. Thanks for the info on the Robinsons growth versus the other customer types. Can you remind us the approximate combined ratio differential between Robinsons versus the Sam, Diane and Wrights?

[Susan Griffith, President, CEO & Director]

I don't believe we shared it. So I think it would be.

[John Sauerland, VP & CFO]

And our target for all those customer segments are the same. It's 96. So we obviously have different economics across channels with an upfront loading the direct channel, the commission over the lifetime. So the pricing is not necessarily the same, but the target profit margin across those 4 customer segments is the same -- across channels.

[Michael Zaremski, Crédit Suisse]

Okay. I guess, you can -- you say -- you said a number of billion-dollar kind of invisible profits due to higher PLE. So I assume big chunk of that is coming from the Robinsons and more profitable, maybe I could through that more.

[Susan Griffith, President, CEO & Director]

So you're talking about that last slide that John showed.

[Michael Zaremski, Crédit Suisse]

Yes.

[Susan Griffith, President, CEO & Director]

Yes. So when we look at that, we look at the entire book and we say, if we added a month to our entire book, how much would that be in lifetime premium. And then John take a percentage of that, percentage of increase in PLE. So we normally sound average if we add them on to our entire book, it's about $1.6 billion in lifetime and premium.

[John Sauerland, VP & CFO]

So you might be confusing a new renewal split has been the same combined ratio, and it's not. So Robinson will stay for us for a longer than the Sam, for example. So that over the lifetime, we are achieving that 96 on a new customer versus renewal customer is dramatically different for Sam as you too from an acquisition because relative to Robinsons.

[Susan Griffith, President, CEO & Director]

And the way our acquisition model works is very different depending upon what channel you arrive in.

[Michael Zaremski, Crédit Suisse]

Okay. Got it. That's helpful. And lastly, you talked about being optimistic about independent agents, potentially taking share from captives overtime and you're reasoning independent agents holding only one product. I thought that's kind of always been the case. So I'm trying to understand what's going to change for that market share dynamics to change?

[Susan Griffith, President, CEO & Director]

Yes. I think the demographics are changing. So I think people expect to have multiple offerings wherever they go. So whether it's an insurance their online. And so I believe there is a demographic of being able to have more offerings, and you have seen some companies actually go that route from being captive to bring part of the independent agent channel. I think seeing that, it's very different to have only one product to have optionality to what fits on your lifestyle. That sort of our promise.

[Julia Hornack, IR Contact]

Andrew, can we take the next call from the conference call line, please.

[Operator]

Our next question comes from the line of Paul Newsome with Sandler O'Neill.

[Paul Newsome, Sandler O'Neill]

You covered a lot of ground, thank you for that. I just wanted to retouch the 10-year effect impact of the growth. It seems like you had accelerating growth with no impact on the combined ratio, where the mass majority when we see this growth, you see some impact on the combined ratio from the growth itself, because new business is typically not as profitable as all. Is the 10-year effort in there? And we're just not seeing that? Is there something else that is going on that we are all good. Could you give us a sense of how you think this in the current book right now?

[Susan Griffith, President, CEO & Director]

I think there is so many, John. So many things going on, but what we've been really impressed about and read about so much in my letter is the biggest part of our cost is loss cost. And being able to have our claims organization, higher well in advance, trained well in advance and have systems that can alert us to make sure we have that high-quality outcome and we have been obsessed with watching those files because of the low tenure and the claims organization to make sure that we have the right people handling the right files at the right time with the supervisor being able to get out in front of file that might be going sideways before it settled. So that's, I believe, a big part of it. We do usually have a new business panel. We've been in this mode for a while, where we've been having a lot of new business. So that's kind of started to level out a bit.

[John Sauerland, VP & CFO]

To that, I would add, so we're going to try to understand how much better to grow new business. And we are conscious like I previously said, it's a 96 across channels all segments. We are actually cognizant of what we think the new renewal mix will be going into the air. So we say our target is that calendar year combined ratio less than 96, at the same time, we're looking at lifetime combined ratios for all those customer sites that we want to be within that 96 as well. So it's a balance across those 2 objectives, clearing the direct channel as you bring a lot of new business, those combined ratios are much higher than renewable and less differential. But increasingly, as we are moving the book to what's more preferred customers, the difference between the loss ratio for new customers on the Sam end is far bigger than the Robinson end. And then as we shift that book then the loss ratio a few put on the growth is far less.

[Julia Hornack, IR Contact]

Andrew, can we take the next caller, please.

[Operator]

Our next question comes from the line of Gary Banfield with and Partners.

[Gary Ransom, Dowling & Partners Securities]

I enjoyed your discussion on customer experience, I wanted to ask about another level of customer service that actually increases the opportunity to interact with customers. And this is may be at the product level, but it perhaps your snapshot, mobile may encourage additional interaction and also a product such as our pay by the mile might encourage additional interaction. I wonder if you could share thoughts on that level? And also more specifically, whether your been thinking about pay by the mile product?

[Susan Griffith, President, CEO & Director]

We've been really focused from the snapshot perspective on having a more, we talked about is a mobile is a device. So actually using the phone to be able to understand the driving behavior, not just time a day, aggressive breaking our miles driven, but usage of your phone with an application or a phone call. So we're really trying to understand the behavior and the loss behavior that we have distracted driving. So that's really been our focus to understand with all the information we have at some point we can put that into a product model because of the data that we will have better drivers that have the mobile is a device versus a page ago.

[Gary Ransom, Dowling & Partners Securities]

So you don't have anything in the by the multi-product?

[Susan Griffith, President, CEO & Director]

We're always thinking about things. Right now, we are focusing on mobile is a device in understanding the loss experiences for distracted driving as well as what we've always used as a huge editing variable. And when and talks the next quarter, we will talk a little bit about snapshot on the importance of that variable in terms of our ability to price and charge the right amount for the way people drive.

[Gary Ransom, Dowling & Partners Securities]

May be just one follow-up on snapshot. Is it your belief that you are -- truly is a reasonable amount or significant amount of adverse selection that you are causing and you are not alone, there are other peers that are using a similar product, but not very many? Is that actually making everyone else's loss ratio higher?

[Susan Griffith, President, CEO & Director]

So I can't speak to the loss ratio of the competition. What I can say is that when our customers, who have driven with us and have a snapshot device get a surcharge often times they leave, which means that we're going to price them right, which is a high price. They didn't like it that to someone else and that to me sort of the definition the selection.

[Julia Hornack, IR Contact]

Andrew, can we take the next caller, please.

[Operator]

Our next question comes from the line of Adam Klauber with William Blair.

[Adam Klauber, William Blair & Company]

What's the year-over-year increase in platinum agents? Or else could you give us that rough ballpark of percentagewise? How much increased?

[Susan Griffith, President, CEO & Director]

I'm not sure percentagewise. We used to give the number and we kind of start giving that because a number. I think I'll number to that, I think, it's around might be a little of it. We look at platinum now less of we need to increase more agents, but in any given geographic area, where we believe that our Robinsons, do we need to have a more platinum agents in there. So that's really how we look at now because we feel like we have a good footprint across the country, but we do look and say okay, here we're not growing as much is it the agents, is it the ability to have those Robinsons walk into those agencies not kind of a next level of assessment in terms of our need for more platinum agents.

[Adam Klauber, William Blair & Company]

Okay. And then a follow-up. A point to your 10-Q, seems pretty low has been improving, look like it's only 2%, that's materially better than the industry looks like it's improved compared to year ago. I guess, what are you doing better in the industry? And how are you improving severity in a tough time for severity?

[Susan Griffith, President, CEO & Director]

I mean, I think from what I understood, it wasn't that different from the industry, 2, 2.5. We always obviously I talked about looking at making sure we are accurate in our payments to make sure we have the right level of people looking at our files because that's our biggest cost. And we have a an incredible training organization to be able to do that incredible leadership organization that claims area. And that's really what we look at this him in terms of making sure we get out there quickly, we have the customer and we help to manage the claim.

[Julia Hornack, IR Contact]

Andrew, we'll take the next call from the conference call line, please.

[Operator]

Our next question comes from the line of Meyer Shields with KBW.

[Meyer Shields, KBW]

Two questions, I think, touching on issues have been raised in the Q&A. First, to the extent that you are winning business either in independent agency or direct from captive agents, those customers are different either loss or PLEs than longer-term independent agent other customers?

[Susan Griffith, President, CEO & Director]

There will be able to really actually see that data from that right now, I mean, it's more of -- I would look at it in terms of the types of customers. The customers that have multiple products, the customers that have more to take care, the customers that have the credit, all the things that we look at in terms of proof of priors, some of those things are company look for it's really the variables that we look at versus where they come from. Do you want to add anything too?

[John Sauerland, VP & CFO]

I think that's truly

[Meyer Shields, KBW]

Okay. That's helpful. And second, I have to agree to the point you made that demographically, we're going to see an increased focus on having options. Does that diminish the value of the brand recognition improvement that you have been fostering?

[Susan Griffith, President, CEO & Director]

No, I don't think so at all. I think our brand recognition will tell you, especially HQX Progressive Advantage Agency that we want to have Progressive Home. We also have different options for you. So I think we actually have highlighted that and some of our commercials and arguably the commercials we talked about HQX, we're doing it to make sure brand recognition our own home, and it improved our prospects on both home and auto. So we feel like it's actually getting better.

[John Sauerland, VP & CFO]

I would add. I think the relative to competitors, we are the brand that is known for providing customers options.

[Susan Griffith, President, CEO & Director]

Steve used the line in his presentation that was in the commercial years ago, when we used to have compared which we have to it was we're not always the lowest. And so that's kind of been our claim to fame to make sure we have the transparent company about saying you're better off getting going with XYZ. So we're part of that.

[Julia Hornack, IR Contact]

Thank you. And I'm actually going to, I think, you said, 2800 platinum agents.

[Susan Griffith, President, CEO & Director]

Yes. Is that wrong?

[Julia Hornack, IR Contact]

No. You're close. Almost 2,900 agents of 45% since last June.

[Susan Griffith, President, CEO & Director]

So I've ever reported a month ago. So must have add

[Julia Hornack, IR Contact]

Exactly. Andrew, can we take another caller from the conference line, please.

[Operator]

Our next question comes from Brian Meritor with UBS.

[Brian Meredith, UBS Investment Bank]

So just curious you've had at the ton of success here and lots of growth going on, but growth obviously requires capital. And I know you had the preferred offering. Just curious where are you with respect able to sustain or observe this growth here on your current capital position? And then what are your alternatives going forward given that your leverage ratio is up a little bit?

[Susan Griffith, President, CEO & Director]

Yes. I mean, we look at capital in terms of need from many different areas and we wrote a paragraph about in the Q. As we grow, we're going to need more regulatory capital to hit the premium to surplus. So we will continue to watch that, that's a good problem to have. We have dividends, we have a lot of different things that go into our capital structure and of course, our debt-to-total capital ratio we usually talk about in a 30% range. If we believe we need capital to continue to grow, we'll determine what that means whether it's issuing debt or in the past. So we look at that on a monthly basis to kind of understand our need, but we believe we see that as a good problem in terms of growth in our ability to get that if we need it.

[Brian Meredith, UBS Investment Bank]

Yes, I don’t disagree, just wondering, your willingness to the equity capital.

[Susan Griffith, President, CEO & Director]

We review it every time we go to market to determine where we should go with that, and what makes the most sense in terms of returns. So we do that as needed.

[Brian Meredith, UBS Investment Bank]

Got you. And my next question, obviously, great growth in homeowners is going terrific. How do you think about managing volatility that homeowners potentially I know you've got some great arrangements in place right now to do that, I assume, it's getting bigger and bigger, bigger and it's harder to manage their volatility and I guess, what's the run rate here you got -- you may run into some concerns about that?

[Susan Griffith, President, CEO & Director]

Well, firstly, I think is really understanding segmentation in the home as much as we do on the auto side. So we're working very closely with the 2 R&D departments to understand the type of homes we should ride and obviously want to expand our coverage, not only just geographically, but to more homes. So we are watching that you understand, okay, this is the segment that we believe really fits in our in our real house. In addition to that, as you know, we added the aggregate last year and has been helpful and we feel really good about our insurance. So I think it's really about having a solid reinsurance plan and kind of understanding what we can on the history of weather and where we should write and how we should rate those homes and also continuing to segment homes as we do auto.

[John Sauerland, VP & CFO]

A lot of that growth is actually lessening our concentration risk geographically. So that getting bigger they're actually, I think, helps the volatility. The aggregate surplus agreement is not depending upon how big we are, it's a percentage across-the-board. So it's not dependent on sites.

[Susan Griffith, President, CEO & Director]

Our goal is to continue to grow extensively in home and auto unbundled.

[Julia Hornack, IR Contact]

Thank you. We will take one last caller from the conference call line. Please, Andrew.

[Operator]

And our next question comes from the line of Ian Gutterman, Balyasny Asset Management.

[Ian Gutterman, Balyasny Asset Management]

I just had two quick ones. First on the homeowners, I guess, sort of go back on history right, ASI before acquire them was obviously very overweight Florida and Texas I recall and is a middle of the country obviously had a lot of these other partners. And now, first, I talk a little bit about how much of the non-coastal growth as you fill out the math? Should we assume that on the margin most of that will be ASI? And secondly to the extent that it is, can you just talk about what I'm really concerned about something for future call is the infrastructure build out in states where you are heavily concentrated, right. If Tennessee or Nevada or something like or maybe where you don't have homes and you have a lot of auto customers and people are now to call in. How quickly can you build that home infrastructure because there is a lot different than our infrastructure, right? so maybe I'll leave it there and let you start answering that.

[Susan Griffith, President, CEO & Director]

Yes. So obviously as we expand on the agency channel, it will all be Progressive Home off. On the direction channel, we have multitude carrier. So really is the best fit for the customer. We only talk about the percentage get from each of the unaffiliated partners with Progressive Home at the direct side. We have lots of options to fill up the country. From an infrastructure perspective, we have made a commitment and investment on the claims organization to have offices across the country. We have hundreds and hundreds of officers across the country. For the most part in home, we use independent agents for the homes. So the infrastructure is already built out with our partnerships that, but we do have an opportunity to actually leverage our already infrastructure on the auto claims had with the leadership we had there. So and we also have our large losses and complicated losses, a very large kind of high value or high kind of loss organization here that handles any of those big claims on the commercial side, on the home side. And so we have an infrastructure build from the home we believe we can utilize for auto, for home as well as the fact that traditionally we've used independent agents across the country.

[John Sauerland, VP & CFO]

Yes, our writing a lot of the estimates for homes and states, where we don't have a lot of business yet. You're right about that for sure. But each of those files is owned by an adjuster that is an employee that is reviewing those estimates and reviewing coverage as well. So while there is some delegation of the adjusting process, it is still owned by an employee.

[Ian Gutterman, Balyasny Asset Management]

I assume the goal overtime as you get more critical more in certain states may be counties that you start to replace that independence with more of your own people when you have enough skill to do so?

[John Sauerland, VP & CFO]

I'm sorry, that's an absolutely what we've been doing as we grow in states in which we don't have a ton of business yet. So the claims organization for Progressive Home is growing very rapidly.

[Ian Gutterman, Balyasny Asset Management]

Okay. And then just quick follow-up about you earlier questions about an 86, I may be asked a little differently. Obviously, you've been in the 96 a fair amount for a number of years, let's say, a target on it, but somewhat down the line, you go from 2% of Robinsons to call it 10% Robinsons. Just given the longer PLE, they can sustain a higher combined ratio. Is it reasonable to expect that over the longer-term sort of neutral or be a smaller margin versus the 96, which isn't a bad thing is probably a good thing because the PV that is higher. But just from a GAAP perspective, is that something we should expect to happen overtime?

[Susan Griffith, President, CEO & Director]

I wouldn't necessarily go to that. Remember, it wasn't long ago in 2016 that we were over 96 for the quarter we came in at 95.7, I believe. That my memory in my mind since its was my first quarter as CEO. But 96, again, we have been writing about this is our first annual public in 1971. So we will continue to look at the 96 aggregate for all of our coverages. And again, they are different, but we optimize to the aggregate. So what we will do whatever we can to grow as fast as we can, make at least $0.04 to service our customers, and that's really sort of -- that's our blueprint. And then everything else we can to fit into that. This is a 96 is and it is what we do here it's our culture and it is really is served us so well for our 8 years.

[Ian Gutterman, Balyasny Asset Management]

Absolutely. I just tried to think spreadsheet here as you have more, more success with the Robinsons mathematically little bit natural optical pressure, right, not economic profits fantastic, but nominally I was thinking there was a mix change, I guess, if you're well that makes the 96 little harder. Does it make sense? Or I'm the other way?

[Susan Griffith, President, CEO & Director]

Yes. I think we're coming from new we just have to play it out and see how it goes as we continue to increase our mix of business.

[John Sauerland, VP & CFO]

I would just to reiterate. As we go into a calendar year, we know our calendar target is 96 or better, and we can project that we expect those combined ratios are by segment and by new renewal, and we can adjust our target pricing accordingly to make sure best sure as we can that we're below that 96 for the calendar year.

[Julia Hornack, IR Contact]

Thank you. So we've actually exhausted our scheduled time. So Andrew, I'm going to hand it back to you for the closing scripts.

[Operator]

Thank you. That concludes The Progressive Corporation's second quarter investor event. Information about a replay of the event will be available on the Investor Relations section of Progressive's website for the next year. You may now disconnect. Everyone, have a wonderful day.