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Progressive Corp
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Welcome to The Progressive Corporation’s Third 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 we’ll use this event to respond to questions.
Acting as moderator for the event will be Progressive's Director of Investor Relations, Doug Constantine. At this time, I’ll turn the event over to Mr. Constantine.
Thank you, James, and good morning. Although, our quarterly investor relations events typically includes a presentation on a specific portion of our business, we will instead use the 60 minutes scheduled for today's event for introductory comments by our CEO and a question-and-answer session with members of leadership team. Questions can only be asked by telephone dial-in participants. The dial-in instructions may be found at investors.progressive.com/events.
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 and results to differ materially from those discussed during today's event.
Additional information concerning those risks and uncertainties is available in our 2019 Annual Report on Form 10-K and our first, second and third quarter's quarterly report on Form 10-Q, where you will find discussions of the risk factors affecting our business, Safe Harbor statements related to forward-looking statements and other discussions of challenges we face.
In particular, note that our quarterly report on Form 10-Q for the first quarter includes discussions of the risks and uncertainties that we face, including specific risk factors arising directly and indirectly from the COVID-19 pandemic and these risks are further referenced in our third quarter 10-Q.
Before going to our first question from the conference call line, our CEO, Tricia Griffith, will make some introductory comments. Tricia?
Thanks, Doug, and good morning, everyone. It was an extremely close and not yet decided election. I thought I'd open with a few words before we get to your questions. I know that the elections are on everyone's mind, including those at Progressive.
I think it's important that our shareholders know that we live our core values, specifically the golden rule, regardless of the candidate we support. I'm very proud that in the end, we're all united in our commitment to caring for our customers, our communities, our shareholders, and most importantly for each other.
As you know, we feel strongly that our people and our culture are a significant competitive advantage for us. They're one of our four strategic pillars, and we rely on our incredible culture to get us through challenging times, and come out more focused and united than ever. This year has been no different as we move forward together.
I thought I'd share a note that I received on Monday from an IT Group manager Scott, regarding a video I did on Unity last week. This really exemplifies who we are as a company and why we win in the marketplace. He said Tricia, I have so much to be thankful for in this year and month and there is a literal pile of things for which I'm deeply appreciative for you and your team, truly, and I know I speak for so many others I am grateful. Then he went on to share the communication that he sent to his team and these are words that are echoed by so many leaders at progressive.
His note said, it's the last Tuesday in October, which means that next week marks the national election and another end to political yard sign season. Here's the sign we placed in our own yard. And the sign started with love your neighborhood it talked about loving your neighbor regardless of race, who you love, et cetera.
Conveying what we've hoped for our neighborhood, that regardless of next week's outcome, we hope that our common bond as neighbors can prevail over the differences, really an extension of the golden rule. That's not to say that it's not easy or that we’re not strong in our political convictions, but it's also to say that we strive to respect, care for and even love our neighbors regardless of their vote or other differences.
The same applies here at work with Progressive culture rooted in our core values. My DRG is committed -- direct reporting group is committed to support the diversity of our people. Please work to grow and sustain that spirit of collegiality and friendship with each other through and beyond the election.
And these words really truly reflect who we are as a company and you know, being up late and in the middle of the night and this morning, I will end up after this call shooting another video today to ensure The Progressive people who may feel stressed, remain calm and focused, even though there'll be delayed results.
Also, tomorrow marks our Eighth Annual Keys to Progress, where we give away cars to deserving veterans. Due to restrictions on business operations for the program participants and social distancing requirements, our giveaway events will be small, but still very meaningful. All-in-all, this is another great example of giving back to our communities where we've donated over 750 vehicles in the past eight years.
Being a successful business starts with our people and this quarter continues to exemplify what you can do with the right team and the right culture. As I stated in my letter, we're extremely pleased with our Q3 results. We're also acutely aware that these times are tumultuous and that we have to remain nimble as events unfold. That's really always been our strong suits.
Thank you. And with that James will take the first question
[Operator Instructions] Our first question comes from the line of Mike Zaremski from Credit Suisse. Go ahead, please, your line is open.
Hey, thanks. Good morning. I guess, first question, I'd love to learn more about the automobile severity trends. They seem to kind of -- be kind of staying higher for longer by -- I know there is a lot of -- there's been some noise and distortions during COVID, you called some out in the Q and in the quarter, you've called some out to about subrogation. I'm trying to -- kind of just learn more. So we can kind of understand whether the underlying trend might be a little bit lower or if this is kind of the new normal, especially in the bodily injury and pip sides?
Thanks Mike. Yes, let me give you some insight and it’s a little bit difficult to compare with PCI because they haven't reported Q2 yet. They're not as volatile as Q2, but let me go through a couple.
So, when you think of PD -- it's sort of the opposite of what happened in Q2 in terms of inbound subrogation. Our supplement payments, which is inbounds sub are coming from a period of lower volume applied to a period of an increase in current volume. So, we report 3.9%, PD incurred. It's a little bit higher, if you remove that inbound sub, about four points higher. So, right around 8.5 points. So, it's a little bit higher, but clearly less than Q2 when we were at 12.7.
On collision, again the outbound sub mix is no longer driving trends. And that's of course, the money we receive in. And if you remove that sub percentage, this 6.2 goes up a little bit, that was negative in Q2. So that was very different. And it's all really about the numerator and denominator when you're having frequency changes quarter-to-quarter.
You talked about BI, our incurred severity is similar to Q2. So, we have some aging, which we believe accounts for about two points. And then we have another one point to two points that relates to facts of loss -- loss shift. So, what we did was we took a look at quarter two of 2019 facts of loss, and then we compared that to quarter two of 2020 facts of loss.
And what we're seeing, we think this is likely because of less morning congestion commute, that there are less rear end accidents. So, think I'm kind of a fender bender, that wouldn't cause much damage from a severity perspective or an injury perspective.
There are more intersection accidents, which are always more severe. So our estimates take into account the aging inflation and the facts of loss, mix shift, we believe is around 7% to 8%. So while we are reporting the 11.6%, we believe it's a little bit lower based on those two issues. So PIP so difficult because there's so many different state mix changes. And in the severity – the higher severity space account for about two points of with those mix shifts.
So we think that aside from New York most of the PIP states are around 6% to 7% severity. So it's not as volatile. It's still different just because of the situation with COVID and vehicle miles traveled and different loss patterns. But hopefully that will give you some insight into our severity trends.
Okay. Yes. That's very helpful. I guess, lastly, I'll move just more broadly to the direct-to-consumer segment of auto. It feels like there's been an acceleration of PIP. And I think the only question we get whether is – whether this is kind of the new normal or if there's kind of been a temporary bump during COVID.
I'm trying to – I know it's a high-level question. Just trying to better understand is do you feel that there's something helping you guys that's kind of one-off that could kind of kind of taper off a little bit or is there third-party marketing technologies you guys are using and just will continue to help you? Anything to kind of get us better? I think we understand from your letter Tricia you guys feel great about growth. Just trying to get a sense of whether the double-digit growth in direct-to-consumers is sustainable?
Yes. I mean on the auto side in the private passenger auto side when we market, we're marketing for the direct side but we believe that our agents are reciting to that. So when the stay-at-home orders happened, a lot of our agents weren't able to actually work or open their branches, some of them obviously were able to do it from their home but we saw applications go down. And now we're seeing them increase a little bit as things start to open. So that could be volatile for a while depending on what happens with rates of infection.
What I will say is that the direct-to-consumer side really has increased on the commercial side. So our commercial business has always been the majority from the agents. It's a more complicated product and we are seeing more direct-to-consumer on the commercial side.
That trend likely would have been happening over time as people felt comfortable with the products they're buying it really depends on complexity. But I will say that in our for-hire transportation, it's the strongest our direct channel where those new ventures are coming in directly to Progressive.
So it's hard to say if it will continue. It could be what's happening with pandemic, it could be what's happening with younger truckers for example, starting new ventures and they're more comfortable going direct. But what I would say is we're glad that we've invested in the direct side of the business. We continue to feel like we want to have broad coverage for where when and how customers want to buy and just be available for everyone depending on that need.
Thank you.
I just might add Mike, you use the new normal in both the severity and the direct questions. And we aren't thinking there's any new normal to point out right now. It's a very dynamic environment obviously, but we think we're playing a well. So in the direct space, as you noted in the Q advertising is up a 29% for the quarter. So when you see us spending more in advertising you should know that we are seeing opportunities to spend efficiently to bring in business. That is what we call the prospects side of the equation and prospects are up as we noted in the Q about 8% for the quarter, but conversion is up as well.
And that was a quarter where some of our competitors had lower pricing in effect because of their approach to COVID rebates or credits and some of those have come off now. So from a competitiveness standpoint all else equal, we think we're in a pretty good place. Conversion is up 5% for the quarter. We may even be getting more competitive. So again all else equal, our advertising especially being even more effective.
Thank you.
Our next question comes from the line of Elyse Greenspan with Wells Fargo. Go ahead please. Your line is open.
Hi, thank you. Good morning. My first question was just in the Q, you guys did pointed out that miles driven went up in the first half of the third quarter, but then back down in the second half. So I was just wondering if we could get some color on what you think might have driven that? I'm not sure if it was pickup in COVID cases or partial lockdowns in certain states? Or anything -- any other color that you think would apply to that dynamics within the third quarter?
Yeah. Good morning, Elyse. We do think that's what happened. We think that is reflected pretty when something changes in a given state. We look at this from state-to-state. There's really a variety of vehicle miles traveled and ranges. It’s still now much obviously higher than the trough of 40% right around 10%-ish 10% to 15% across the country. We're really digging in to kind of understand it. We do see the congestion is still a very different in the morning to me where there's less congestion. We're starting to dig into how we look at the types of job you have, and so we can try to understand people that might work-from-home for a longer period of time versus people that have jobs where you need to be on about.
And in fact we're really looking through our UBI data that are Robinsons or people that are 65 and older their features fell in line with their vehicle miles traveled and we just think they're driving less during rush hour or they're working from how more they have roles that can work from home they might be retired. And the younger demographics what we would call the spends and dines and wrights their features fell more than the VMC, although the gap is narrowing. And they had a small drop in mileage. We believe that these are jobs that can't be done from home.
So we're watching that closely. I think a lot depends on what happens in the next several weeks with infection rates and what specific states do. So again what we'll do is we continue through our product group watching those states and those areas very closely to understand those frequency trends and using data both on the Snapshot side and the smart hall side in commercial where we're not seeing that change.
So the truck drivers are on the road more because of moving goods back and forth. So we see a little bit different on the commercial side. And even though the congestion has decreased, we know that they're on the road more. So hopefully that gives you a little bit of color. It's changing always and we're thankful that we have a lot of data in our usage-based insurance across many of our products and we'll keep watching that and react as necessary.
That's helpful. And then my second question is on Snapshot. So I was hoping that you could give us an update on kind of the take-up rates within both the agency and the direct side where we sit today. And then have you guys noticed a greater take-up rate for your Snapshot devices during this kind of COVID slowdown, I guess is folks are potentially driving less right, with potentially want to use a device that could potentially lead to some savings to them?
Yes. So immediately, we've always had a pretty good high take rate on the direct side. So immediately, when we had the shutdown, we saw an uptick in that. And that sort of leveled off. On the agency side where we haven't had historically a great of a take rate, we saw that go up, and it's continues.
So I think, agents and I've been -- I probably talked in one of the great things about COVID is that, I've been able to get out and talk to literally thousands of agents in the last couple of months, virtually, of course, and they understand that they need to be competitive, and they've been talking and selling Snapshot to their clients, to our mutual clients. And so that has increased and that has continued to kind of maybe level out, but it's increased much more than before COVID.
On the commercial side, September was the biggest Smart Haul enrollment ever and the monthly take rate climbed to about 24%. So we're seeing that definitely on the commercial side. John, do you want to add anything?
Yeah. So that's definitely seeing that take rates go higher, especially in the for-hire transportation segment that Tricia was noting earlier. So that is, you can think of sort of delivery trucks, as well as interstate trucking. And we're very excited to see especially the take rate on what we call new ventures. So a lot of truckers are going out on their own these days.
And truck insurance premiums are pretty high. So they're very open to offers that might lower that premium. And it's great that the take rate there is even higher than the overall. And we feel that segment is very well priced, especially when we have the Smart Haul insights that we have really from day one.
So the other thing, I would mention on Snapshot more generally is that we are -- well, we haven't marketed a lot, we have something called Snapshot Road Test in market now. And the take rate there is encouraging. And this is via mobile devices whereby you can do what we used to call test drives.
So if you drive for a while, we get your driving behavior, we deploy that at your initial quote. Today in Snapshot, we give you a discount for participating and then give you the fully developed discount at renewal with Road Test. You get that up front. So we're excited by the early take rates there again, we have a marketed it, but we think we're ready to do consumers will be very interested.
That's helpful. And will Road Test, thank you to proceed follow-up, will Road Test be available in all states where you have the traditional Snapshot product?
Yeah. So it's available today. We just haven't marketed it.
Okay. That's helpful. Thank you for the color.
Our next question comes from the line of Jimmy Bhullar, with JPMorgan. Go ahead, please. Your line is open.
Hi. Good morning. I just had a question on the competitive environment and you just discussed sort of pricing conditions in the personal auto business and your outlook for margin, because it does seem like the more and more companies are trying to be more proactive and trying to either gain share or recover the share that they've lost over the last few years?
Yes. I mean, we feel really great. We've added 2.4 million policies compared to last September. So we feel like we were well positioned coming into the pandemic. And then we reacted very quickly. So we knew that vehicle miles travel has been down. We immediately gave to 20% credits for two months to our auto customers. We feel that that -- it could change, so that helped us with retention, because those customers were able to say, obviously, there were some moratoriums as well and they'll have to play out depending on what happens, if there's stimulus, et cetera.
And then we started to do what we do best and surgically look at state by state, channel by channel, product by product, because we want to balance that growth and profitability. And we've really enjoyed gaining share across the board and we want to continue that.
So what we're doing now is, what we call, taking small bites of the apple in terms of rate decreases. If we see conversions going down or we're less competitive and we get a lot of intel from other companies and our agents, we will take rates down slightly.
So we talked about taking it down about 1 percentage for the quarter and 3% April through September. We did that in about 37 states and when I say 37 states, there might have been two rate decreases, maybe 0.5% maybe 1%. We really watch this and we're able to react so quickly, which keeps us really competitive when people are shopping.
And then, April through December, we will have taken some form of rate decrease in about 42 states and that is about 84% of our country-wide net written premiums. So, again, surgically being able to react to rate, be competitive. And we do that going both ways, depending on the product.
But we feel like we're positioned well, like John said, and everybody had whether they took credits or discount, everyone's trying to make sure that we are competitive. This is a very competitive industry and we feel like we're in a really good position, which is why I started the letter off the way I did. I'm very pleased with our results and our reaction to COVID and what we've been able to do for our customers when they need us the most.
And when you think about this balancing growth and profitability, is there a level on either the loss ratio or the combined ratio to where you're comfortable taking it up and continuing to push for growth? Like, I think, in the past you've talked about mid-90s would be a level where you've sort of slow down your growth and focus more on margins instead?
Yes. So we've had the same objective in the company since we went public in 1971, that to grow as fast as we can and make at least $0.04 of underwriting profit. And so, we always try to balance that. That said, we have five core values and one of them is profit. So if we don't believe we can be profitable then we'll start growing, profit comes first.
So, here's the deal. We don't want to give away margin. So if we believe that we can grow and still grow at that 96 or less than a combined ratio, we'll do so. If we don't, we'll keep the margin and understand that again, that is as such, we do it at such a surgical level, that the 96, grow as fast as you can, is our job objective for the overall company but we look at it very different across our portfolio. So, yes, we're going to continue to try to aggressively grow, gain market share all while making sure that we achieve our profitability goal.
Thank you.
Thank you.
Our next question comes from the line of Greg Peters with Raymond James. Go ahead please. Your line is open.
Good morning. So the first question will be around retention. As you know, there was another insurtech company that went public groups. It's also an Ohio-based company. They disclose their retention rates, Allstate discloses their retention rates. And I'm just curious if you could give us some color about how your retention has been this year, relative to last year?
Yes, so retention for us is really the Holy Grail, you want -- you spend the money to acquire customers, they come in, you want to make sure we give great service and they reward us with the retention. So, we look at retention for what we call policy life expectancy. On the trailing 12 months, it's up to 9%, up 10% of agency, 7% indirect.
Now, the caveat is we're getting a benefit of the billing leniencies and moratoriums and so we would say -- we would say that those are the numbers, but they may be conservative, depending on what happens with people and jobs and unemployment, etcetera. Our trailing three is a little bit lower and a little bit more volatile. Trailing three is 7% up, up in 6% in agency 8% indirect.
And on the commercial line side, of course, we look at a 12 month basis because those are annual policies; PLE is up about 4%. So, we're very pleased with that, but we also know that there's a lot of volatility going on right now. And we'll do our best to keep our customers and to work with them, our CRM, our customer relationship management group on both the direct side auto and commercial lines auto, work very close to the customers if they need to make changes to their policy in order to keep their coverage available.
So, I would say the PLE numbers that we state that we stayed in the queue are very positive. But we also know a part of that is because of the lenient scene moratorium on based on COVID.
Got it. The second question is around the expense ratio, a number of your competitors are laser-focused on reducing their expense ratios to bring them down closer to your level. And I'm curious about the initiatives that you have ongoing within your company to keep your expense ratios low and possibly to get them lower.
Yeah, we talk about expense ratios all the time. And we're pretty proud of our results. It's a balance, of course, making sure that we're investing in things like digital that our customers need. I think the one of the silver linings of the pandemic is that we learned that we can write really good estimates from photos and videos and we were working on that prior to the pandemic. But obviously, it was exacerbated based on the fact that we all you know kind of went into our homes to do the work.
So, we continue to experiment and see what type of vehicles that we can look at and not be side of car and understand, is that is a quality estimate. Because you don't want to have such a as an example such a low loss expense ratio or loss expense adjustment ratio, if your accuracy is not good, because that indemnity is the biggest part of what we pay out.
And we continue to work in our CRM organization, understand how customers can get things they need without human intervention. John Sauerland’s Group is working on, some RPA process. And so there's, we have a lot of things going around the company, we're actually we had, we had completed a five year plan for a Board of Directors last year. And obviously we're redoing it this year, because a lot of the changes and that's actually been a topic of what we're what we try to achieve.
We have internal goals that we work on together. And we balance that with investments of like John said, advertising, digital, but we constantly try to look good. How can we absolutely do more with less than not affect our customers? And we know that this is a competitive industry, and that competitive prices are really important. So that expense ratio is a big part of it whether it's on the overall side or decline side. John you're the first string holder you want to add any color?
Yes. Certain many competitors are aspiring to our level of cost structure but there are some competitors who have better cost structures than progressive. So we've been focused on continuing to get more competitive in terms of cost structure for years. As Tricia noted, we think of it in two buckets. So we think of what we call non-acquisition expense ratio and acquisition expense ratio.
In the acquisition, we put advertising, as well as agents commission, so I just mentioned earlier, advertising for the quarter was up 25%. It was up 20% year-to-date. We think that's good growth in expenses because we're acquiring customers we're going to have for a long time.
Similarly on the agent side, we have to pay competitive commission in order to continue to grow there. So we think growth in expenses in that portion of the expense ratio is good. We focus on the non-acquisition expense ratio, where we are trying to drive what we think of as our infrastructure costs lower.
And if you go back around five years, as Tricia noted, I think we've taken out maybe close to three or four points on our non-acquisition expense ratio and we – our site set on reducing that further is as Tricia noted, price competitiveness is not the only thing that matters in the marketplace but it is a very big part of the consideration set for auto and home insurance as well as commercialize especially.
Thank you for the answer.
Our next question comes from the line of Michael Phillips from Morgan Stanley. Go ahead please. Your line is open.
Hey, good morning. So we've all heard Elon at Tesla talk about being aggressive with hiring actuaries and starting on insurance company to use his proprietary real-time data and – well maybe that's only for is captive fleet I guess just your thoughts on how you view the competition from connected car companies like that that do have really access to rich data from their own fleet to offer insurance to complete fleets?
Yes. I mean I think that we – from a talent perspective, we feel really positive where we're at. We do – we have been investing in understanding how to have functionality to gather data from third parties whether it be OEs and we call it Express data quote. So that will be something that we're working on now.
I mean I think the question is – or the answer is that yes, the talent is important. We believe that at some point we'll have to answer who owns the data but we've been working on this with a lot of partners over time to understand how to get quotes our way and understand that data to better understand trends. Does that answer your question?
So I guess, I was looking more towards your view of just the competitive landscape from companies like that that have access to their own data from fleet are trying to offer insurance and even there aggressively offer their insurance. I know how we speaks but that was really what I was trying to get at.
Got it. Yes I wasn't sure if I answered that. Yes, it's great competition. We have had – they have shot in data for a long, long time. And so we feel very comfortable. The fact that I could be able to tell you today, I think when Elisa answered the question that our Robinson cohort, the feature is sell in line with vehicle miles traveled, et cetera, we're able to watch that real time.
And especially, now I'm very excited about what we're doing now on the commercial side and I talked about that with the floor higher transportation to be able to give these discounts to those delivery trust, those trust drivers interest and understand the best drivers are really important. That will help with retention. That will help with loss cost.
So the competition is great, because it allows us to never stop evolving. So years ago we only had the dongle and you had to plug it in and then you could do a wireless. Now we have the mobile device. John talked about our road test. We have Snapshot Proview. So it forces us in a really good way to continue to invest data and collecting data on our 24 plus million policyholders. So we feel like we're in a really great position and competition only makes us better.
Okay, thanks. I guess part two then is, you alluded to it here and we talked a lot about UBI and Telematics now. I guess, what's the lifeline of credit score specifically as a rating variable on personal auto? Are we looking at a couple of years? Do you think that thing dries up or decades? Or how long does I think have left in runway the pricing Varel?
You know what? That's -- I'm glad you brought that up, because I -- we've been thinking about that a lot. And I know there's been -- there will be challenges because of the pandemic on regulatory issues.
So Michael this would be a lot longer answer than you probably want. But I think it's really important for me to make a couple of points. Basically on risk based pricing and then on kind of what's happening in the world. So first and foremost, we've been getting questions on the usage of credit specifically, does it affect race. And race is never used in pricing insurance projects. In fact it's illegal.
A few people have the exact same risk profile. If there's a person that's just like me, same driving, same credits, and we happen to be different races, we get the same rates. Basically we are risk base and race lined.
And I also want to make sure that it's clear that progressive supports legislative and regulation that enables insurers to leverage all the available data technology and advanced analytics to price insurance risks when it reflects the insurance cost. And that's really key, we want to have a rate for the specific risk. And for me it's -- for us it's about accuracy, and it allows people and consumers and small business owners to fulfill their American dream and achieve their economic opportunities that they desire.
We've talked a lot in the past about the virtuous cycle. If you've got rating accuracy at least a broader consumer availability and affordability, which leads to growth and financial success not just for our shareholders but for the company and for job creation. We've been able to create so many jobs in the last several years, that leads to innovation and segmentation and then goes back to rating accuracy.
So we've had that the virtuous cycle that we've been very proud of. And in the past, we've talked about – it’s the regulator's role to work with us closely in the industry to ensure solvency, ensure compliance and facilitate healthy and competitive markets that provide a wide variety of options for consumers. So key elements that I've mentioned before to focus on is ensuring that at prices for insurance are not inadequate, excessive or unfairly discriminatory.
So we're strong advocates for healthy, competitive volunteer insurance and broad distribution. And for the U.S. insurance industry, we want to be able to continue to facilitate the risk taking in transfer that drive economic growth through delivering products that are both available and affordable. So for us we --in the industry we believe ,we want to preserve the sanctity of contract and the continued support for risk-based pricing.
Now all that said, we do recognize that for some individuals mandatory insurance protection can be a significant financial burden. We're very open to collaborating with regulatories and other regulators and other industry leaders on solutions for those individuals versus creating massive and unnecessary market disruption that will likely have a negative outcome for certain segments.
So that's sort of my feel on, why we've continued to support risk-based pricing which credit is one variable of many. I think how we think about affordability challenges and we just have to think about where we're at in the time of history and decisions that we make that affect the future for consumers. So if you go back to our route in 1937. I'm very proud of Progressive.
We started out as the nonstandard insurer allowing people in Cleveland Ohio who couldn't get insurance be able to do that. And then of course you know they're rust eventually countrywide. And we're able to have access to affordable protection across many segments.
We have a critical role, I believe in inviting innovation segmentation and the use of technology and data to provide greater access to competitively priced insurance for all. We shouldn't confuse affordability challenges that many face during this unprecedented pandemic with our long standing and solvent model of providing affordable and widely available protection.
I think the issues that have arisen regarding social injustice couldn't stem from the insurance industry they've been looming for decades and the events this year brought them to the surface. And now I think we need to really get together and ultimately solve the root problem of opportunity and equality for all not just during the pandemic, but ongoing.
So from my perspective and this list could go on and I'll shut up, but very short term after the elections decided we need some form of stimulus to get us through this next wave of infections. And my hope is that, we're able to distribute it more surgically this time to those that need it most.
I believe that we need to raise the minimum wage over time to $15 per hour. I will note that all active Progressive employees already make over $15 an hour and we're proud of that.
And as a country our focus should really be on additional funding. So the schools can safely reopen and deliver effective online communication. You can't get ahead. If you don't have the ability to learn online which requires infrastructure investments like access to broadband coverage.
So I could go on and on, but the message here is that, we as a country are facing a really great opportunity to make substantive changes. And as an insurance company we'll continue to play a role in focusing on rational and risk-based solutions so that everyone is able to achieve the economic opportunities they desire.
I've been obviously thinking about that a lot Michael. So I'm glad you brought it up. I think that credit is a powerful variable. It is it is not race related. We do not believe it's race related and we'll continue to hold firm on them.
Okay. Thank you very much. Appreciate it.
Our next question comes from the line of Gary Ransom with Dowling & Partners. Go ahead please. Your line is open.
Yes, good morning. Tricia you mentioned in your letter the creative ways of treating customers and we also saw how ad spend is up and direct quotes were up. And I just wondered in looking at the success of all that's going in and getting customers into the funnel and successfully getting a new customer. What are the actual key elements of success in attracting those customers either today in this COVID environment or what you're seeing over the longer term?
Well I think ultimate success Gary is to be able to acquire customer at/or below our targeted acquisition cost. But more importantly, as we look at and expand our product line, we're able to do so with our creatives. So for years we had flow inside the superstore, the whole message is savings, savings, savings. And now we have obviously and entire network of characters that talked about savings, but also talk about protection for your home. And we're seeing that work.
An example is, I don't know if you've seen it or not, we have had this campaign for a few years and we've settled it on a character called Dr. Rick which is Parentamorphosis as you become your parents when you buy your first call. I think that a lot of people can relate to that. We're seeing the results of that do really well.
We've done a couple of good campaigns with the Cleveland Browns quarterback and market to guys that due the 10-yard line chains that we are able to play during the live sports wishes, which is what everyone's watching now until we go back to regular television.
So we look at what we call new prospects that haven't shopped us in the last six months. And then we look -- from that we look at do they convert and at what cost. And all those things lead us to understand when the creative works, when it doesn't, when it does we double down and get deeper in the campaign. When it doesn't, we move on and get more creative.
So during COVID, I'm really proud of our marketing department, because everything is shut down. And initially we did some nice campaign stories that were softer, because everyone was sort of just nervous about what was happening, because it was so new. And now we're really doing a lot that we're kind of moving forward.
But even in the meantime we did really creative opportunities where we had flow and her whole squad, that we call it, on a Zoom call, et cetera. We really got creative to make sure that we didn't miss a step. We know this is a competitive environment and we wanted to continue to be on consumer shortlist, out and available, thinking of Progressive when they go to shop.
Maybe extending that into the agency channels also, where I think your conversion rates were up as well. Usually that just means your price is lowest on the comparative raters there. But is there more to it than that as well? Are they -- are you seeing more coming into the agents? Is there -- are there agents’ incentives or other things going on there?
Yes. We occasionally do agent incentives. It may be, based on things like UBI and if we see something that we want them to do more. We, over the years, have changed some of the agency commission structures depending on if you're selling preferred, Robinsons, auto, home bundled those agents to platinum agents get more commission.
They're allowed to have 12-month policies on the auto side, so we're giving them that. And we've done a lot in our platinum agency to have incentives based loss ratio and other things. So we didn't always do those in the past. Our relationship with our agents has really changed in a very positive way.
Like I said at the beginning, I've been able to talk to a lot of agency agents. Just not long ago I had our top 25 platinum agents. Usually we do something with them. We obviously couldn't this year. So while we'll keep our overall commission level about the same rate, we have bifurcated and we'll give you a different commission based on the incoming type of customer, which we believe is the long-term value of that customer.
So, obviously, cost matters a lot, brand matters a lot, commission matters a lot. And probably the last thing I would say and coming from the claims organization, agents are always so happy to not have to deal with any complaints, because our claims organization is so stellar. So there's a lot that goes into it. Clearly, cost is one of them. They benefit from our brand. But, yes, we have -- we do incentives and we have different commissions based on the type of customer that we get in namely preferred.
I just elaborate on Tricia's last point Gary to say ease of use. So, price competitiveness is extremely important. Ease of use is almost as important in my perspective. So, as Tricia noted not having to deal with hassles on the back end with a claim for sure, but front end as well. So, we've invested heavily in technology to make quoting and now quoting the household in our agents easier. And that will definitely help drive business to Progressive as well.
Yes, I think this month or last month we finished full rollout of portfolio quoting. So, the agent feedback is extraordinary. Just you got to make it easy. Thanks Gary.
Thank you.
Our next question comes from Yaron Kinar with Goldman Sachs. Go ahead please, your line is open.
Hi, good morning. I actually want to continue on this last line of questions. With regards to the kind of creative ways to reach out of consumers beyond the ease of use and quotes and the innovative ad spend in the traditional channels are there any new ways to get to market? Any ways that you're exploring maybe Internet social media and then relate to get our customers?
Yes. When I usually speak about marketing I go to sort of the mass media and that's one portion of how we market media. We're on streaming. So, we advertise on Hulu. We advertise on most of the social network, channels, and affiliates on Internet. So we -- and we have generic search.
So there -- we have a variety of ways to make sure we get our message to you and do everything we can to get our message to you the right number of times not too much not too little because we don't want to bog you down. So, yes, there's -- besides the creative also many different ways. And there's sometimes on a digital platform that will have characters that we don't even have on mass media. And it's usually the specific demographic that we're looking for in that channel.
So, yes, we a variety of ways. And as things change with how people watch TV or watch streaming, we'll continue to play a part of that. And the great part is we have access to so much data to understand pretty quickly if it's working so we can remove it or double down.
And are there any metrics you can share on that in terms of are you increasing your spend in those kind of non-mass media channels? Is the take-up greater or improving there?
I think John wanted to say something to be yes. We're increasing the spend in those channels for sure because many people have cut the cord and don't watch any TV so we need to have access to them through those different channels. John do you want to add to on?
Yes, the growth in spend in nontraditional media has outpaced traditional for years now and we're constantly testing into new media where we can. We have a group that entirely focuses on new ways to reach people. And the overarching philosophy is where when and how consumers want to buy. So, we are definitely investing.
And normally I think relatively speaking on the forefront of trying new channels and ensuring that we can actually measure the success of those new channels. So, we are very disciplined that we're out spending new money that we find ways to measure its effectiveness and I think that differentiates us relative to a lot of other marketers.
Okay. And then my second question it goes to one of the arguments that we hear from insurtech, which is that traditional insurers even innovative and successful ones like Progressive ultimately face an innovator's dilemma in the form of how much you push telematics based scoring and pricing because of the legacy blocks.
And that these insurtech as a result could have an advantage over the incumbents over time because they're not encumbered by legacy blocks. So I'd love to maybe hear a little more about how Progressive looks at the innovators dilemma and how it handles the right balance between pushing these creative and innovative ways to price in and score versus maintaining the legacy block?
And I talked a little bit about that, when I talked about the virtuous cycle in terms of when you have a segment, you innovate, et cetera and you do that. I think that insurtech are serving a great purpose in terms of ease of use and it would be I think, easy to be able to or nice to be able to I should say start without having legacy systems. That's said we have them, we work around them but we don't say okay, we're just going to be here in time and try to work around. We're constantly innovating from a technology perspective, ease of use perspective.
And we believe that part of our DNA is really innovation. We've been first in a lot. I won't go into naming that and we don't intend to change that. And the great benefit that we have that the insurtechs don't is the cost of acquisition. And for us we're going to continue to hone on in – hone in on that. And that's why we were able to increase our policies $2.5 million in one year. That's the reason we're able to do so and make our target profit margins, which are also very important.
We have shareholders that are – that own us because they know we're committed to our 96th growth fast you can. We don't have the – the availability to say we're going to test things, regardless if we make money or not. So we're very innovative. We're always going to do everything we can to make a profit one of our core values and we're able to leverage our size to have lower acquisition costs.
Got it. Thanks, and congrats on a good quarter.
Thank you.
Our next question comes from the line of David Motemaden with Evercore ISI. Go ahead please. Your line is open.
Hi, good morning. Just sort of following on along the lines of this – the unique ways of – or new ways to acquire customers. I was hoping maybe you could expand a bit on any distribution partnerships for the personal auto business that you may have with the OEMs or online car sites like vroom.com that you have or that you might be exploring. I know that Ford has just entered an agreement with Veris Data Exchange to help offer insurance. I'm wondering do you have any of these relationships? Is this something that you're exploring as a new way to acquire customers? And just sort of how you view that I guess subchannel of the DTC market?
Thanks, David. Yes we've worked with many different OEs over the years and I talked a little bit about that Express a quote that will give us the functionality to work with OEs and other aggregators. We do – we have many relationships and we have some in the works that I'm not liberty to talk about right now. John?
Yes. So we've worked directly with OEs over the years. We started a relationship with GM. I can't remember how many years ago now, probably four years ago.
As you know to get the data directly from vehicles and offer rates that are reflective of driving behavior at the point of quote and the point of sale. We have also worked with aggregators of that data or third-party gatherers of that data. So there are apps on your phone that are tracking where you're going and how you're driving and we've worked with those entities as well.
It is a funnel as we think of it. When we talk about funnel economics, the number of people that come in the top there versus the number that come out of the bottom meaning actually buy a policy has been challenging. That is not to say we won't continue and are continuing to test in that space. And in new media, we normally see funnel challenges at the outset and we work through the experience to continue to refine it, and continue to make it better and to get to the point where the funnel economics work for us.
So we've been testing into the data direct from OEs in numerous manners for a number of years now and have shown some success but not to the point that it will be a considerable portion of our media spend anytime soon frankly.
Got it. And so it sounds like those are interesting, but the conversion rates are still below your other direct channels. Is that correct characterization?
That's a fair way to think about it. And think of conversion not only as you got to quote and you then bought the policy, but getting folks from interested in the whole process even to get to the core process. So it's a longer funnel than just got the quote, bought the policy. Then when we talk about in conversion percentage that's what we're talking about there. This is we think of the entire funnel efficiency.
Got it. Okay. That's helpful. That makes sense. And then just switching gears just more broadly it's obviously been a profitable year for you guys, notwithstanding, the credit and other actions that you've taken. Just wondering, how we should think about the variable dividend? And I guess how you guys are thinking about that as we approach the end of the year?
Yeah. So we meet with the investment committee John and I and Jon Bauer, our Head of Progressive Capital Management throughout the year understanding our capital strength, which is very strong and always thinking about some dry powder for anything that might come up. We've had a couple of sessions that we have a range that we're thinking about. Obviously the Board will be the one that decides that. We meet with them at the beginning of December and we'll talk through something and get more in line with what we believe the dividend will be payable next year. So obviously that's an unknown because it will be a Board's decision. We feel really great about our capital position. We feel great about our growth and our profit.
And we -- in the past, we've been able to share that with our shareholders. Again, we don't have any specific amount I can share with you, but we feel really great about our year. Anything can happen. There's still a few months left but we feel good.
We have approximately five minutes left in the call and still have a handful of people in the queue. We will go through the last handful here and go a little bit long. However, we will limit everybody to a single question. if you have additional question, you may contact the Investor Relations group at the contact information on the website.
With that, I'll hand it back over to James.
Our next question comes from the line of Meyer Shields with KBW. Go ahead, please. Your line is open.
Great. And thanks so much for accommodating us. I was hoping that either Tricia or John, could talk us through sort of the monthly volatility in the commercial lines expense ratio and what's been going on there?
So whenever we're looking at results, you should expect volatility. Let me start there in terms of loss ratio, as well as the expense ratio. In our commercialized business, we talked about non-acquisition expense ratio previously. We have actually been growing our expense ratio in our commercial business and that's been intentional and plan-ful because we're investing for future growth.
Specifically, business owners program, we're now in 13 states and are feeling great about our progress there so far. We would like to get basically to the entire country with that program because we think it effectively triples our addressable marketing like commercialize business.
We've also invested heavily in what we call our small business insurance initiative, which is essentially the direct platform for commercialized business. And our BusinessQuote Explorer, which -- HomeQuote Explorer makes it very easy to get quotes from a variety of carriers through our direct platform there.
So we have long-term plans to bring that expense ratio on a commercial lines business back down. But in the near-term, it's going to be slightly elevated from where we've been. That said, on a relative basis relative to our competitors, meaning we're very competitive cost structure in a commercialized business.
But if you're looking for commentary, specifically on the expense ratio, loss ratio for the month, we encourage you to look a little longer term, at least for the quarter.
And what I would say Meyer is that this was very specifically planned several years ago when we set forth the three Horizon concept. We saw some opportunities in Horizon to mostly around commercial Auto and BOP and TNC and small business and fleet. And so, we knew that in order to invest there we had to have some money -- put some money into it. And now we're seeing the fruition of that investment.
So we believe it will come down over time as we have more broad coverage with these products, but we feel very good about that spend because we felt like there was an opportunity in that addressable market for us to do many new and different things to solidify. Again our commercial auto with even more products. And the pandemics been a little bit odd for small businesses, but we feel positive about that going forward in our ability to win and with that bought product on both the agency and direct side.
Excellent. Thanks so much.
Our next question comes from the line of Brian Meredith with UBS. Go ahead please. Your line is open.
My question. Chris if I look at average written premium per policy for your personal auto business it went from plus 1, 2Q to minus 2 in 3Q. Just curious is that, all due to the rate actions you've been taking or are you seeing any changes in customer buying habits i.e. higher deductibles, lower limits those types of things that may be having an impact on that as well?
I would say the majority of that is our reduction in premiums. I haven't seen too much of a change in our business mix profile.
Great. Thank you.
Our next question comes from the line of Josh Shanker with Bank of America. Go ahead please. Your line is open.
Thank you for taking my questions, so late in the call. I'm just wondering if we can compare shopping and JV right now when compared to where it was three years ago. I've tended to believe that when prices are going up, Progressive's seasonal shop, ever, because people are unsatisfied.
But now that prices are going down, maybe people widely know that there's progress to be had in auto insurance and so it might stimulate a decent amount of buying. And if you can add, is there a difference between the shopping behavior, people seeking just an auto policy and people seeking an auto and home policy?
Yes. That's so hard, Josh, to look at and compare it three years ago. I do think that, even when prices are going down in this environment, it might be different. And this is -- I hate to use the word, it's still unprecedented. It really depends on the situation with the consumer and what they're looking for in terms of, did somebody get furloughed or waived off, et cetera.
So I think it's hard to know. And what we really focus on is making sure that have the message out there that we have that broad coverage that we have. The ability to measure our acquisition costs and now that they're under our targeted amount to get the customer in there. So it's really hard for me to say. I think what we've tried to do is just, when they are shopping regardless of the reason, we're available, we're easy and we're competitively priced. Do you want to add anything?
Yes. So I agree with Tricia. There are many different metrics around shopping behavior and they don't always agree. As Tricia noted, we're most concerned with is that we are spending efficiently to get the prospects we are getting as we know prospects are up.
In terms of prospects we are getting in the behavior in terms of auto or auto home, we are increasingly being positioned as the bundle provider for certain. And we do measure consumers' perception on that. And certainly, our quotes for bundles both in the direct channel as well as the agency channel have been growing faster than in the mono line.
Thank you very much
Our next question comes from the line of Suneet Kamath with Citi Research. Go ahead please. Your line is open.
Great. Thank you. I wanted to circle back to Road Test. It sounds like you have had the technology for a while, but maybe haven't focused on it or marketed it. So just curious why the decision to make a push now? And are you planning on rolling that out to existing policyholders, as well as new customers, or just new customers? Thanks.
Yes. We had something called test drive years ago. I want to say five or six years ago maybe. And at the time there were some complications, because the way it was up, they need to put in some data. So we think that that was probably one of the reasons we did a little bit of advertising not a lot.
So we've been working on-road tests, just to give people the ability to still have their own coverage and test what it would be with Progressive. And again, we've been working on this for a while. We want to make it very worthy of our customers.
So I'd say we've been working on this for over a year, rolled it out a couple of months ago. Data is really early, because we want to continue to learn as we spread -- as we broaden that coverage. But, yes, so you wouldn't do it if you're for a customer for -- so you'd probably have snapshot already. These are for customers that have other coverage. Again, we're going to work through the funnel economics on that and then likely roll it out more broadly in the very near future.
That appears to have been our final questions. So that concludes our event. James I'll hand the call back over to you for the closing scripts.
That concludes The Progressive Corporation's third quarter investor event. Information about a replay of the event will be available on the Investor Relations section of Progressive website for the next year. You may now disconnect.