Progressive Launch Pay As You Go Auto Insurance

Case Type: business competition/competitive response; new product.
Consulting Firm: ZS Associates 2nd round job interview.
Industry Coverage: Insurance: Property & Casualty.

Case Interview Questions #00114: Your client Progressive Corporation (NYSE: PGR), also known as Progressive Casualty Insurance Company through its subsidiaries, is a major insurance company that provides personal automobile insurance, and other specialty property-casualty insurance and related services in the United States.

Progressive has just learned that its major competitor GEICO has announced the initial roll-out of a new program in Texas. GEICO calls the new program “Pay as You Go” in which a GPS tracking device is installed in each insured car as part of the program, and reports the location of the insured vehicle on a minute-by-minute basis and records the miles traveled. Progressive wants to know whether it should respond and how.

Additional Information:

• The client company Progressive is unremarkable in the industry, on par with the top five players (GEICO, State Farm, Allstate, Progressive, Nationwide Insurance).
• No particular competitive advantage exists. The auto insurance industry is rather commoditized.
• There is heavy price competition within the industry, and the industry is highly regulated.

Possible Answers:

The interviewee may focus on the following issues raised by this fact situation:

Customers

• What customers would this policy attract? What customers might it drive away?
• Are there privacy issues? Legal issues?
• Why Texas? Any other locations?

Company

• How much to install a GPS in every vehicle?
• Who pays for it — the client or the customer?
• What will the cost be for monitoring every GPS?
• What processes need to be set up to deal with this product — monitoring, reporting, liaison with police for stolen vehicles?
• What would the policy implications be when certain information was discovered — e.g. customers speeding, erratic driving.

Competitor

• Is the competitor a national player?
• What is its coverage/market share?
• Are its prices / cost structure competitive?
• Are the competitor’s customers similar or different than our client’s?
• Are other competitors considering this?

Conclusion

The point of this case is to identify the impact this new program could have on the car insurance industry. The key aspect of course is the fact that cars using this insurance policy will be tracked at all times.

The interviewee should discuss issues of privacy and invasion as a consequence, but benefits afforded to those insured on this policy: someone who doesn’t drive much, the elderly, or someone with a very short commute, may benefit from lower costs under this program.

Rental car companies can use this program to track the whereabouts of its vehicles. Some companies do this already, with the “black box” data recorders. The GPS system would be more involved. Rental companies should consider how this would affect its customers — would they want the rental company to know their every move? This brings us back to “Why Texas?” Rental companies likely have stipulations on cars rented in Texas that they are not driven over the border into Mexico. With GPS tracking, this practice could easily be monitored. There are legal / official benefits to this program, including potential aid to police / FBI / DEA institutions seeking to reduce illegal drug / immigrant trafficking across the US / Mexico border.

Additionally, the GPS tracking system can be used to assess driving habits of the insured, and perhaps more accurately describe the “risk rating” of the driver. Insurance companies base policies and premiums heavily on risk ratings. A good driver, under this program, could likely be offered an extremely competitively priced premium — a concern for the client company. Additionally, if the pricing is solely based on usage, a poorer driver, who drives infrequently, but has been quoted high prices by other insurers, may be offered a lower rate by this new program.

The successful interviewee will engage in a conversation that addresses the risks and issues raised by the introduction of the new technology. The Texas location is important; they should recognize the proximity of a foreign country and the potential for the crossing of international boundaries. Privacy is another concern: what customers will be comfortable utilizing this program? Will the company introducing this be able to greatly undercut the client’s premiums by appealing to certain low-usage drivers, and steal a great deal of market share?

There is no right answer; a thoughtful discussion that addresses these issues in a logical manner is a successful interview.