Progressive Usage-Based Auto Insurance


Today the Hartford told industry analysts they are launching TrueLane usage-based insurance early next year.   Their head of consumer insurance Andy Napoli said it will measure how well customers drive, but did not say whether it will initially base discounts on driving behavior.

Several other insurers launched usage-based products that collect driving-behavior data but at first only offered discounts based on mileage.   In those launches, the driving behavior data are likely used to develop discount algorithms to offer behavior-based discounts in future versions.  Two products seeming to take that approach are Travelers IntelliDrive available in Illinois, Ohio, Oregon, and Virginia, and AAA NCNU uDrive in Nevada.

If TrueLane does provide discounts based on driving behavior, then it will be the fifth  insurance of that type in the U.S. market.  The pioneer was Progressive, whose SnapShot is now available in 39 states and DC.  The others are: Liberty Mutual Safeco unit’s Rewind offered in Colorado; Allstate’s DriveWise available in Illinois, Arizona, and Ohio; and State Farm’s Drive Safe & Save in Illinois.  (State Farm offers Drive Safe & Save in other states, but only in Illinois does it base discounts on driving behavior so far.)

Today Allstate introduced Drive Wise®, their usage-based auto insurance that seems designed to compete with Progressive’s Snapshot℠.   Details can be found in their press release here: http://www.allstatenewsroom.com/releases/safest-illinois-drivers-save-with-new-allstate-drive-wise .

Here is how these two innovative auto insurance products are similar:

  • The policy holder attaches a wireless unit to a 1996 or newer vehicle’s under-dash connector to transmit driving data to the insurer
  • The product is “behavior based”, meaning the insurer monitors when and how the vehicle is driven (but not where), in addition to how much
  • The consumer only learns the amount of discount after signing up for the policy, driving data are transmitted, and the insurer evaluates it

These are their differences:

  • Allstate’s Drive Wise is only available in Illinois, but planned for more states early next year.  Progressive’s Snapshot is already in 25 states.
  • Drive Wise offers a maximum 30% discount.  Snapshot’s maximum discount varies somewhat by state, but is also 30% in some states.
  • Drive Wise offers an immediate 10% discount, and substitutes the earned discount of up to 30% later, based on miles driven and a calculated driving score.  Snapshot usually (but not yet in every state) starts its earned discount after 30 days of driving.
  • Drive Wise likely requires its device to remain attached to keep earning discounts.  Snapshot usually (but once again, not yet in every state) can be returned after the first 6-month policy, and a renewal discount based on the six months driving will be applied to the renewal policy.

All usage-based auto insurance will offer consumers who drive less than average a way to save money.  Plus, behavior-based policies like Snapshot and Drive Wise can save lower-risk drivers even more.

Progressive says they plan to continue their aggressive rollout of usage-based insurance product SnapshotSM, also called Snapshot DiscountSM.

From Progressive’s 3rd quarter 2010 financial report, released yesterday:

SnapshotSM, our usage-based insurance product, is now available to Direct auto customers in 24 states, including 5 states added since the end of the second quarter 2010, and Agency auto customers in 12 of these 24 states. We plan to continue expansion of Snapshot into about 15 additional states, depending on regulatory approval and business results, over the next nine months.

Progressive CEO Glenn Renwick’s comments in today’s management teleconference with industry analysts:

Along with that, we actually expect probably later in the first quarter, maybe around the cusp of the first and second quarter, to be going more national with our Snapshot advertising. So we have some Snapshot advertising designed already and available for a local market test but we’ll wait until we have a slightly increased number of states with our Snapshot. We’ve got 24 there in direct today. I think we put that in the 10-Q, and we’ll have at least 75% of the country covered by that offering, and we’ll nationally advertise it around the end of that quarter.

In case anyone wondered how serious Progressive is about deploying usage-based auto insurance, they gave a clear answer today: very serious.  At least that’s our take on the following section from their quarterly report to investors published earlier today:

… our usage-based insurance product is now available to Direct auto customers in 23 states, including 4 states added in July 2010, and Agency auto customers in 12 of the 23 states. We plan to continue expansion of our usage-based product, including the reformulation to our Snapshot DiscountSM product, into about 15-20 additional states, depending on regulatory approval and business results, over the next twelve months.

To avoid losing their lower-risk/higher-profit customers to Progressive, auto-insurance competitors should launch their own usage-based products soon.  In light of Progressive’s recent patent-infringement lawsuit against Liberty Mutual, they are likely to start with Verified-Mileage policies since Progressive has never indicated the limited approach used by those policies would infringe their patent claims.

Another reason insurers other than Progressive may launch Verified-Mileage plans first is because they involve only one factor based on data captured from customers’ vehicles, which is actual miles driven. Plus, Verified-Mileage class plans filed in California by State Farm and the insurance affiliate of AAA – Southern California provide details for how they will use actual mileage to calculate potential discounts.  These are useful reference points to insurers developing Verified-Mileage plans

That is a much simpler situation than those involving advanced, “behavior-based” plans like Progressive’s MyRate® (now being modified and rebranded as SnapshotSM).  To develop their more-complex algorithms using additional factors, Progressive collected and analyzed over a billion miles of driving data from customers, starting in 1998.  They are keeping details of their algorithms confidential for competitive purposes, a policy they defend based on their many years’ effort and cost to develop them.

A growing number and variety of usage-based auto insurance plans are coming to your state soon.  In five to ten years most consumer vehicles will likely be covered by usage-based insurance —  triggered by Progressive’s introduction and aggressive roll-out of this industry-disrupting innovation.

Progressive recently introduced significant changes to their usage-based auto insurance program.  Earlier described as a Pay As You Drive® program named MyRate®, it is now simply called SnapshotSM or Snapshot DiscountSM.  (Those trademarks and service marks are owned by Progressive.)

The new name reflects changes to overcome detractions identified by surveyed  consumers, according to Progressive’s  senior management during their Annual Investor Relations Meeting last month.  The new SnapshotSM program (but see notes below) offers:

  • an immediate discount after 30 days for lower-risk driving
  • a renewal discount for lower-risk driving during the six-month policy
  • removal of the Snapshot monitoring device after the first six months

Progressive’s earlier MyRate® program did not apply an earned discount until a following six-month renewal policy term, and required that a MyRate® device stay continuously attached to collect driving data.

Progressive’s management stated they had been target-marketing MyRate® but believe SnapshotSM will have broad appeal.  It is now available in 22 states, should reach “half the country” by year-end, and will be further expanded next year.  With positive early results, they “expect to be broadly advertising” SnapshotSM in 2011.

Progressive’s SnapshotSM website gives a likely preview of their mass-market advertising plans.  Earlier MyRate® short videos on installing the in-vehicle device and accessing reports have been removed.  Instead, the SnapshotSM-rebranded website features smiling spokesperson Flo with a large vintage camera ready to take the viewer’s picture and the caption “Say savings!”

Note 1: Progressive’s usage-based programs originally introduced in about 20 states as MyRate® are already being rebranded as SnapshotSM.  However, program details vary by state and some of those do not yet fully match the SnapshotSM approach identified above.

Note 2: Under the SnapshotSM program, Progressive reserves the right to have a new driving-data “snapshot” captured to maintain a usage-based discount.  Requests will likely be triggered by changes in vehicles, drivers, etc. that can affect driving mileage, times,  and/or behavior.

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