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.