Progressive faces a serious threat from competitor invasion, especially in light of the current industry trends.  Progressive differentiated themselves from competitors in several ways including the use of sophisticated pricing techniques when calculating premium prices; a unique approach to accident response; use of technology; and focusing on the non-standard segment of auto insurance.  Recently, Progressive’s major competitors began to encroach Progressive in these areas, thereby eating away at the differentiation that Progressive once had.  Still, in the face of major pricing pressure and a diminished sense of differentiation, CEO Glenn Renwick believed that holding prices steady was the best strategy as he believed the trend of declining accident rates would not continue and he did not wish to risk exposing the company’s margin to risk.

Renwick also did not believe that cutting prices would increase Progressive’s market share.  This belief was substantiated by the fact that progressive offered lower rates to a sizable number potential customers, but it never translated into market share.  That being said, I don’t believe price to be a major entry point for competition to steal market share from progressive at this point.  One of the features that Progressive offers to potential customers is called Express Quote, where a potential customer is given rate quotes from a few of Progressive’s competitors to compare with Progressive’s quote.  At this point, since rate information is so readily available, and since most of Progressives major competitors have adopted a similar pricing strategy, it is safe to assume any major shift in market share due to price has already been experienced.

A hallmark of Progressive’s business model has been their concierge service and Immediate Response.  Progressive customers have the ability to contact a Progressive adjuster 24 hours a day, seven days a week to file a claim.  Progressive adjusters will drive to the scene and coordinate everything right from their vehicle.  Policy holders can even walk away from an accident with a settlement check.  Should a policy holder need to have repairs done, Progressive will coordinate the repairs.  This includes a rental vehicle and any logistics with the body shop.  Recently, competitors State Farm and Allstate (number 1 and 2) have either purchased repair shops or partnered with repair shops to offer similar levels of service to policy holders.

Immediate Response is an area that competitors have not attempted to compete directly with Progressive, so there seems to be no risk of losing market share to competitors because of a similar service.  Progressive has some competition in the concierge service offering, but it is questionable whether or not an insurance provider should be able to dictate where a car is repaired.  Some states even have laws to prevent such practices.  This is also an area that does not play a big part in market share determination.

Probably Progressive’s greatest strength is its commitment to technology.  Progressive’s web site is consistently ranked as the best auto insurance website.  Progressive was the auto insurance company to go to the web and the first to sell insurance directly over the web.  Other competitors are doing this now as well.  That being said, no other insurance company has the dedication to information technology that Progressive has.  All of Progressive’s employees share the same passion about incorporating technology into their business practices including the use of mobile internet in the Immediate Response Vehicles long before that was a widely used consumer product.  I don’t believe Progressive’s competition can steal market share from Progressive by creating a better web experience for policy holders.

The main area that I believe Progressive faces risk of market share loss to competitors is in the niche that Progressive held for so long.  Insurance agents have traditionally known that Progressive is the way to go for non-standard policy seekers.  That is likely to diminish as Progressive’s competitors seek to move into this segment and Progressive seeks to expand into the standard auto insurance segment.  This is basically a reverse of a difficulty that Progressive faced when they wanted to move into the standard and premium segments of the auto insurance market.  Insurance agents did not think of Progressive when a moderate to low-risk driver came looking for a policy because traditionally Progressive was the policy writer for high-risk drivers.  I believe as Progressive dilutes its niche recognition it creates an opportunity for competitors to go after Progressive’s non-standard policy holders.

The insurance industry’s area of highest churn is in the area of non-standard policy holders.  If Progressive’s competitors can find a way to lure non-standard customers away from Progressive, they can gain market share.  One such way is to attract non-standard policy holders who would like to bundle their homeowners insurance with their auto policy.  Progressive does not offer homeowners insurance.  40% of Progressive’s revenue comes from non-standard policies.  I believe that 10% of Progressive’s customers could move to another insurance provider because they wish to bundle their auto and homeowners policies.  State Farm and Allstate represent 16% of the P&C market and 34% of the homeowners market.  It is safe to say that a large number of those Progressive customers who wish to bundle their insurance would switch to either of those companies, and that would reduce Progressive’s market share while growing the market share of its major competitors.

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