The Progressive Corporation (NYSE:PGR) Q4 2022 Earnings Call Transcript

The Progressive Corporation (NYSE:PGR) Q4 2022 Earnings Call Transcript February 28, 2023

Doug Constantine: Good morning, and thank you for joining us today for Progressive’s Fourth Quarter Investor Event. I am Doug Constantine, Director of Investor Relations, and I will be moderator for today’s event. The Company will not make detailed comments related to its results in addition to those provided in its annual report on Form 10-K, quarterly reports on Form 10-Q and the letter to shareholders, which have been posted to the Company’s website. This quarter includes a presentation on a specific portion of our business, followed by a question-and-answer session with members of our leadership team. The introductory comments by our CE and the presentation were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 90 minutes scheduled for this event for live questions and answers with the leaders featured in our recorded remarks as well as other members of our management team.

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 annual report on Form 10-K for the year ended December 31, 2022, where you will find discussions of the risk factors affecting our businesses, safe harbor statements related to forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investor Relations section of our website at investors.progressive.com. To begin today, I’m pleased to introduce our CEO, Tricia Griffith, who will kick us off with some introductory comments.

Tricia?

Tricia Griffith: Good morning, and thank you for joining us today. 2022 was among the toughest years of Progressive’s 85 years. The continued effects of the pandemic, high inflation and the largest hurricane in our history all played a role in a tumultuous environment. Throughout these challenges, Progressive people came together in unity and delivered once again beating our goal of a calendar year 96 combined ratio while growing both written premiums and policies in force. The pride that I feel in all of the people of Progressive is indescribable. We have met all challenges head on and continued to deliver the best-in-class results our stakeholders expect. Our ability to meet these challenges is embedded in our culture, which is built on our newly updated four cornerstones, which are who we are, which is our core values, why we are here, which is our purpose.

We revised our purpose to be, we exist to help people move forward and live fully. Our modified purpose builds on the legacy of our core values and our history of challenging the status quo to accelerate progress and equity. We modify the purpose to better unify and guide our organization. Where we are headed, which is our vision. We expanded our vision to include business owners, so it now provides a more holistic view of all the customers we are privileged to serve. And how we will get there, which is the four pillars of our strategy. We’ve updated these two cornerstones to better reflect the evolution of our company and to ensure our culture adapt to the ever-changing environment we operate in. While our business will continue to progress, we will always seek to maintain the things that make Progressive, Progressive.

In today’s call, we’ll once again focus on the strategy cornerstone and specifically, we’ll discuss the pillar of competitive prices. Competitive prices means not just offering the best rate, but also the most accurate rate driven by pricing accuracy, expense discipline and industry-leading segmentation. As we have said for the last few quarters, we believe the major personal auto rate increases are likely behind us. In the fourth quarter, we continued to raise personal auto rates but at a pace slower than in late 2021 and early 2022. While some states are still waiting on filings to be approved by their respective regulators, we believe the majority of states are nearing rate adequacy, and our intent is to continue to increase rates commensurate with future loss trends.

Based on public rate filings, we know that our competitors are raising rates to address their own profitability concerns. And as they have done so, we’ve seen our relative competitiveness improve, which has resulted in improving retention strong quote growth and high conversion. We’ve now actually seen some competitors surpass our post-COVID rate take, which should help us sustain those improvement trends. As a result, we finished 2022 with the best fourth quarter for personal auto new application volume in our history, which contributed to growing our personal auto PIFs 3% in 2022 while also running a lower acquisition expense ratio than 2021. We’re continuously evaluating our media budget, and we’ll continue to use media efficiently as we enter 2023, and we will look to capitalize on this hard market.

The higher direct acquisition expense ratio in January is indicative of our opportunistic stance, and it reflects the confidence we have of current rate levels in most states at this time. Of course, if the last three years have taught us anything, it’s that the future is unpredictable. So, we will continue to monitor the business carefully and navigate as needed to grow as fast as possible while delivering a calendar year €˜96 combined ratio. As I said in my annual shareholders letter, segmentation is a key facet of our competitive prices pillar, and nowhere is that more evident than in our investment in usage-based insurance products, which will be the topic of today’s presentation. Progressive was a first mover in usage-based insurance.

We have had a UBI offering since 1996 when we launched our first product called Autograph. This first effort was limited by the technology at the time and required a professional mechanic to install equipment in a customer’s car at a considerable expense. That first attempt evolved to TripSense in 2004, which was our first self install option. And then in 2008, we launched MyRate, which is where we first employed cellular technology to upload data to our systems. And then in 2010, we launched Snapshot, which we consider the start of modern UBI program. We moved from our discount-only model to one that included the possibility of a surcharge in 2014. And in 2016, we launched the Snapshot app, which allowed the customer to use a mobile phone app instead of the plug-in device.

Our most recent addition is continuous monitoring, which began its rollout in the summer of 2022. In parallel to our efforts in Personal Lines, we were developing UBI for commercial auto products. This culminated in our first broad commercial offering of Smart Haul, in 2018, which allows us to provide usage-based insurance to truckers in partnership with providers of electronic-logging devices. We also expanded the Snapshot program for commercial auto with Snapshot ProView in 2020, which includes fleet monitoring services to small businesses. Throughout our history of usage-based insurance, we have collected billions of miles of data and invested in a process of continuous improvement in our UBI products. Today, UBI is our most predictive rating variable, and it provides unparalleled rate accuracy to our customers.

Through this, we’ve continuously educated our customers where today UBI adoption is at near historical highs. To highlight our UBI products on this call, we’ve invited two Progressive leaders who’ve played significant roles in our UBI development. First to speak will be Jim Haas, business leader for our personal auto usage-based insurance. Jim is a 20-year Progressive veteran. And for the last five years, he has led our personal auto UBI team. Jim will discuss the advances we have made in personal auto UBI. Following Jim will be Cory Fischer. Cory is a 19-year Progressive veteran. For nine years, Cory has been our business leader for Commercial Lines R&D. And as of last month, Cory accepted a new role to lead our agency distribution group. During his tenure in Commercial Lines, Cory led R&D during the successful rollout of both our commercial auto UBI products.

Cory will be highlighting all of the advances we have made in Commercial Lines UBI, once again giving Progressive first-mover advantage in this important technology. Again, thank you for joining us this morning. I will now hand it over to Jim Haas. Jim?

Jim Haas: Thank you, Tricia. As Tricia mentioned, my name is Jim Haas, and I lead Progressive’s Personal Lines Telematics efforts. Today, I’d like to tell you about how we’ve built on that long history in telematics that Tricia discussed starting with how we’ve continued to improve our core Snapshot program, then moving on to discuss how we can now bring in data from outside sources to improve rating accuracy during the new business quote. And finally, wrapping up with the discussion of some value-added services we’ll be bringing to market soon. First, let’s recap how our program has worked for a number of years. Individual states may vary a bit, but I’ll describe here how it works in most places. We or the agent present the customer with the offer to enroll a Snapshot during their initial quote.

If the customer elects to sign up, we’ll receive an immediate discount of up to 10% for participating in Snapshot that will be applied to that quote. So long as the customer stays in Snapshot, that discount stays on the policy during the whole first term. During the quote, the customer also elects whether they want to monitor using a plug-in OBD-II device that we send them or via an app on the smartphone. The customer then has 45 days to plug in a device or get the app set up. That point, all they need to do is drive. We’ll let them know how they’re doing along the way. Just before their policy comes up for renewal, we’ll use the driving data collected during that first term to calculate the renewal discount or surcharge. That rate adjustment will be included in the renewal quote and will be applied to future policy terms.

At that point, the customer can delete the app or send us back to device and they’ll be done monitoring. I’d mention that the rate could go down or it could go up, that is we would apply a discount or a surcharge. But that’s not how our program started. In the early days, the program is structured a little bit differently, but a customer’s rate couldn’t get worse by participating in Snapshot. Customers could receive a discount of up to 30%, but the rate couldn’t go up, no matter how risky they’re driving look. Many companies still employ a model like this today. Of course, no rating variable in insurance only suggests giving discounts. It’s about segmentation and matching rate to risk. So, the data would suggest that some customers should see the rate increase while others should see a decrease.

While only offering discounts might encourage more people to participate in the program makes the economics a lot more challenging and limits the accuracy of the overall pricing. And we all know that pricing accuracy is critical in auto insurance. So, starting in late 2014, we began introducing a surcharge. We set our factors so that about a fifth of customers received a surcharge, a share that we’ve kept about the same over time. The surcharge was small at first, but started us on the path to greater accuracy. It’s also when we introduced the participation discount, which is down 10% in most states. Over time, we’ve moved the price closer and closer to what the data would tell us, first, by increasing the maximum surcharge from 10% to 15%, then increasing it to 20%, and finally, to where we are today.

We offer larger discounts than we did in the past, now of up to 30%. But we also have larger potential surcharges than in the past too, now up to 40%. We’ve come a long way since the days of only offering a discount, but it’s important to note that about 75% of customers still receive a discount and only about a fifth receive a surcharge. Not surprisingly, we see better retention on customers who earn a discount and worse retention on those were in a surcharge. Renewal rates for the safest drivers who are earning the biggest discounts are about 6% higher than average, while they’re about 16% lower for the riskiest drivers who aren’t receiving a discount. So, the program systematically helps us retain lower risk drivers and shed higher risk ones.

And because of the changes we made to our Snapshot pricing over the years, were more accurately priced than ever before on those customers that do stay with us. While these changes have certainly improved the accuracy of our pricing, there is still a limitation to our approach. We only use data from a single term, typically 4 to 5 months to set the price for the life of the policy. This made it so we wouldn’t know about material changes in an individual’s driving behavior would lead to less accuracy over time. We had experimented with a continuous program a long time ago, back in the late 2000s. At the time, though, consumer acceptance of telematics generally was still growing and collecting data on an ongoing basis was quite expensive. So, we decided to move forward with a partial model.

Things have changed a lot since then and in early 2022, we started migrating to a continuous version of Snapshot. The basic process isn’t all that different. Customers still choose whether and how to participate in Snapshot during the quote and they still receive a participation discount. They still have 45 days to plug in the device or set up the app and then they can just drive. The difference comes after the renewal. As instead of sending the device back or deleting the app, we ask them to continue to monitor, and we’ll adjust their rate at each renewal to reflect their more recent driving. Additionally, that participation discount is larger now at 15% instead of 10%, which encourages more people to participate in the program. Having more recent data also improves the predictive power of UBI, which means we can price even more aggressively.

We’ve increased the size of the maximum potential discount to 45% and the maximum potential surcharge to 60%. We’re one of the few companies to combine a continuous model with the possibility of surcharges. As of the end of 2022, we had deployed this new continuous model in 12 states, representing over a quarter of our net written premium and plan to roll out to most of the rest of the country during 2023. So, while we’ve been steepening these factors and requiring longer monitoring to make our pricing even more accurate, what’s happened to take rate? The answer is that the share of our personal auto customers participating in Snapshot has moved steadily upward. In fact, it’s up nearly 40% across both channels combined since January of 2019.

So today, more people participate in Snapshot than ever before, providing data for longer periods of time that we can use to price more accurately than ever before. So, that’s the update on what’s been going on with our core Snapshot program, which provides great incremental segmentation over what is available via traditional rating variables on renewal policy terms. Now, I want to talk about how we’re working to bring this pricing accuracy to where it’s most useful at the time of the new business quote. Since in this scenario, the customer is only now just coming to us will have to use telematics data that was collected by others. Our long telematics experience has helped us learn how to use this data and how to make it predictive. We currently have two initiatives in market.

The first is a lead generation program that works by inviting good drivers to come and quote with us. While the other begins when a customer comes to Progressive directly to get a quote, and we find and incorporate driving data from third parties into the right we present them. Let me start with the lead generation program. Here, a partner like Credit Karma invites their customer to opt into collecting driving data to see if they could save money on their car insurance. In a privacy-friendly way where we don’t receive personally identifiable information, we can let Credit Karma know who’s likely to receive a discount so they can invite them to quote with us. Only when the customer chooses to quote, are we able to personally identify that data and are then able to apply that discount to that individual’s quote, improving pricing accuracy immediately.

Our second program involves working with data collected by automakers. Over the last several years, more and more of them have been equipping their vehicles with technology to collect driving data. They’ve been working to show the value of these programs to their customers so that they’ll sign up to share that data with them. And we’ve been able to tap into that. When a customer comes to us to quote and their driving data is available, we’d ask the customer if they like us to use it to determine their price. They say, yes, we bring that data in and apply the UBI discount or surcharge to their quote immediately. Again, pushing that rate accuracy to where it matters most, the new business quote. Because of our long experience with UBI and in working with both OBD and mobile data and the fact that we attract so many insurance shoppers every year, we’re well positioned to execute and benefit from this.

To be clear, automakers are in various often early stages of getting the necessary equipment into their cars and making this data available to insurers. Additionally, just because new cars coming off the assembly line have the hardware, it takes a long time for the fleet to turn over. So, this isn’t common yet, but we’re excited about the opportunity it represents. We’re already working with two of the largest double makers, General Motors and Toyota, and it’s clear that this population will grow over the coming years. Lastly, I’d like to share some exciting news that doesn’t involve using telematics data to more accurately rate policies but instead, builds upon our telematics heritage to provide a valuable service to our customers. Over the last couple of years, we’ve experimented with offering a service to detect and respond to major accidents to some of our Snapshot customers to learn if they value the service and to better understand how it could be useful in handling claims.

We’ve been encouraged on both fronts as customers have consistently told us that this kind of service is something that they really do value and our claims representatives have seen a telematics data can help them settle claims more quickly and efficiently. Still, we know that despite how times have changed, there is a large segment of customers who don’t want their insurance premium to be based on their driving data. That means that if we limit this just to our Snapshot customers, we’d be leaving out a lot of others. So, in March, we plan to start making accident response available to all of our auto customers, not just those who were in Snapshot. We’ll use data from the sensors on the phone to detect when a serious crash is likely to have happened.

We’ll reach out to the customer to confirm the accident and to see if they need help. If we don’t hear from a customer at all, and it seems particularly serious, we’ll request that the police conduct a well check to make sure our customer is okay. Since we know the customer’s location from the telematics data, we know just where to send them. We know there are other accident response services available. We think what we’re offering has several key benefits, though, that distinguish it. First, many services come at an additional monthly expense. Ours will come included in the policy. There is no additional charge. This adds value to the customer’s relationship with us and can become another reason to choose and to stay with Progressive. Additionally, while other insurers offer crash detection to their UBI customers, we’ll be making it available to all of our Personal Lines auto customers, whether they’re in Snapshot or not.

Third, we’re deliberate about dispatching EMS. We certainly wanted to get EMS dispatch as quickly as we can when a customer needs it. But we also don’t want to waste EMS resources and bother the customer when they don’t. This can be challenging since the sensor data for a near miss and an actual accident can look awfully similar. So, we try to contact the customer more than once using different methods so they can let us know if there was an accident and if they need help. We only send help if the customer has requested or if we haven’t been able to reach them after several tries and the accident looks severe. While most customers in these accidents don’t actually need ambulance, many do need a tow truck. We’re able to build on our roadside assistance experience to meet this need.

We understand that those are even more urgent than a typical roadside request. We can also help customers notify their family members. Lastly, after an accident, one of consumers’ top concerns is how to get their medical bills paid and how to get their car back on the road. As their insurer, we’re the ones positioned to help them get there. By detecting these accidents and having this telematics data able, we’re able to get their claim started more quickly and able to handle it more efficiently. In fact, if an ambulance or two is dispatched, we’ll actually get that claim started on their behalf. Let me show you an example. This is a real claim that was detected via accident response. In the loss pictured here, our customer was driving on an urban boulevard when they hit some ice, lost control of the vehicle for a striking barricade to their left before striking the barricade on the right.

Fortunately, no other vehicles were involved. As you can see, the airbags deployed and there was pretty severe damage to the front of our insurance vehicle. In fact, this vehicle is a total loss. Additionally, our customer and two of their passengers were injured in the crash. Within 2 minutes of the impact, we reached out to our customer. While they didn’t response to our initial push notification, they did respond to a subsequent call from a live agent, which occurred less than 5 minutes after the accident that agent dispatched an ambulance and a tow truck to the scene. Only a few minutes later, the claim was filed. Altogether, it took only 10 minutes from the time of the accident to when we had a claim in our system. We’ve surveyed some of our accident response customers where we’ve gotten has some great feedback.

For instance, this customer showed that they were €œunable to call for help at the time but help called me.€ This service helps us help our customers when they need it most. It’s not just the immediate response to the accident that can help customers though. Here is another example. This customer collided with another vehicle when changing lanes. We detected this accident as well, dispatched the tow for them and had the claim filed within 12 minutes of the accident. What I want to highlight in this case though, is that this customer had this accident just two days after buying their policy. Some of the first steps in handling any claim include establishing the facts of loss and determining if the loss is covered. Unfortunately, there are people who buy insurance after they had an accident and then try to make a claim for it.

This means that honest customers are inconvenienced as we need to take the time to verify that the accident happened when they told us it did. That was pretty easy in this case, however, since we detected the accident in the first place and arranged for the tow truck to pick up the car, and we can see from the telematics data that the crash happened where and importantly when our customers said it did. Therefore, we were very confident that this loss did occur after and not before the customer purchased the policy, which let us move forward more quickly with getting the customer back on the road. So, it’s not just the accident response service self, but its promise to improve the claims experience that can benefit our customers. They’ve told us they value accident response, and we’re excited to make it available to them.

We’ll start that process in March and expect to make it available to all of our personal auto customers over the next year or so. To wrap up, we’re not just jumping on the telematics bandwagon. We have decades of experience here. We’re clear-eyed about the challenges, but also see the great opportunities telematics offerings present. But this is just the Personal Lines side of the story. My colleagues in Commercial Lines have been developing their own approach about how to use telematics data in their markets, and Cory Fischer, who’s led Commercial Lines R&D for the better part of the last 10 years is here to tell us about it. Cory?

Cory Fischer: Thanks, Jim. As Tricia shared, I’m Cory Fischer, and up until recently, I was the business leader for Commercial Lines Product Research and Development, which includes responsibility for commercial telematics efforts. Today, I’d like to share the progress we’ve made since introducing our commercial telematics programs, some early observations and how we’re thinking about future investments in this space. The chart on the lower left was shared in a prior Investor Relations call. It’s why we’re excited and have been investing in telematics. Pricing segmentation is an important part of how we compete. The group I’ve worked with is charged with advancing our commercial auto segmentation leadership position in the market.

Telematics is the most predictive rating variable we have by a lot. To build on that segmentation leadership position we need to be a leader in telematics. For context, we have two branded telematics programs. Smart Haul is the first program we introduced in 2018 after several years of data collection studies and pilots. It targets truckers that are acquired to maintain hours-of-service logs. The launch intentionally coincided with the federal mandate, requiring these truckers to move from paper log books to electronic logging devices. We have recognized those devices provide continuous monitoring and capture very similar data to our Snapshot devices, including location information. With the customer’s consent, we use the data from the trucker’s electronic login device to generate a score and apply a rating factor.

Ideally, we access the data during the quote process, just like the process Jim discussed, using data to price new business. If we are not able to get the data, either there are newer venture without driving history, or we don’t have immediate access to their ELD vendor, we provide a participation discount on the quote. Snapshot ProView on the right is more similar to what Progressive Personal Auto has offered. Its target is essentially anyone that doesn’t have an electronic logging device. We market Snapshot ProView as safety and savings. For customers that enroll, we provide a participation discount at new business and send a Snapshot device that they can easily plug in. Given how small businesses have employee turnover, this program has continuous monitoring.

We will then use their driving data to generate a score and a factor that’s applied at renewal. This factor could be a discount or a surcharge. In addition, we provide access to a free driver portal. Our customer can see where their vehicles are and how they are being driven. It’s a fairly simple way to keep tabs on their fleet and driving behavior. Since we have deployed these programs, we have been monitoring a number of key metrics. The chart on the right shows a version of take rate, that is, percentage of new business apps and rolling into a telematics program. We’ve seen from prior program launches, it can take a while and require a sustained effort to get meaningful adoption. Though we have identified opportunities for increasing take rate, we are genuinely happy with how quickly adoption has occurred and the trajectory it’s on.

In addition to adoption, we have seen that when quotas enroll into a program, they convert at a higher rate than the cohort that’s eligible, but chooses not to enroll. We also see that our telematics book of business performs better from a profitability standpoint even after the discount is applied. That’s not the longer-term goal. Our intent is to accurately price all segments at target. Between our significant footprint in the commercial auto market, healthy adoption rate and conversion lift, we’ve built a substantial commercial auto telematics book of business. That book would be a Top 15 commercial auto insurance carrier on its own. In summary, we are really pleased with the growth and performance of our telematics efforts. But we have learned a lot since introducing these programs.

One recognition, getting into telematics is not easy. It’s not just as simple as adding a new rating variable. It takes broader and sustained effort, new capabilities and investments. For example, we are asking our partners in the independent agent channel to take additional steps to enroll customers, which can include a supplemental app and working through customer reservations with sharing their driving data. That requires an incremental level of support and training. With telematics, we are now dealing with hardware and data transmission. We are also in the logistics business, sending out devices, tracking inventory levels and recently dealing with global supply chain issues. That’s a different set of vendors, technical challenges, systems and business processes that we’ve had to work through.

I think the biggest difference is the amount of data that these devices generate. We have to ensure that data is being managed effectively. It’s imperative as the data is being transmitted and stored that is handled securely. Also, as the largest commercial auto insurer in the United States, we have a lot of data and have developed effective tools, processes, and skills to manage and model those more traditional data sets. Telematics is an entirely different situation. One truck alone might generate over 1 million records per year. Our traditional approaches aren’t nearly as effective, transforming big data sets into variables that we can test and model off of. A big advantage to us is that personal auto through its efforts and investments over the past 20 some years, has established a lot of these capabilities or learnings that we can leverage.

For example, our Snapshot ProView program uses the personal auto Snapshot device. Given the volume that personal auto has generated, we have a very competitive cost per device, and that device is already set up to transmit the data back to our secure storage solutions. In terms of big data, personal auto helped us move to their cloud solution, essentially a highly scalable cloud-based data storage and analysis service. This significantly reduces our processing time to analyze data and at a much lower cost than traditional alternatives. They’ve also provided support as we upskill our team to use these new tools. To summarize this slide, getting into telematics requires a lot of effort. A competitive advantage that we have in Commercial Lines is that our colleagues and Jim’s group have already laid a lot of that groundwork that we can either use or learn from.

It takes a lot to stand up a leading telematics program and to maintain that leadership takes ongoing investment. I’ll share some of those ideas with this slide. Near term, there’s a lot that we can do to improve the experience. We have data that shows where customers drop out of the funnel or hit operational hurdles by granting data sharing consent or installing the plug-in device. We have worked with our vendors and have new business processes that will improve both. We have several manual processes in place that support these programs. By automating those, we will lower our program expenses and improve the customer or agent experience. There are a few segments that aren’t currently eligible for one of these programs. We’re looking to expand eligibility.

One example is for our small fleet customers that have their own telematics service, but not electronic logging devices. This could be a service fleet like plumbing. Our intent is to enroll them into a program and access the data from their telematics service provider. Through these near term plans, we’ll continue to grow our telematics book, and with that additional data continue to refine and improve our scoring models. We’re also excited about new data sources and applications. We’re seeing better reception from segments that we target to having dash cams. We’ve been doing a pilot with dash cams for over a year. There’s data from video that we don’t capture today, like following distance, which could be valuable, and as Jim shared, we’re interested in how telematics can help with the claims process.

Dash cams would be an additional input that could be meaningful for claims. We’re also using the data to support our underwriting efforts. For now, that might mean verifying other information on the application like radius of operations or garaging Zip code, which are important for us to assess where the vehicle is operated. Sometimes we need to follow up to confirm that the information on the application is correct. We can use telematics data to better target which risks we should follow up on. Our telematics score is currently bolted on to our core model. Given not everyone is in a telematics program, we solve our core model first and then add a telematics score factor for those enrolled. Over time, we plan to move more of the telematics data into the core product, especially where we have those insights at time of quote.

Here’s an example. This shows one truck’s driving pattern for 60 days. On the application, the insured’s address and garaging Zip is Elizabeth, New Jersey and they’ve listed their operating radius as 25 miles. Our model would use information closest to that address to determine a territory factor. Some customers at garage there might never go into New York City. This truck goes lots of different places, but it turns out, there’s a fairly regular pattern of going into the city. It’s hard to tell from this map, but from the data, let’s say 75% of the trips go from Elizabeth into New York City before turning around. A territory factor that puts more weight on the New York City experience would be more suitable. Part of our roadmap is to integrate telematics deeper into our model.

I don’t see a time we have a telematics only model. We know we get valuable segmentation from non-telematics variables, but there are variables like garaging address and radius, that proxy driving location and where the actual telematics data would be a superior solution. Wrapping up, we’ve got a great start to our telematics journey. We’ve got a significant benefit from the experience and investments our colleagues in personal auto have made. And I’m really excited about how we’ll continue to use telematics to drive competitive advantage going forward.

Doug Constantine: This concludes the previously recorded portion of today’s event. We now have members of our management team available for — available live to answer questions, including presenters Jim Haas and Cory Fischer who can answer questions about the UBI presentation. We will now take our first question. Stacy?

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Q&A Session

Operator: Our first question for today comes from Michael Zaremski with BMO.

Michael Zaremski: Hey. Great. Good morning and thanks for the presentation. A first question, Progressive’s personal auto accident frequency levels appear to be trending a lot better than the industry over the past year. I’m curious if you agree with that statement. And if you do, any thoughts on what’s causing the better than historical average trend line? And I know, clearly, a lot of this call was devoted to segmentation, Progressive is a first mover — or one of the first movers in telematics. So, that theoretically should, I guess, improve Progressive’s trend-line versus the industry if I’m thinking about things correctly too. But would love to hear more about that.

Tricia Griffith : Yes. Mike, I think you’re thinking about it in the right way. A couple caveats. When we report frequency, we report incurred in a lot of our competitors report paid, but we’ve been seeing this trend more negative in the industry for a while. We can’t speculate on a lot of things. Obviously, segmentation is a big piece, we believe. We also believe that mix of business could play a role and that could be mix in states or mix overall from a preferred perspective. We talked in the fourth quarter and in my letter about growth across all of our segments that we started to see increase in Q4. We have seen growth again across all segments, but higher in the Diane’s Wrights and Robinsons. Again, we still see it in Sam’s, but it’s higher, so it could be mix as well. The good news is that we see this data change quickly. So, if we need to change anything we’re doing from a pricing perspective, we’ll see it pretty quickly.

John Sauerland: I’d add a couple items on that. So I think Jim Haas’ slide where he showed the retention of customers who are getting a surcharge versus a discount is a great case in point of segmentation at work. So the folks who are getting a surcharge, all else equal, are going to be the higher frequency drivers and the folks who are getting a discount are the lower frequency. And obviously in the marketplace, as that continues to play out, that will help drive our frequency more favorable than our competitors. Additionally, we’ve talked about underwriting efforts we put in place as we were challenged by profitability. We’ve raised rates considerably as we’ve shared. I will note though that we have retained our underwriting restrictions fairly tight.

So, we’ve been able to manage that in this very competitive environment to a point where we are able to maintain the underwriting restrictions, which generally speaking are pushing off the higher frequency customers and able to raise rates at the same time. So, I think we are in a pretty good place, both from the rate level perspective but also continuing to guard against segments that might be underpriced.

Michael Zaremski: Got it. That’s helpful. My follow-up is regarding some of the commentary you made about the automakers. And I know we appreciate that you are not an automaker and you are partnering with them and it’s in the early stages. But I believe you used the word excited about the partnership. And I believe a lot of investors have felt that the automakers could represent a new leg, or new kind of leg of competitiveness within the industry. So curious if you’re having to — maybe you can shed more light on the partnerships and only if Progressive is having to pay the automakers for this data, why isn’t it a bit of a competitive threat as well? Thanks.