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

Tricia Griffith: Thanks. Not substantially. Yes. I mean, we’re still learning a lot and the integration’s going really well, and it was really something that was additive to what we were growing from our small fleet. So, we continue to be excited about the acquisition of Protective and will continue. And I’ve met a couple times with Mike Miller, who’s running Protective. He came from the commercial line side and is now running that. So he’ll be excited to have his growth plan in play. We’ve been focusing in the last year, so really on integrating the company within Progressive at large.

Operator: Our next question is coming from Meyer Shields with KBW.

Meyer Shields: Great. Two related questions, I think. This is on slide 26 with a 15% participation discount. The first is I was hoping you could talk us through what underpinned the decision to raise the discount. I would’ve probably naively guessed that incremental information has less marginal utility. And the second question is all of equal, if I’m a bad driver and I get a surcharge, then I get a bigger participation discount, then how does that factor into I guess retention and profitability?

Tricia Griffith: Yes. I’ll let Jim talk about that. I think the larger discount is what John was saying. We’re pricing to the curve — to the full curve. And so we know those customers are — have great driving behaviors and we’re going to add them. And of course, the adverse election is on the drivers that are not so good in the surcharges. Do you want anything, Jim?

Jim Haas: Sure. Yes. Raised the participation discount, in part we’re going to continue as we’re asking customers to do more in that case, and we wanted to encourage them. And the participation discount creates a larger incentive for that. As for how it would relate if you ultimately got a surcharge on the renewal term, the participation discount is only for the first term. So it’s removed, when you get to the renewal. And so, a bad driver is now getting a larger surcharge and they’re getting a larger discount removed off the first term, which would get us priced more accurately on them in the subsequent terms, which is the goal. So, the participation discount is there to encourage people to participate, and then we just price as accurately as we can on the subsequent terms.

Meyer Shields: Second question, I’m thinking of California, but there may be other regions where rating flexibility is limited. It seems like the economic benefits are of UBI monitoring are enormous. Is there a chance of getting this incorporated into the rating algorithms for more risky states?

Tricia Griffith: We’d love to be in California. That’s kind of a history from a lot of the proposition 103, things that came up many, many decades ago. We want to grow in California. We talked about that a lot. It’s the most populous state. But in the meantime, we will continue to work with the department to get the rates that we need to make sure that we reach our target profit margins.

Operator: Our next question comes from Paul Newsome with Piper Sandler. Paul, go ahead with your question.

Paul Newsome: Good morning. Thanks for the call. I was hoping you could talk a little bit about if the telematics, particularly the continuous use of telematics are allowing you to effectively change prices faster if the environment changes without having to actually file a rate change. It sounds like that’s possible, but I don’t know enough about how the formulas work for telematics products to know if you can effectively react to environmental changes through the telematics product without actually changing the filing?

Tricia Griffith: Good question, Paul. I’ll let Jim take that.