Doug Constantine, Director of Investor Relations, welcomes the audience to Progressive's Second Quarter Investor Event and introduces Pat Callahan, Personal Lines President, who will be giving introductory comments. The company will not be discussing detailed results, but will instead focus on a specific portion of their business and hold a Q&A session with members of their leadership team. Forward-looking statements may be made, and information on risks and uncertainties can be found on their website. Pat Callahan then begins with his introductory comments.

The speaker introduces the topic of direct acquisition and the company's vision to become the top destination for insurance and financial needs. They explain the differences between agency and direct channel customers and how the company has developed distinct products for each channel to better align with their different needs and characteristics. The three primary distribution channels for the company in the U.S. are also mentioned.

Progressive's auto insurance business is divided into three main channels: captive agents, independent agents, and direct-to-consumer. The company has seen success in both the independent agency and direct channels, which make up the majority of the market. The current hard market has presented opportunities for growth, especially in the direct channel. Progressive's success in this channel can be attributed to their strong brand, effective segmentation, and media presence, which brings in millions of visitors to their website each year. The company will focus on their media strategy and customer experience in the direct channel in their presentation.

Progressive's in-house media team has been a key factor in their success, allowing them to optimize their media spend and maintain a competitive advantage. This team is responsible for purchasing various forms of advertising and demand generation, making them unique in both the insurance and advertising industries. The team's expertise and experience have helped Progressive to continuously improve their media economics and increase their market share.

The decision to have an in-house media team was made in the mid-1990s and has evolved with the changing media landscape. The team's capabilities have been developed over three decades and it would be difficult to assemble a team from scratch. The advantages of having an in-house team include a focus on one brand and product, leveraging Progressive's analytical strengths, and having analysts with product knowledge. This allows for custom models built specifically for Progressive using first-party data.

Progressive's use of proprietary models and first-party data has allowed them to efficiently allocate their media budget and quickly adjust it based on their specific needs. This has been advantageous in terms of optimizing sales and aligning incentives for their media team. Additionally, their approach has lower overhead costs compared to relying on external media agencies.

The Media Group at Progressive has been able to buy media more efficiently and at a lower cost, with a team of less than 100 people. They have strong relationships within the company and a deep understanding of the business, allowing them to make a case for aggressive spending and quick cuts when necessary. The Media Group has been a key factor in Progressive's success over the last decade, during which the insurance industry has seen a significant shift in advertising spend due to the emergence of the direct-to-consumer business model.

The advertising industry experienced a high rate of growth from 2003 to 2011, with a compound annual growth rate of 15%. However, between 2011 and 2017, growth slowed to only 2%, largely due to agency distributed companies. In 2017, growth ramped up again with a compound annual growth rate of 10%, possibly spurred by Progressive's increased spending. Prior to 2017, Progressive's media spend was under $700 million and they were consistently around 10% of total industry spend. In 2015 and 2016, they used analytics to generate insights for more efficient media buying and were able to increase spend while keeping their combined ratio below '96.

In the span of four years, from 2017 to 2020, the company was able to triple their media spend and increase their share of the industry spend from 11% to 20%. However, due to higher losses, the company had to make significant cuts to their media budget for three consecutive years from 2021 to 2023. Even with these cuts, the company remained the biggest vendor in the industry and maintained their share of the overall spend.

The company's in-house team was crucial in managing the dynamics of increased spending and then quickly cutting costs to meet company goals. The team uses controls such as cost per sale and targeted acquisition cost to ensure the efficiency of spending. The direct auto lifetime combined ratio must also be at or below 96 to ensure profitability over the life of policies. Acquisition costs are expensed in the first term of the policy and subsequent terms collect enough premium to cover these expenses.

The company must carefully manage its acquisition expenses to ensure that the premium collected covers all associated costs. They prioritize providing good customer service and managing claims over aggressive growth. They also have a target combined ratio and measure the efficiency of their media spend through incremental cost per sale. Despite a significant increase in spending from 2016 to 2020, they were able to keep cost per sale below their target through efficient allocation. In 2023, they made cuts to the least efficient areas first.

In 2023, the company made cuts and focused on efficient spending, resulting in a lower cost per sale and a high level of ambient shopping. Despite an increase in spending in 2024, the company is still adding policies efficiently due to competitors' low media spend and good conversion rates. The upfront acquisition expenses as a percentage of premium also decreased in 2023 but increased in 2024. This suggests that the company is still bringing in prospects at a high efficiency. A chart shows that the increased spend in 2024 resulted in a corresponding increase in sales. 2023 is an outlier and the company has previously been asked about how they measure ambient shopping.

The number of ambient shopping in 2023 was higher than previous years, leading to an increase in direct new policy sales for Progressive. The company was able to increase spend while still hitting profit targets due to available margin. This resulted in a decrease in acquisition expense ratio, contributing to the company's ability to exceed their target. In 2024, the acquisition expense ratio has increased due to an increase in spend, but the company will continue to look for opportunities to grow. Third-party data is used to gauge Progressive's spend in relation to competitors.

The paragraph discusses the effectiveness of Progressive's in-house media team and their role in driving value and increasing market share through efficient media spending. It also mentions their focus on profitable growth and the collaboration between different departments in the company to deliver sales.

The acquisition experience team at Progressive, led by Dave Krew, is responsible for turning digital interactions with prospects into profitable experiences for the company. They focus on optimizing the direct sales funnel on progressive.com and other personal and commercial lines, with the goal of generating incremental lifetime underwriting profit. This requires collaboration with other departments and a diverse set of skills. The team has been working on this for decades and has a history of digital firsts.

Progressive has been selling insurance online since 1995 and has continuously invested in improving the user experience and technology. They were one of the first companies to offer comparison rates online and have since expanded to selling policies for various types of insurance. They have seen significant success with millions of policies sold digitally each year, with over half of those sales happening on mobile devices. The company invests significant resources in optimizing their digital funnel, as even a 1% increase in throughput can result in tens of millions of profit dollars.

The paragraph discusses how Lyft counts sales and the importance of considering lifetime underwriting profit. It also mentions the complexity of their product and the need for their digital customer acquisition to stay in sync with product changes. The company has a lot of experience in providing accurate online quotes and optimizing user experience. They use tactics and principles to make informed trade-offs and run pilots to assess the best way to gather rating input. Their goal is not the fastest quote but the optimal use of the consumer's time. They also mention their experiments with motorcycle quick quotes and embedded rates with partners, but emphasize the importance of rate accuracy and a positive customer experience from quote to purchase to onboarding.

The company uses A/B testing to optimize new experiences and looks at sales, user experience, and product mix. They collaborate with product and IT partners to stay on the efficient frontier of customer ease and segmentation fidelity. They also focus on personalization and the digital funnel, using personalized content to enhance customer experience and drive increased sales. The company has also deployed advanced technology, such as chatbots, to reduce human support costs. To deliver real-time digital personalization, the company focuses on four dimensions of capability.

The company focuses on four key elements, represented on the personalization wheel, to advance their digital sales funnel growth and optimization. These elements include context data, content, decision science, and delivery system. They constantly work to add new use cases and improve their models, with a strong partnership with their IT team. Their tight coupling with product is a significant advantage over Insurtech startups. Overall, they continue to advance their personalization capabilities in the direct acquisition experience world.

The company has been evolving at the junction of insurance and technology for decades to fuel direct customer acquisition. The presentation concludes and the management team is available to answer questions. The first question is from Bob Jian Huang of Morgan Stanley, who asks about the company's record number of new auto policies and how this will impact the combined ratio in the future. Tricia Griffith responds that with 2 million new policies and 2.6 million overall, it's hard to predict the future combined ratio, but the company will have more flexibility to acquire customers due to their efficient acquisition costs.

The company is very efficient and has been able to keep their cost per sell below their targeted acquisition cost. They want to continue growing, but their preferred method is through units of growth. They will spend more on media if they can do so efficiently. They are also focused on driving down non-acquisition expenses and improving their customer service and claims organization. They feel they are in a good position to continue growing and taking market share.

The speaker is responding to a question about investment income and the competitive environment in the insurance industry. They mention that in recent years, insurers have relied on investment income to offset inflation, but that their company focuses on operational and capital management. They state that their goal is to grow as fast as possible while maintaining a 1996 combined ratio and taking care of their customers. They also mention that competitors have different models, but they will continue with their successful approach. The questioner thanks them and another caller is introduced.

Tricia Griffith, CEO of Progressive, is confident about the company's advertising spend and expects it to result in accelerated year-over-year PIF gains in the second half of the year. She believes this is a signal of their confidence in their rates and intends to continue on this path. In terms of competitors returning to advertising, Griffith believes there are still opportunities for efficient advertising and credits their success to their decades-long focus on building a strong team and working with different departments within the company. She also mentions that the company is happy with their current rates and believes they have the right rates on the street.

The speaker discusses the changing consumer landscape and the increasing popularity of buying insurance online. They mention their company's success in the direct-to-consumer channel and the challenges faced by competitors trying to enter the market. The speaker also shares their personal experience with their children's preference for online purchases.

The speaker discusses the company's growth in renters and their efforts to offer bundled auto and renters insurance. They also mention the potential for renters to become homeowners, but emphasize the importance of managing risk in this area.

The speaker addresses a question about staffing and growth, stating that it rarely happens but they closely monitor it. They recall one instance in the early 2000s where they had to slow down growth in a specific state. They mention the advantage of having hybrid work and the ability to shift work to different states.

The speaker explains that the company has a flexible staffing strategy that allows them to train employees from one state to work in another if needed. They also mention their hiring and training process, and how they are now hiring ahead of need. The speaker then discusses the company's advertising strategy and how they have been working on targeting multilingual populations, but faced a setback due to litigation in Colorado.

In this paragraph, the speaker discusses the company's strategy to grow their business through multilingual capabilities and advertising. They mention a recent pause in their plans due to an event in Colorado, but express their belief in the potential for growth in the agency channel and through their Spanish-speaking representatives. They also mention their upcoming plans to update their multilingual strategy. The speaker then answers a question about the potential for growth in the online homeowners' direct-to-consumer market, stating that they will continue to innovate and grow in all channels.

The speaker recalls a time when the company made a successful bet on their brand and talks about the importance of investing in online sales for homeowners insurance. They also mention their lower rate increases compared to competitors and the potential for Progressive to take share in the industry due to overpricing by competitors.

Tricia Griffith, CEO of Progressive, discusses the company's efforts to stay current with industry trends and improve its profitability. They have taken actions such as increasing rates and implementing non-rate actions to derisk their books. The focus is on improving segmentation and pricing in order to take more market share in the future. The company is also growing in less volatile states and working on derisking their property portfolio. In terms of cost per sale, they are continuing to improve their margins in line with their peers.

During the earnings call, Tricia Griffith, the CEO of the company, was asked about the potential impact of increased competition on the cost per sale in the second half of the year and how the upcoming election may affect advertising costs. Griffith stated that she had no idea how the election would impact costs, but there may be some pressure on cost per sale. However, she reassured that the company feels good about the efficiency of their cost per sale, which is significantly below their total acquisition cost (TAC). Another topic discussed was the favorable frequency environment, with frequency being down about 8%. Griffith attributed this to a mix of preferred business and non-rate actions, but it is difficult to determine the exact factors that contribute to frequency. Griffith emphasized the importance of thoroughly evaluating every product and state and making small adjustments to rates in order to maintain stability for consumers.

During a Q&A session, an unidentified analyst asked about the rate cuts mentioned in the shareholder letter and how Progressive plans to handle conversion rates. Tricia Griffith, the CEO, explained that the company is back to normal and is taking small rate cuts in states where they are well below their goal of 88% combined ratio. This is to bring in new business and balance out the recent rate increases. She also mentioned that the company is focused on being on the short list for consumers and converting them into customers.

The speaker discusses the funnel-like structure of the company's conversion rates, noting that while they cannot control the numbers, they will continue to work on improving them. They also mention the variability of competitor behavior in terms of pricing and marketing spend, with different channels having different approaches. However, the speaker believes that competitors are acting rationally and that there is still a lot of rate coming into the system, which may lead to increased spending in the future. The overall goal is to price correctly based on risk.

The speaker is biased and believes that their company's model is the best because it balances growth, profitability, competitive prices, and people and culture. They expect to see rational movement from their competitors in the next few years. When asked about margins and potential regulatory pushback on prices, the speaker states that they don't want the pendulum to swing too far the other way and that they will continue to monitor rates and work with regulators to ensure competitive prices. They also mention the importance of advertising and being there for customers, and the ease of shopping and switching carriers.

The speaker discusses the high usage of their company's mobile app for auto policies and attributes it to the evolution of technology and their investment in making the app user-friendly. They also mention that the app allows customers to access various features such as making payments and obtaining ID cards, aligning with their strategic goal of providing broad coverage.

The CEO agrees that the company's focus on direct home sales has been successful and is a result of their investments and partnerships. She explains that their Robinson growth is happening across all channels and they have systems in place to refer customers to other carriers if needed. This approach has been effective in attracting customers and will continue to drive growth.

Tricia Griffith, CEO of Progressive, is proud of the company's investment in HomeQuote Explorer and believes it will be a long-term solution for the direct side of their business. David Motemaden of Evercore ISI asks about the lag between ramping up ad spend and seeing higher sales, to which Tricia responds that there is some lag but it is closely monitored. David also asks about the 10 points of rate that were mentioned in the previous quarter's 10-Q, and Tricia clarifies that they have taken a lot of rate over the years.

The company has seen a 2% increase in PIF year-to-date and expects to earn more in the rest of the year. They are confident in their rates and have been able to reduce them in certain states. Despite previous struggles, they feel good about their competitiveness. The strong PIF growth in April, May, and June was a result of various factors, including the right rates, pulling back on non-rate items, increased media spend, and adequate staffing.

The speaker discusses the company's advertising spending and its impact on retention. They mention that having a strong brand is important for retention and that they use various campaigns to target different audiences. They also mention conducting tests to understand their addressable markets. The speaker emphasizes the importance of attracting and retaining customers through stable prices and good service.

During a Q&A session, Tricia Griffith, the CEO of an insurance company, discusses the sustainability of favorable frequency trends and severity factors. She mentions that mix and non-rate actions may play a role in the sustainability of frequency trends, but severity has stabilized compared to pre-pandemic levels. There are no specific factors in their mix that would cause severity to run at a lower rate. Additionally, Jay, the CFO, mentions a catalyst for increased spending on direct-to-consumer initiatives, which may have been related to improvements in data in 2016-2017.

The speaker is asked about the company's improvement over the years and if there was a specific event that led to it. The speaker responds by saying that there have been many improvements since then, and the team they work with is constantly learning and becoming more effective. They credit this team for their success and express their gratitude for their hard work. The call concludes with the speaker thanking everyone for attending.

The Progressive Corporation's Fourth Quarter Investor Event has ended and information about a replay of the event will be available on their website. The operator instructs participants to disconnect.

This summary was generated with AI and may contain some inaccuracies.