Progressive is using technology to drive a new usage-based pricing option for car insurance. Called Snapshot, it's a small device that you plug into your car's diagnostic port inside the vehicle. Progressive monitors how you drive--miles, time of day, and sudden stops--for 30 days, and then gives you a rate. It's optional, since Progressive will offer a quote without the Snapshot monitor.
The device itself is clever (and patented), but CEO Glenn Renwick, in fielding multiple analyst questions during the fourth-quarter conference call, makes it clear that data is the real power:
"The [Snapshot] algorithm will continually be a work in progress for us. Obviously, we don't change it all the time, but we're always doing R&D to figure out new things. And it is very clear to us that more data, a better ability to analyze it, different uses of the components that we can now measure--we mentioned some of those at the last IR meeting--are actually going to contribute to a revised algorithm in the future. And I suspect that, that will continue for quite some time, as we get to use this data in more and more intelligent ways."
When asked for more explanation how Snapshot works for a customer getting a quote from another insurer, Renwick explained how a person would call up, get a quote, and then the rep would ask if the person would like to try to improve their rate with Snapshot. If they agreed, a device is mailed to them:
"We would know the moment you install it. And in return, you get to be able to see exactly what data is relevant to you on a website. And after 30 days of usage, we would say, "Michael, based on your driving behavior that we've observed and the things that are important to us, we think that you could be due a 17% discount. And here's the deal we're going to make with you. We'll actually give you that 17% discount for the remaining term of your policy." We write 6-month policies, and at this stage, you've had a 30-day measurement period and probably a few days of some mail and stuff, so that maybe we're 35 or 40 days into the policy. So we would then give you that discount for the remaining part of your policy. We would continue to observe your driving behavior through the chip that you've installed, and we would require that you keep it installed. And at the end of that policy period, or actually, the required number of days that we offer you a renewal price at the expiration of your policy, we would then tell you, "Hey, that 17%,"--is that what I said? Okay. "That 17% looks good," or we go, "It wasn't as good as we thought. It's really 15%," or maybe, "It's a little better than we thought. 21%."
When people talk about the importance of data and analytics, and using data to drive business decisions, these are the kind of capabilities that get CEOs' attention.