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Progressive 2020 profitability up amid 24% decrease in auto frequency

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Progressive earlier this month reported its personal lines profitability rose nearly $1.46 billion last year despite paying out COVID-19 premium credits, reimbursing higher auto severity, and increasing its advertising spend.

The nation’s No. 3 auto insurer, which derives 94 percent of its personal lines revenue from private passenger auto, attributed the lucrative year to diminished frequency.

“The increases in underwriting profit margin experienced in the Personal Lines business were driven by lower personal auto accident frequency experienced during 2020, partially offset by an increase in auto severity, policyholder credits issued to personal auto customers, and an increase in advertising spend,” Progressive wrote in its March 1 annual report to investors.

Progressive said its personal auto incurred frequency fell about 24 percent overall last year. Collision claims dropped 23 percent, and auto property damage frequency plummeted 27 percent.

“We saw the number of vehicle miles driven decrease dramatically when the COVID-19 restrictions were first put in place, especially during the early months of the pandemic, and driving patterns have not returned to their historical levels,” Progressive wrote.

Progressive paid out $1.1 billion in credits to personal auto policyholders (and distributed more than $2 million to ARX direct repair program shops) in recognition of this lower frequency. The insurer also cut personal premiums 3 percent “primarily in response to driving and claims data gathered during the year.”

Progressive’s personal auto severity rose 10 percent overall and 9 percent for property damage claims. However, collision severity only climbed 5 percent compared to 2019, according to Progressive.

Overall, Progressive recognized a more than $4.31 billion profit on its personal lines business, representing a 13.2 percent margin. In 2019, Progressive’s personal lines arm only earned more than $2.85 billion and collected a 9.5 percent margin.

Progressive’s auto loss and loss adjustment expense fell more than 7 points to 63.2, which means Progressive only had to pay customers and third-party claimants 63.2 cents out of every $1 of premiums it collected. However, the carrier bumped its underwriting expense ratio 3.7 points to 23.6.

Progressive didn’t break down the underwriting expenses for its personal lines business. However, it said that companywide, this line item included the $1.1 billion in COVID-19 credits for private passenger auto customers; increased ad spending; and its nonadvertising spending to obtain policies, such as payments to agents.

Progressive said it spent more than $3.27 billion on policy acquisition costs in 2020, up $250 million. It spent $5.57 billion on other underwriting expenses, up nearly $595 billion and including nearly $2.18 billion in ad spending.

“Progressive’s other underwriting expenses, which excludes the policyholder credits, increased 12% in 2020 and 19% in 2019, in part reflecting increased advertising spend in both years,” Progressive wrote in its annual report. “On a year-over-year basis, our advertising expenditures increased 18% and 29% in 2020 and 2019, respectively. We will continue to invest in advertising as long as we generate sales at a cost below the maximum amount we are willing to spend to acquire a new customer.”

Progressive spent nearly $1.84 billion on ads in 2019. It increased this amount $338.4 million to nearly $2.18 billion in 2020.

More information:

Progressive 2020 annual report to shareholders

Featured image: A Progressive Insurance vehicle drives along West 57th Street in Manhattan on June 2, 2011. (wdstock/iStock)

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