Case Analysis
MBAM619.11Hongchul Jun, Yokesh Kumar,
Samantha Tang, Kenny Toop, & Ali Yazdi
PEST Analysis- Political• Proposition 103 (California)• Prior to the passage of Proposition 103 on November 8, 1988, the
California Department of Insurance operated under the McBride-Grunsky Insurance Regulatory Act. Under this Act, insurance companies were not required to file rates for approval except for health and life. California was considered an "open competition" state in which competition regulated the marketplace.
• Prop 103 changed landscape of how insurance companies compete and brought clarity to consumers
• State laws required most drivers of motor-vehicles to have auto insurance– Each state issues regulations specifying minimum liability coverages and other mandatory coverages
• State governments required standard carriers to underwrite non-standard risks under the Assigned Risk Plans (later called Automonile Insurance Plans)– State regulators set premiums for non-standard risk applicatns
PEST Analysis- Economic
• Car insurance premiums based on age, gender, marital status, vehicle information
PEST Analysis- Economic
• Unleaded Gas Prices, (Cents per gallon, NSA)
http://www.economy.com/freelunch/protected/cht/default.aspx?task=chart&s=XCPMGASUW%2EUS
PEST Analysis- Economic
• Total Auto Sales (Ths., NSA)
http://www.economy.com/freelunch/protected/cht/default.aspx?task=chart&s=XRVEH%2EUS
PEST Analysis- Social
• Progressive strived to reverse reputation of the car insurance industry
• Transform the human experience of dealing with customers providing low cost and high service
PEST Analysis- Technology
• “Prince of Smart Pricing”- using data to analyze risk more efficiently resulting in better pricing
• Express Quote Service- provided pricing clarity to customers in California
• Track metrics such as “loss report lag time” to track how efficient Progressive was in their policies
Industry Chain
Insurance Companies
Internal Agencies
Independent Agencies
GovernmentsRegulations
RemoteSelling
Drivers
Non-standard
Standard
Standard
Value Chain• Where can an insurer gain an edge?
M A R G I N
- Financial Policy - Legal - Organizational Form- Regulatory Compliance - Accounting - Incentive Systems
- Actual Training
- Actual Methods- Investment Practices
- Information Technology
- Actual Training
- New Product Development- Market Research
- Communication Technology
- Adjuster Training
- Settlement Procedures
- Data Gathering
- Rating- Underwriting- Investment
- Policy Issuing- Billing and Collections
- Claims Response- Loss Settlement- Loss Control
- New Policy Sales- Policy Renewal- Policy Re-pricing- Create Network of Independent Agents/Build up Internal sales force- Agent MGMT.- Advertising
FIRM INFRASTRUCTURE
HUMAN RESOURCE MGMT.
TECHNOLOGY DEVELOPMENT
PROCUREMENT
INBOUNDLOGISTICS
OPERATIONSOUTBOUNDLOGISTICS
AFTER-SALE SERVICE
MARKETING AND SALES
Industry Analysis
Source: http://www.census.gov/econ/census02/data/industry/E524126.HTM
This industry comprises establishments primarily engaged in initially underwriting insurance policies that protect policyholders against losses that may occur as a result of property damage or liability.
SIC Code - 6331Establishments primarily engaged in underwriting fire, marine, and casualty insurance.
Source: http://www.osha.gov/pls/imis/sic_manual.display?id=260&tab=description
Industry Analysis
Year
$
bil
lio
n
Market size grew from $21 billion in 1975 to $109 billion in 1993
The top 10 underwriters accounted for approximately 51% of the total market
Industry Analysis
Source: http://www.naic.org/documents/research_premium_by_LOB.pdf
Industry Analysis
Source: http://finance.yahoo.com/q/ae?s=PGR
Over the next 5 years (from current) the industry and sector growths are forecasted to be 10.8% and 9.1%, respectively
Industry Analysis
Standard Segment Nonstandard Segment
• Lower risk– Excellent driving record– Typically between the age of
20 and 70
• Higher risk– Previous accidents and/or
violations– First time drivers– Elderly– License previously suspended
The auto insurance industry generally breaks down their customers into two segments:
Data GatheringData Gathering
Inbound Logistics Operations Outbound Logistics Marketing & Sales After Sales Service
Rating
UnderwritingBiling & CollectionsPolicy Issuing
AdvertsingPolicy RenewalsNew Policy Sales
Claims ResponseLoss Settlement & Control
Traditional Auto Insurance Industry Value Chain
Underwriting margin : 2%
Immediate Response System•Quick settlement of claims (56% settled within 7 days)
•Attorney involvement reduced by 20%
•Reduced costs (e.g rental car,storage of damaged car etc.,)
•Satisfied customer promotes the company
Marketing & Sales
• Express Quote Service-compare price with other insurers
• AutoPro-Reduced underwriting costs through direct calling (15% to 5%)
• Walk-in service center
Data GatheringData Gathering
Inbound Logistics Operations Outbound Logistics Marketing & Sales After Sales Service
Rating
UnderwritingBiling & CollectionsPolicy Issuing
AdvertsingPolicy RenewalsNew Policy Sales
Claims ResponseLoss Settlement & Control
Progressive Auto Insurance Value Chain
Immediate response System
Process 30% more claims
Underwriting Margin : 7.4%*
*as of 2007 - Progressive annual report
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