Alan Bauer, retired Progressive Group President - reflects on 40 years in the industry - relevant in the COVID-19 new normal...
Alan and I conducted this interview a few months ago, but it feels like we were in a different century… The world has changed with COVID-19, we are still in the middle of the event and it will take time until things stabilize and we achieve the new “normal”.
But history and mathematics do not change even in times of crisis, and in the interview, Alan speaks about the history of the US insurance industry and the mathematics of pricing insurance.
I was introduced to Alan by a McKinsey partner in 2007, my first year in the insurance business. Alan had just retired as Group President of Progressive Direct, where he grew the earned premium from under $1.3 billion in 2000 to over $4.3 billion in 2006.
The interview is a discussion about Alan’s insurance journey over the last 40 years – an inspiring reflection by an insurance visionary. I asked Alan three questions, the interview is split into Alan’s insightful response to each of these three questions.
The discussion provides significant insights into Alan’s experience and thoughts on the mathematics of developing and pricing insurance products. This essential component of insurance appears to have increased importance in the COVID19 era and the new normal.
One of my favorite parts is the way Alan describes “perfect pricing” and how Progressive was able to capitalize on its advanced analytics.
In Alan’s words: “Let’s say six months ago, I wanted to set a price that reflects the cost to the carrier for the next six months. Then let’s assume that in the next six months, I haven’t had a claim. If it were perfect, the price for me would be how much it costs to renew me, how much it costs for the overhead and how much it costs to service me. That’s about it. That might be between $40 and $80. Whereas another guy had a claim for $100,000, and so his premium should have been $100,080. But of course, it doesn’t work that way. No one has perfect pricing.
But the closer you move towards good pricing, the better off you are as an insurer. One of the things Progressive did – which I think was brilliant and I wish I could claim credit for – is offer competitors’ rates on its website and through its call center. People thought that was primarily an interesting way to get traffic to the website or to the phone system. But it was also something else entirely. Progressive, who arguably had a superior pricing algorithm than most other carriers, knew that if you should be charged $1,200 and another carrier is offering you $800, of course you would choose the $800 carrier. Progressive, meanwhile, knows that other carrier just took a $400 loss!”
Here are links to the interview on the Planck website.
What did you do at Progressive?
What are your thoughts on auto insurance and the insurance industry?
How do you see property and casualty insurance evolving over the next decade?
Lobbyist & Governmental Relations Consultant .
3yI truly enjoyed working for and with Alan Bauer during the 1990s in his capacity as aboard member and Chairman of the Personal Insurance Federation of California. With a newly "weaponized" and extremely hostile regulatory system in CA, those were tumultuous times for insurers. To me, and to PIFC, Alan was a reliable and abundant source of integrity, insight, innovation, focus, motivation, humility and humor -- qualities which were then in perilously short supply at the most senior levels of the insurance business. It was great to read that his ideas remain on the cutting edge of shaping how the industry can adapt and continue to successfully serve consumers and shareholders.