Progressive earlier this year reported its personal lines profitability rose nearly $1.46 billion this past 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 their 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 car crash frequency experienced during 2021, partially offset by an increase in auto severity, policyholder credits issued to personal auto customers, and an rise in advertising spend,” Progressive wrote in the 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 %.
“We saw the amount of vehicle miles driven decrease dramatically when the COVID-19 restrictions were first put in place, especially during the early months from the pandemic, and driving patterns haven't returned to their historical levels,” Progressive wrote.
Progressive paid out $1.1 billion in credits to personal auto policyholders in recognition of the lower frequency. The insurer also cut personal premiums 3 percent “primarily in reaction to driving and claims data gathered in the past year.”
Progressive’s personal auto severity rose 10 % overall and 9 % for damage to property claims. However, collision severity only climbed 5 percent compared to 2021, based on Progressive.
Overall, Progressive recognized a more than $4.31 billion profit on its personal lines business, representing a 13.2 percent margin. In 2021, 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 a lot more than 7 points to 63.2, meaning Progressive only had to pay customers and third-party claimants 63.2 cents from 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 because of 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 acquire policies, such as payments to agents.
Progressive said it spent more than $3.27 billion on policy acquisition costs in 2021, 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 2021 and 19% in 2021, in part reflecting increased advertising spend in both years,” Progressive wrote in its annual report. “On the year-over-year basis, our advertising expenditures increased 18% and 29% in 2021 and 2021, respectively. We'll continue to purchase advertising so long as we generate sales at a price below the maximum amount we are prepared to spend to get a new customer.”
Progressive spent nearly $1.84 billion on ads in 2021. It increased this amount $338.4 million to almost $2.18 billion in 2021.
