what are you doing turning this message board into a strategic debate? Don't you know that you're occupying space that may have otherwise been filled with challenges to MCY management and the return invitations to get positive or leave?
Anyhow, thank you for checking in. You provoke some good thought and dialogue.
I think that PGR probably has turned a corner on the direct business, as it seems that the expense ratio is steadily declining, actually profitably supporting a higher loss ratio. This is the outcome of focusing the direct writing on longer retention standard and preferred business.
Has it come at the loss of some agency business? Probably. At the same time, it's hard to point out a faster growing writer of standard and preferred auto business. I tend to believe this segment's revenue streams will more than cover PGR's acquisition costs. Their ability to become a $1.6B direct writer in a little over a decade is noteworthy. If they aren't the largest auto insurer in the U.S. in the next 10-15 years, I'll be surprised.
I like PGR's prospects over MCY's because I believe they are more strategic and nimble. I also have more faith in their ability to succeed in saturated competitive environments. I feel MCY shareholders owe a lot to PGR's decision to walk away from the CA market following Prop 103.
Sorry to use these boards for something other than carping and posing.
Your answer has begged a number of questions and comments.
It is very hard to know PGR how is doing as they play fast and loose with the definition of 'preferred and standard' business. They may be suffering the misfortune of attracting that rare bird who both has a good credit rating (Stable) and is also a frequent shopper (Instable) of insurance. This small niche is being actively worked by quite a number of companies. The assumed result will be low margins and low retentions.
I agree that PGR is nimble and a strategic planner. It's easy to be nimble when you aren't fettered by matters of conscience. All corporations are ruthless in some aspect or another. PGR seems to push the envelope in that regard.
It would be easier to gauge their success as a direct writer if I knew:
1.) How much premium is originated through the internet... very vulnerable.
2.) How much premium is originated through 1-800-autopro... less vulnerable.
3.) How much premium is originated through strategic alliance... more vulnerable (even though agency originated in many instances).
Agents make money on accounts they place that stay placed in one company through their agency for several renewals. Thus agents are a stabilizing factor in the relationship between a company and their insured. PGR doesn't understand or acknowledge this fact in their core strategy.
IMO PGR has set themselves up as a target market for price shoppers and malcontents.
PGR beat the market to broad implementation of credit underwriting. Most companies had to undergo several years of gulping before they could take on this 'scrubbed up redlining'. Now that most companies have accepted the use of credit for pricing and acceptability, PGR must either move on or accept lower margins.
I'm with you. PGR will adapt quicker than most and will continue to pick low hanging fruit for as long as their corporate philosophy is a singular focus on bottom line pricing.
However, MCY proves that no single approach to the market is the magic formula. MCY has proven that a company with a basic philosophy of low costs coupled with long term relationships can succeed.
As an agent whose agency is valued on the number of long term relationships I've nurtured... I would choose and MCY over a PGR hands down for long term success.
They departed the California scene following Prop 103, Progressive and Mercury were about the same size. This year their direct book alone will be apprx. 20% larger than MCY. Profitable, too. Not shabby for a pipe dream.
Insguythen, as we've discussed, PGR's mantra has historically been opportunism vs. continuity in relationships. I don't see this changing.