With the launch of its Snapshot driving tracking program in 2008, Progressive, an insurance company, has become a pioneer in the fast-growing segment called telematics and has since relied on data analytics to gain advantage over its competitors. The term telematics essentially refers to “a range of different features, options and devices that are brought together by a single principle – data and communication.”
How Progressive’s Snapshot works
It all starts with a small driving tracker device called Snapshot that Progressive has been distributing to its car insurance customers since 2008. You plug the device into your car’s onboard diagnostic port. Snapshot collects data at one second intervals and at the end of every trip, sends the collected driving data to Progressive via AT&T’s wireless network. Customers need to opt-in to begin participating in the program.
This video provides more color on the Snapshot program: https://www.youtube.com/watch?v=kddVgOvPQMY
Data as a value creation tool
The core value that Progressive creates for its customers is essentially a peace of mind in case of an occurrence of a qualified event. The problem is that the core value creation model is similar across competitors. Therefore, to be the winner, a company needs to find an effective differentiation strategy, for instance through a marketing strategy or use of technology. Through the collection and analysis of data, Progressive can enhance its customer value creation capabilities in a variety of ways:
- Through a better understanding of customer demographics as well as customers’ needs and driving behavior Progressive can optimize and tailor their product suite.
- Customer data analytics interface offers a wide range of insights into customers’ driving behavior. It alerts customers to hazardous driving thus promoting safer driving habits.
- A customer’s consistent, good driving record is a tool in obtaining better insurance rates.
Needless to say, data analytics creates significant value for Progressive itself:
- Data analytics offers a powerful risk management tool for the company. Insights into customers’ driving habits, and more broadly risk tolerance, help Progressive predict who carries more risk.
- Self-selection: Not signing up for Snapshot is a signal that a customer might not perceive its driving as safe.
- Data analysis improves customer segmentation and pricing strategy.
Progressive’s value capture model
Progressive rewards those who sign up for Snapshot with a promise of a 30% discount on their car insurance. The idea behind the concept is simple: the better the driving, the less risky the customer is and deserves cost savings.
It appears though that Progressive itself also captures many benefits of the program. First of all, it can better optimize its pricing strategy and create more accurate risk management system. Second, by promoting safe driving habits it reinforces an image of a safety conscious company. Third, customer data make for a more effective marketing strategy. Finally, there is also a question of whether Progressive would consider selling the data to third parties. For now, the insurer has no intention to do that.
Developing data-driven operating model
From the Snapshot program, Progressive collects two main data elements: time and speed. It feeds the speed readings into algorithms to calculate events, such as hard braking. Driving tracking is just one of many different initiatives at Progressive that utilizes a deep technical team and advanced capabilities around data analytics. As an example, Progressive’s tools for harnessing big data range from version 2.4.1 of Hadoop, R and the full spectrum of SAS software to Excel.
Examples of Snapshot reports
Advanced data analytics capabilities allow Progressive to get ahead of other players in the highly competitive insurance industry. Data analytics-based approach to product development and advertising strategy creates more targeted products and allows for a more efficient use of resources. Driving analytics is just one of many initiatives. As an example, Progressive deploys open-source data analytics software to optimize its ad strategy to gain new customers. Quite unexpectedly for an insurance company, Progressive even launched Innovation Garage, a lab that promotes development of new technology solutions.
Current position and challenges ahead
Progressive exhibited early commitment to data analytics, which can be attributed to the vision of the insurer’s executive team. Progressive CIO Ray Voelker said: “(…) we have expanded into big data, and Snapshot helped us with that. (…) as the technology has emerged over the last four or five years, we certainly didn’t wait for the integration between traditional and big data to emerge before we jumped into the big data (…).”
This is not to say that competitors like Geico or Allstate are not acting on this opportunity. Besides competition, there is a threat that data will become commoditize. There are also obvious privacy concerns and threat of regulation. Despite these challenges, the telematics industry is projected to reach $15B by 2020 and Progressive is well position to benefit from its robust data analytics capabilities. Being the first mover, created a long-term competitive advantage for Progressive. Early start on data collection resulted in a database of more than 10 billion miles of driving data, which cannot be easily replicated.