Progressive Corporation analyzed opportunities and threats in the auto insurance industry from 1984-1993 using PEST analysis. Key changes included compulsory auto insurance laws, rising consumer incomes boosting car ownership, and new computer technologies. Progressive grew by targeting the non-standard customer segment with lower rates, immediate claims responses, and 14,000 customized premiums. Through training, technology investments and efficient operations, Progressive achieved higher profits and returns than competitors over this period.

5. INDUSTRY ANALYSIS 524: The Insurance Carriers and Related Activities Industry http://www.census.gov/epcd/naics02/N2SIC52.HTM#N524 2002 NAICS Code 1987 SIC Code NAICS Industry Definition 524 Insurance Carriers and Related Activities – Industries in the Insurance Carriers and Related Activities subsector group establishments that are primarily engaged in one of the following: (1) underwriting (assuming the risk, assigning premiums, and so forth) annuities and insurance policies or (2) facilitating such underwriting by selling insurance policies, and by providing other insurance and employee-benefit related services. 5241 Insurance Carriers – This industry group comprises establishments primarily engaged in underwriting (assuming the risk, assigning premiums, and so forth) annuities and insurance policies and investing premiums to build up a portfolio of financial assets to be used against future claims. Direct insurance carriers are establishments that are primarily engaged in initially underwriting and assuming the risk of annuities and insurance policies. Reinsurance carriers are establishments that are primarily engaged in assuming all or part of the risk associated with an existing insurance policy (or set of policies) originally underwritten by another insurance carrier. Industries are defined in terms of the type of risk being insured against, such as death, loss of employment because of age or disability, and/or property damage. Contributions and premiums are set on the basis of actuarial calculations of probable payouts based on risk factors from experience tables and expected investment returns on reserves. 52412 Direct Insurance (except Life, Health, and Medical) Carriers – This industry comprises establishments primarily engaged in initially underwriting (i.e., assuming the risk and assigning premiums) various types of insurance policies (except life, disability income, accidental death and dismemberment, and health and medical insurance policies) 524126 6331, 6351 Direct Property and Casualty Insurance Carriers – This U.S. industry comprises establishments primarily engaged in initially underwriting (i.e., assuming the risk and assigning premiums) insurance policies that protect policyholders against losses that may occur as a result of property damage or liability.

7. INDUSTRY ANALYSIS Progressive Corp. and Industry Profitability, 1984-93 * Industry underwriting profitability refers to the entire automobile insurance market ** Industry ROE refers to the entire Property-Casualty insurance industry All data from the case 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 PROGRESSIVE Underwriting Profit -2.4% 0.0% 4.3% 5.6% 2.9% -1.2% 1.0% -3.7% 3.5% 10.7% Return on Average Equity 18.0% 36.9% 26.9% 24.7% 25.9% 17.4% 21.5% 6.7% 34.7% 36.0% INDUSTRY Underwriting Profit* -17.4% -17.0% -8.6% -4.7% -5.4% -10.4% -9.8% -9.0% -3.0% -2.0% Return on Equity** 1.9% 4.0% 13.6% 15.8% 13.2% 9.9% 8.6% 9.2% 4.4% 9.8%

10. VALUE CHAIN Progressive Corporation *Taken from the case **Assumption Progressive Consumers 100% Underwriters Revenue 10.7%* Underwriters OpEx 25.4%* Other/After Sales OpEx 48.9%** Legal 15%*

11. INDUSTRY SUPPLY/VALUE CHAIN Non-Standard Insurance Industry Independent Agency Forces Non-Standard Insurers Progressive Agent Progressive Two main chains in the non-standard insurance industry: 1. Insurance companies worked with an independent agent, who procured clients for them. 2. Progressive worked with their own agents who were an important part of matching clients to claims and pricing claims fairly.

12. VALUE CHAIN Progressive Corporation Margin Inbound Logistics Operations Outbound Logistics Marketing & Sales After-Sale Service Data Gathering Rating Underwriting Investing Policy Issues Billing and Collections New Sales Policy Renewal Policy Re-pricing Agent Mgmt. Advertising Claims response Loss Control Loss Settlement Financial Accounting / Legal Counsel / Regulatory Compliance Personnel Training Research and Development (Product/sales practices/Settlement procedures)‏ IT & Communications

13. VALUE-ADDED ACTIVITIES Human Resources After-Sales Services Marketing & Sales Info. & Comm. Tech. Inbound Logistics Service Non-Standard Sector