Wednesday, August 15, 2012

What Progressive Got Right

Update 8/17: Did an interview with NBC News on the social media aspects of this case; resulting post is here.

If you've been anywhere near the interwebs today, you've undoubtedly heard that one of the darlings of the business world, Progressive Insurance, has been taking some lumps.  If you're not up to speed, let me sum up:

  • In 2010, Progressive customer is killed in a car accident due to negligence of other driver (who ran a red light).
  • Killer was underinsured, and unable to pay damages.
  • Victim's Progressive policy (allegedly) promises to cover the difference in case the other party has caused an accident through negligence and is unable to pay
  • Progressive refuses to pay, resting on Maryland statute that forces a ruling of negligence to come only from a court of law - not common sense, police reports or eyewitness reports
  • Victim's brother reluctantly goes to court to prove negligence on part of killer in order to be compensated by Progressive
  • Progressive leads killer's legal defense team in order to avoid paying rightful damages (and thought it's not necessarily material to the moral argument, they lost anyway and will have to pay)
All the facts can be found in the Gawker post from the victim's brother (Comedian Calls Out Progressive Insurance for Defending His Sister’s Killer; Progressive Responds in Heartless Robot Fashion) and scads of news stories, including this from CNN (Progressive robo-tweets spark social media crisis).  There are plenty of facts that are missing - and they could conceivably change the moral tenor of this case.  But at this point, I'm having a lot of trouble imagining what facts could tell me that it's morally acceptable for my insurance company to pay for or otherwise provide a legal defense for my  sister's killer in order to avoid paying a rightful settlement to her estate.

I'm not interested in the social media aspects of this ... but I am interested in what it means for Progressive long-term.  You see, Progressive has held a pretty unique position in the insurance world up to this point - because they have done an awful lot of things right.  

Their primary halo comes from the fact that they've taken a basic fact of the auto insurance industry, and turned it into a nearly unassailable competitive advantage.  Every car insurance company has the operational responsibility of maintaining an appropriate balance in its risk pool; meaning that it needs to be able to attract people with certain risk profiles at certain times.  Progressive took this basic fact and spun it into gold.

Most people know that Progressive is the company that will field your insurance application by giving you not only their quote - but by also giving you quotes from their competitors.  What that means for the consumer is that they have an easy way to get the best posible price on their car insurance.  No-brainer, right?  But it also means that Progressive has first crack at an enormous percentage of the population so that they can construct their risk pool exactly the way they want it. If a customer doesn't fit their needs at the moment, they don't refuse coverage; they just raise the cost of that coverage an appropriate amount.  If another insurance company is willing to insure that customer for less because their risk profile is a better fit, then so be it.  Mazel Tov - go with our blessings.

That's simple, and it's brilliant.  And it's been followed by other brilliant decisions.  Allowing people to price their premiums the way they want.  Allowing policy-bundling that consumers actually care about. And creating an advertising program that highlights their strengths perfectly.  THAT is why Progressive has been the darling of the business world (or at least the insurance world) for years.

But this incident has revealed an ugly chink in Progressive's shining armor.  People buy car insurance because they have to.  But they buy from a specific insurer because they trust the fact that their insurer is there to protect them.  And when an insurer not only fails to protect its trusting customer, but actually betrays them by supporting the individual who's killed their customer, they have violated the most basic tenet of the insurer-insured relationship.  There is no amount of business brilliance, smart marketing or shareholder return that can ever make up for that kind of breach.

What it means for Progressive's competitors:
Let's shift gears for a minute to think about what this means for other insurers.  If I were GEICO, State Farm, Allstate or American Farmers, I'd be working 24x7 to do make sure that the following two things were on the lips of every single solitary one of my employees and brokers:
  1. We will never, ever, ever represent an opponent of our customers.  We are here to represent your interests, and yours alone - even if that seems to be in conflict with the interests of our executives or shareholders.  That is our promise to you, our customer.  
  2. If you are a Progressive customer today, and have decided to leave, we'll make you the following offer: Whatever agreement or contract you have with Progressive, bring us a copy.  We'll match it for six months.  After that, you'll go through underwriting just as all of our other customers do. But if you feel the need to make a decision on principle right now, we'll be sure that you can do so without suffering financial hardship or risk as a result.
I'm not suggesting that Progressive's competitors should be advertising those positions, but I am suggesting that they should IMMEDIATELY ensure that point one is driven home to all of their current customers.  Because right now EVERYONE is wondering if their insurer operates by the same practices as Progressive (I know I am). I also think that that they should be more than ready to articulate both positions to anyone who asks - whether they're a current customer or not.

As for Progressive, I'll let one of the PR folks out there advise them.  But in my humble opinion, they'd better take a long hard look at their operating policies and what those policies mean for the customers who've trusted them.  Additionally, it seems pretty likely that an actual apology is in order - and not just to the brother of their most recent victim.

What do you think?  Has Progressive crossed the line?  And are they the only ones?