Progressive Makes Big Claims

It was, he likes to say, his first great idea at Progressive. In 1957, the company wrote just $86,000 worth of policies for nonstandard motorists. But over the next decade, the market took off. Lewis watched his company's premiums balloon. He had identified a niche around which he could build a big company -- and add to his father's legacy. "My entire life has been intertwined with the life of this company," he says.

Peter Lewis gets emotional about auto insurance for another reason. In 1952, his older brother, Jon, who was 16, was driving to Canada for a fishing trip. After 12 hours behind the wheel, Jon collided with an oncoming truck. His brother's death, Lewis says, "makes every car accident an emotional experience for me. I can't take them lightly. We're not in the business of auto insurance. We're in the business of reducing the human trauma and economic costs of automobile accidents -- in effective and profitable ways."

If it was a personal crisis that engendered Lewis's emotional commitment to Progressive, it was a political crisis that convinced him to reinvent the company. In 1988, California voters passed Proposition 103, a referendum designed to regulate auto-insurance companies and to roll back escalating rates. The law was a near-fatal blow to Progressive, which had done 20% of its business in California. Lewis's company coughed up $60 million in refunds -- and eventually reduced its workforce by 19%. Lewis calls Prop 103 "the most frustrating experience" of his career; to this day, it gets his blood boiling. He also calls it "the best thing that ever happened to this company." How so? Because the very legislation that threatened to put Progressive out of business also inspired its dramatic makeover. Prop 103 made Progressive what it is today.

"Remember the line from the movie Network?" Lewis asks. " 'I'm mad as hell, and I'm not going to take it anymore.' That's what voters were saying. It was a wake-up call. I decided that from then on, anything we did had to be good for the consumer -- or we weren't going to do it."

Lewis turned to longtime friend and Princeton classmate Ralph Nader, an outspoken supporter of the California referendum, to help him understand the animosity that consumers felt toward insurers. Nader suggested that Lewis come to Washington and meet with the heads of two dozen state-level consumer groups.

"What's wrong with auto insurance?" Lewis asked them.

"It's not competitive," someone in the audience said.

"Wait a minute," he replied. "There are more than 300 companies in the business. If we move our price one percentage point up or down, we get 10% more or 10% fewer applications. That's competitive." The advocates were unappeased. They insisted that Lewis worked in a noncompetitive industry.

That's when Lewis began to understand the extent of the industry's credibility gap. That's also when he decided to embrace what Progressive calls "information transparency" -- a policy of sharing with customers information about prices, costs, and service. The company's "1 800 AUTO PRO" service, for example, quotes Progressive's rates to potential customers -- along with the rates of competitors, even if those rates are cheaper. "Time and again, people don't believe we do this," says Alan Bauer, 46, the company's Internet-process leader. "They think it's a gimmick. But it's part of information transparency. We are exposing our data to the customer."

Progressive has also changed the way it sells. Most companies either sell policies direct -- over the phone or through local offices -- or sell through "captive agents" who represent the company. Progressive, which for years had relied exclusively on a nationwide network of independent agents to sell its policies, decided to create multiple distribution channels. Now customers who want to purchase a policy can do so in a number of ways: They can contact one of Progressive's more than 30,000 independent agents, call 1 800 AUTO PRO, or visit Progressive on the Web. Indeed, in 1995, Progressive became one of the first auto-insurance companies to launch a Web service to sell its product, and it is now approved to sell policies over the Web in 15 states, including California, New York, and Texas. "We want to provide the information that customers need -- and to provide it on their terms," says Bauer. "We don't care if it's in person, over the phone, or online."

Using multiple distribution channels has been a tremendous success, but it was Immediate Response that really reinvented the company. Progressive launched the service less than two years after Prop 103. It was Lewis's second great idea -- as powerful as it was simple. The majority of auto accidents happen before or after business hours, and on weekends and holidays, the CEO reasoned. So why shouldn't Progressive stay open around the clock? "For three years, people said, 'It's crazy, it's too expensive, nobody will do it,' " Lewis remarks. "And for the same three years, I sat here and said, 'We're going to do it, no matter how much it costs and no matter how much you don't like it.' Other businesses go the extra mile. Why not an auto-insurance company?"