Welcome to The Progressive Corporation Third Quarter Investor Event. The company will not make detailed comments related to quarterly results. In addition to those provided in its quarterly report on Form 10-Q, and the letter to shareholders. Which have been posted to the company's website, and will use this event to respond to questions. Acting as moderator for the event, will be Progressive's Director of Investor Relations, Doug Constantine. At this time, I'll turn the event over to Mr. Constantine.
Thank you, James, and good morning. Although our quarterly investor relations event, typically includes a presentation on a specific portion of our business. We will instead use the 60 minutes, scheduled for today's event. For introductory comments by our CEO, and a question-and-answer session, with members of our leadership team. Questions can only be asked, by telephone dial-in participants. The dial-in instructions may be found, at investors.progressive.com/events. As always, discussions in this event, may include forward-looking statements. These statements are based on management's current expectations. And are subject to many risks, and uncertainties . That could cause actual events, and results to differ materially, from those discussed during today's event.
Additional information concerning those risks, and uncertainties. Is available in our 2019 Annual Report on Form 10-K, and our first, second, and third quarter's quarterly report on Form 10-Q. Where you'll find discussions, of the risk factors affecting our businesses. Safe harbor statements related to forward-looking statements, and other discussions of the challenges we face. In particular, note that our quarterly report on Form 10-Q for the first quarter. Includes discussions of the risks, and uncertainties that we face. Including specific risk factors arising directly, and indirectly from the COVID-19 pandemic. And these risks are further referenced in our third quarter 10-Q. Before going to our first question, from the conference call line. Our CEO Tricia Griffith will make some introductory comments. Tricia?
Thanks, Doug, and good morning, everyone. With an extremely close, and not yet decided election. I thought I'd open with a few words, before we get to your questions. I know that the election's been on everyone's mind, including those at Progressive. I think it's important that our shareholders know, that we live our core values. Specifically, the golden rule, regardless of the candidate we support. I'm very proud that in the end, we're all united in our commitment. To caring for our customers, our communities, our shareholders, and most importantly, for each other. As you know, we feel strongly that our people, and our culture are a significant competitive advantage for us. They are one of our four strategic pillars, and we rely on our incredible culture. To get us through challenging times, and come out more focused, and united than ever.
This year has been no different, as we move forward together. I thought I'd share a note, that I received on Monday. From an IT Group Manager, Scott, regarding a video I did on unity last week. This really exemplifies who we are as a company, and why we win in the marketplace. He said, "Tricia, I have so much to be thankful for in this year, and month. And there's a literal pile of things, for which I'm deeply appreciative for you, and your team. Truly, and I know I speak for so many others, I am grateful." He went on to share the communication, that he sent to his team. And these are words that are echoed, by so many leaders at Progressive.
His note said, "It's the last Tuesday in October, which means that next week marks the national election. And another end to political yard sign season. Here's a sign, we placed in our own yard." The sign started with, "Love your neighbor," and it talked about loving your neighbor regardless of race, who you love, et cetera. "Conveying what we'd hope for our neighborhood, that regardless of next week's outcome. We hope that our common bond, as neighbors can prevail over the differences. Really an extension of the golden rule. That's not to say that it's not easy, or that we're not strong in our political convictions. But it's also to say that we strive to respect, care for. And even love our neighbors, regardless of their vote or other differences. The same applies here at work, with Progressive's culture rooted in our core values.
My DRG is committed," that's the direct reporting group, "is committed to support the diversity of our people. Please work to grow, and sustain that spirit of collegiality. And friendship with each other through, and beyond the election." His words really truly reflect, who we are as a company. Being up late, and in the middle of the night and this morning. I will end up after this call shooting another video today. To ensure that Progressive people, whom we feel stressed remain calm and focused. Even though there'll be delayed results. Tomorrow marks our eighth annual Keys to Progress, where we give away cars to deserving veterans. Due to restrictions on business operations, for the program participants, and social distancing requirements. Our giveaway event will be small, but still very meaningful.
All in all, this is another great example of giving back to our communities. Where we've donated, over 750 vehicles in the past eight years. This successful business starts with our people. This quarter continues to exemplify, what you can do? With the right team, and the right culture. As I stated in my letter, we're extremely pleased with our Q3 results. We're also acutely aware, that these times are tumultuous. And that we have to remain nimble as events unfold. That's really always been our strong suit. Thank you. With that, James will take the first question.
To be added to the question queue, press star one on your phone. In order to get as many questions as possible. Please limit yourself to one question, and one follow-up. Our first question comes from, the line of Mike Zaremski from Credit Suisse. Go ahead, please. Your line is open.
Hey, thanks. Good morning. I guess first question, I'd love to learn more about the automobile severity trends. They seem to be staying higher for longer. I know there's been some noise, and distortions during COVID. You called some out in the Q2, and then the last quarter. You called some out, too, about subrogation. I'm trying to just learn more, so we can understand. Whether the underlying trend might be a little bit.
Lower or if this is the new normal. Especially on the bodily injury, a nd PIP sides.
Thanks, Mike. Let me give you some insight. It's a little bit difficult, to compare with PCI. Because they haven't reported Q2 yet. They're not as volatile as Q2, let me go through a couple. When you think of PD, it's the opposite of what happened in Q2, in terms of inbound subrogation. Our supplement payments, which is inbound sub. Are coming from a period of lower volume applied, to a period of increased incurred volume. We report 3.9% PD incurred. It's a little bit higher, if you remove that inbound sub. About 4 basis points higher, so right around 8.5 basis points. It's a little bit higher, but clearly less than Q2, when we were at 12.7 basis points. On collision, again, the outbound sub mix is no longer driving trends. That's, of course, the money we receive in.
If you remove that sub percentage, the 6.2% goes up a little bit. That was negative in Q2, that was very different. It's all really about the numerator, and denominator. When you're having frequency changes quarter- to- quarter. You talked about BI. Our incurred severity is similar to Q2. We have some aging, which we believe accounts for about 2 basis points. We have another 1 basis point- 2 points, that relate to facts of loss shift. What we did was we took a look, at quarter two of 2019 facts of loss. We compared that to quarter two of 2020 facts of loss. What we're seeing, we think this is likely. Because of less morning congestion commute, that there are less rear-end accidents.
Think of a fender bender, that wouldn't cause much damage. From a severity perspective, or an injury perspective. There are more intersection accidents, which are always more severe. Our estimate, taking into account the aging inflation, and the facts of loss mix shift, we believe is around 7%-8%. While we are reporting the 11.6%. We believe it's a little bit lower, based on those two issues. PIP's so difficult, because there's so many different state mix changes. And the higher severity states account, for about 2 basis points with those mix shifts. We think that aside from New York, most of the PIP states are around 6%-7% severity. It's not as volatile. It's still different just, because of the situation with COVID. And vehicle miles traveled, and different loss patterns. Hopefully, that'll give you some insight into our severity trends.
Okay, y eah. That's very helpful. I guess lastly, I'll move just more broadly, to the direct-to-consumer segment of auto. It feels like there's been an acceleration of PIP. I think the main question we get, is whether this is the new normal. Or if there's been a temporary bump during COVID. I know it's a high-level question. Just trying to better understand this. Do you feel that, there's something helping you guys? That's one-off that could taper off a little bit, or is there third-party marketing technologies you guys are using, and just will continue to help you? Just anything to kind of get us better. I think we understand from your letter, Tricia, you guys feel great about growth. Just trying to get a sense of, whether the double-digit growth in direct-to-consumer is sustainable.
On the auto side, on the private passenger auto side. When we market, we're marketing for the direct side. But we believe that our agents, are recipients of that. When the stay-at-home orders happened, a lot of our agents weren't able to actually work or open their branches. Some of them obviously, were able to do it from their home. But we saw applications go down, and now we're seeing them. Increase a little bit, as things start to open. That could be volatile for a while, depending on what happens with rates of infection. What I will say is that the direct-to-consumer side, really has increased on the commercial side. Our commercial business, has always been the majority from the agents. It's a more complicated product, and we are seeing more direct to consumer on the commercial side.
That trend likely would've been happening over time. If people felt comfortable, with the products they're buying. It really depends on complexity. I will say that in our for-hire transportation, it's the strongest in our direct channel. Where those new ventures, are coming in directly to Progressive. It's hard to say, if it'll continue. It could be, what's happening with the pandemic? It could be, what's happening with younger truckers? For example, starting new ventures, and they're more comfortable going direct. What I would say is, we're glad that we've invested in the direct side of the business. We continue to feel like, we want to have broad coverage. For where, when, and how customers want to buy. And just be available for everyone, depending on that need.
Thank you.
I'd just like to add, Mike, you used the term new normal in both the severity, and the direct questions. We aren't thinking there's any new normal, to point out right now. It's a very dynamic environment, obviously. We think we're playing it well. In the direct space, as you noted in the Q, advertising is up 29% for the quarter. When you see us spending more on advertising, you should know. That we are seeing opportunities, to spend efficiently to bring in business. That is what we call, the prospects side of the equation. Prospects are up, as we noted in the Q, about 8% for the quarter. Conversion is up as well.
That was a quarter, where some of our competitors. Had lower pricing in effect, because of their approach to COVID rebates or credits. And some of those have come off now. From a competitiveness standpoint, all else equal, we think we're in a pretty good place. Conversion's up 5% for the quarter. We may even be getting more competitive. Again, all else equal, our advertising spend should be even more effective.
Thank you.
Our next question comes from, the line of Elyse Greenspan with Wells Fargo. Go ahead, please. Your line is open.
Hi, thank you. Good morning. My first question was just in the Q, you guys had pointed out. That miles driven went up, in the first half of the third quarter. But then back down, in the second half. I was just wondering, if we could get some color on. What you think might have driven that? I'm not sure if it was pick up in COVID cases, or partial lockdowns in certain states or anything. Any other color that you think, would apply to that dynamics within the third quarter?
Yeah, g ood morning, Elyse. We do think, that's what happened. We think, that is reflected pretty quickly. When something changes in a given state. We look at this from state to state, and there's really a variety of vehicle miles traveled in ranges. It's still now much, obviously, higher than the trough of 40%. It's right around 10%-ish, 10%-15% across the country. We're really digging in to understand it. We do see the congestion, is still very different in the morning commute. Where there's less congestion. We're starting to dig into, how we look at the types of job you have? And so, we can try to understand, people that might work from home. For a longer period of time, versus people that have jobs. Where you need to be out, and about.
In fact, we're really looking through our UBI data. That our Robinsons are people that are 65 and older. Their features fell in line, with their vehicle miles traveled. And we just think, they're driving less during rush hour. They're working from home more. They have roles that can work from home. They might be retired. The younger demographics, what we would call the Sams, and Dianes, and the Wrights. Their features fell more than the VMT, although the gap is narrowing. They had a small drop in mileage. We believe that these are jobs, that can't be done from home. We're watching that closely. I think a lot depends on, what happens in the next several weeks. With infection rates, and what specific states do?
Again, what we'll do is we continue through our product group. Watching those states, and those areas very closely to understand. Those frequency trends, and using data both on the Snapshot side, and the Smart Haul side in commercial. Where we're not seeing that change. The truck drivers are on the road more, because of moving goods back and forth. We see a little bit different on the commercial side. Even though the congestion has decreased, we know that they're on the road more. Hopefully that gives you a little bit of color. It's sort of changing always, and we're thankful. That we have a lot of data in our usage-based insurance, across many of our products. And we'll keep watching that, and react as necessary.
That's helpful. My second question is on Snapshot. I was hoping that, you could give us an update on the take-up rates. Within both the agency, and the direct side. Just where we sit today. Have you guys noticed a greater take-up rate, for your Snapshot devices during this COVID slowdown? I guess as folks are potentially driving less, would potentially want to use a device. That could potentially, lead to some savings for them.
Yes, so immediately. We've always had a pretty good high take rate on the direct side. Immediately, when we had the s hutdown. We saw an uptick in that, and that sort of leveled off. On the agency side, where we haven't had historically as great of a take rate. We saw that go up, and it's continued. I think, your agents I mean, I'll probably talk. One of the great things about, COVID is that I've been able to get out. And talk to literally thousands of agents, in the last couple of months, virtually of course. And they understand, that they need to be competitive. And they've been talking, and selling Snapshot to their clients, to our mutual clients. That has increased, and that has continued to maybe level out. But it's increased much more than, before COVID.
On the commercial side, September was the biggest Smart Haul enrollment ever. And the monthly take rate climbed to about 24%. We're seeing that definitely on the commercial side. John, do you want to add anything?
That's definitely seeing, that take rate go higher. Especially, in the for-hire transportation segment, that Tricia was noting earlier. That is you can think of delivery trucks, as well as interstate trucking. And we're very excited to see especially, the take rate on what we call new ventures. A lot of truckers are going out on their own these days. And truck insurance premiums are pretty high. So they're very open to offers, that might lower that premium. It's great that the take rate, there is even higher than the overall. And we feel that segment is very well priced. Especially, when we have the Smart Haul insights, that we have really from day one.
The other thing I would mention on Snapshot more generally, is that while we haven't marketed it a lot. We have something called Snapshot Road Test in market now, and the take rate there is encouraging. This is via mobile devices, whereby you can do. What we used to call test drives? If you drive for a while, we get your driving behavior. We deploy that, at your initial quote. Today in Snapshot, we give you a discount for participating. And then give you, the fully developed discount at the renewal. With Road Test, you get that upfront. We're excited by the early take rates there. Again, we haven't marketed it, but we think. When we're ready to do so, consumers will be very interested.
That's helpful. Sorry, just to quickly follow up. Will Road Test be available in all states? Where you have the traditional Snapshot product?
Yes. It's available today, we just haven't marketed it.
Okay, that's helpful. Thank you for the color.
Our next question comes from, the line of Jimmy Bhullar with JPMorgan. Go ahead, please.
Hi, g ood morning. I just had a question on the competitive environment. Can you just discuss sort of pricing conditions, i n the personal auto business, and your outlook for margins? It does seem like more, and more companies are trying to be more proactive. In trying to either gain share, or recover the share. That they've lost, over the last few years.
Yeah, we feel really great. We've added 2.4 million policies, compared to last September. We feel like we were well-positioned, coming into the pandemic. And then we reacted very quickly. We knew, that vehicle miles traveled went down. We immediately, gave 20% credits for two months, to our auto customers. We feel that it could change, but that helped us with retention. Because those customers were able to stay. Obviously, there were some moratoriums as well. And that'll have to play out depending on what happens, if there's a stimulus, et cetera. We started to do what we do best, and surgically look at state by state, channel by channel, product by product. Because we want to balance that growth, and profitability. We've really enjoyed gaining share across the board, and we want to continue that.
What we're doing now is, what we call taking small bites of the apple, in terms of rate decreases. If we see conversions going down, or we're less competitive. And we get a lot of intel, from other companies, and our agents. We will take rates down slightly. We talked about taking it down, about a percentage for the quarter, and 3% April through September. We did that in about 37 states. When I say 37 states, there might've been two rate decreases, maybe 0.5%, maybe a 1%. We really watch this, and we're able to react so quickly. Which keeps us really competitive, when people are shopping. Then April through December, we'll have taken some form of rate decrease. In about 42 states, and that is about 84% of our countrywide net written premium.
Again, surgically being able to react to rates. Be competitive, and we do that going both ways, depending on the product. We feel like we're positioned well, like John said. Everybody had, whether they took credits or discounts,. Everyone's trying to make sure, that we are competitive. This is a very competitive industry, we feel like we're in a really good position. Which is why I started the letter off the way I did. I'm very pleased with our results, and our reaction to COVID. And what we've been able to do, for our customers. When they need us most.
When you think about just balancing growth, and profitability. Is there a level on either the loss ratio, or the combined ratio? To where you're comfortable taking it up, and continuing to push for growth? I think in the past you've talked, about mid-90%s would be a level. Where you'd sort of slow down your growth, and focus more on margins instead?
Yeah. We've had the same objective in the company, since we went public in 1971. That's grow as fast as we can, and make at least $0.04 of underwriting profit. We always try to balance that. That said, we have five core values, and one of them is profit. If we don't believe we can be profitable, then we'll stop growing. Profit comes first. Here's the deal. We don't want to give away margin. If we believe that we can grow, and still grow at that 96 or less of a combined ratio, we'll do so. If we don't, we'll keep the margin, and understand that again. That it's, as such. We do it at such a surgical level. The 96 grow as fast as you can, is our job objective for the overall company. But we look at it very different across our portfolio.
Yeah, we're going to continue to try to aggressively grow, gain market share. All while making sure, that we achieve our profitability goal.
Thank you.
Thank you.
Our next question comes from, the line of Greg Peters with Raymond James. Go ahead, please.
Good morning. The first question, will be around retention. As you know, there was another Insurtech company. That went public, Root. It's also an Ohio-based company. They've disclosed their retention rates. Allstate discloses their retention rates. I'm just curious, if you could give us some color about. How your retention, has been this year relative to last year?
Retention for us is really the holy grail. You spend the money to acquire customers. They come in, you want to make sure we give great service. And they reward us, with their retention. We look at retention from, what we call policy life expectancy? On the trailing 12 months, it's up 9%, up 10% in agency, 7% in direct. The caveat is we're getting a benefit of the billing leniencies, and moratoriums. We would say, that those are the numbers. But they may be conservative, depending on what happens with people, and jobs, and unemployment, et cetera. Our trailing three is a little bit lower, and a little bit more volatile. Trailing three is 7% up, 6% in agency, 8% in direct. On the commercial line side, of course, we look at a 12-month basis. Because those are annual policies.
PLE is up about 4%. We're very pleased with that, we also know. That there's a lot of volatility going on right now. We'll do our best to keep our customers, and to work with them. Our CRM, our Customer Relationship Management group. On both the direct side auto, and the Commercial Lines auto. Work very closely with customers, if they need to make changes to their policy. In order to keep their coverage available. I would say the PLE numbers, that we stated in the Q are very positive. We also know a part of that is, because of the leniency, and moratorium based on COVID.
Got it. The second question, is around the expense ratio. A number of your competitors, are laser-focused on reducing their expense ratios. To bring them down, closer to your level. I'm curious about the initiatives, that you have ongoing within your company. To keep your expense ratios low, and possibly to get them lower.
We talk about expense ratios all the time, and we're pretty proud of our results. And it's a balance, of course, of making sure that we're investing. In things like digital, that our customers need. I think one of the silver linings of the pandemic, is that we learned that. We can write really good estimates, from photos and videos. We were working on that prior to the pandemic. But obviously, it was exacerbated based on the fact that, we all kind of went into our homes to do the work. We continue to experiment, and see. What type of vehicles that we can look at? And not be inside of car, and understand, is it a quality estimate?
Because you don't want to have such a, as an example. Such a low loss expense ratio, or loss expense adjustment ratio. If your accuracy is not good, because that indemnity is the biggest part of what we pay out. We continue to work in our CRM organization to understand. How customers can get things, they need without human intervention. John Sauerland's group, is working on some RPA processing. We have a lot of things going around the company. Where actually, we had completed a five-year plan, for our Board of Directors last year. Obviously, we're redoing it this year, because of a lot of the changes. That's actually been a topic of, what we try to achieve? We have internal goals, that we work on together. We balance that with investments of, like John said, advertising, digital.
We constantly try to look with, how can we do more with less, and not affect our customers? We know that this is a competitive industry, and that competitive prices are really important. That expense ratio is a big part of it. Whether it's on the overall side or the claim side. John, you're the purse string holder. You want to add any color?
I'm certain many competitors are aspiring, to our level of cost structure. There are some competitors, who have better cost structures than Progressive's. We've been focused on continuing, to get more competitive in terms of cost structure for years. As Tricia noted, we think of it in two buckets. We think of what we call non-acquisition expense ratio, and acquisition expense ratio. In the acquisition, we put advertising, as well as agents' commission. I just mentioned earlier, advertising for the quarter was up 29%. It was up 20% year-to-date. We think, that's good growth in expenses. Because we're acquiring customers, we're going to have for a long time. Similarly, on the agent side, we have to pay competitive commission. In order to continue to grow there. We think growth, and expenses in that portion of the expense ratio is good.
We focus on the non-acquisition expense ratio, where we are trying to drive. What we think of as, our infrastructure costs lower? If you go back around five years, as Tricia noted. I think we've taken out, maybe close to 3 basis points or 4 basis points, on our non-acquisition expense ratio. And we have our sights set on reducing that further. As Tricia noted, price competitiveness is not the only thing, that matters in the marketplace. But it is a very big part of the consideration set for auto, and home insurance. As well as Commercial Lines, especially.
Thank you for the answer.
Our next question comes from, the line of Michael Phillips from Morgan Stanley. Go ahead, please.
Thank you, g ood morning. Tricia, we've all heard Elon out at Tesla talk. About being aggressive with hiring actuaries, and starting his own insurance company. To use his proprietary real-time data. While maybe that's only for his captive fleet. I guess, just your thoughts on, how you view the competition? From connected car companies like that, do have really access to rich data. From their own fleets to offer insurance to human fleets?
Yeah, I think that from a talent perspective, we feel really positive where we're at. We do, we have been investing in understanding. How to have functionality to gather data, from third parties. Whether it be OEs, and we call it express data quotes. That'll be something, that we're working on now. I think the question is, or the answer is that. Yeah, the talent is important. We believe that at some point, we'll have to answer who owns the data? But we've been working on this, with a lot of partners over time. To understand how to get quotes our way, and understand that data. To better understand trends. Did that answer your question?
Kind of, I guess, I was looking more towards your view, of just the competitive landscape. From companies like that, have access to their own data from fleets. And are trying to offer insurance, and even they're aggressively offer their own insurance. I know how he speaks, but that was really. What I was trying to get at.
Got it. I wasn't sure if I answered that. It's great competition. We have had Snapshot, and data for a long time, we feel very comfortable. The fact, that I could be able to tell you today. I think, when Elyse answered the question that our Robinson cohort. The features fell in line, with vehicle miles traveled, et cetera. We're able to watch that real time. Especially now I'm very excited about, what we're doing now on the commercial side. And I talked about that, with the for hire transportation. To be able to give deep discounts, to those delivery trucks. Those truck drivers, interstate, and understand, the best drivers are really important. That will help with retention. It'll help with loss costs. The competition's great, because it allows us to never stop evolving.
Years ago, we only had the dongle, and you had to plug it in. And then you could do it wireless. Now we have the mobile device. John talked about our Snapshot Road Test. We have Snapshot ProView. It forces us in a really good way, to continue to invest in data. And collecting data, on our 24+ million policyholders. We feel like we're in a really great position, and competition only makes us better.
Okay, thanks. I guess part two then is, you kind of alluded to it here. And we talk a lot about UBI, and telematics now. I guess, what's the lifeline of credit score, specifically, as a rating variable in personal auto? Are we looking at a couple of years, till you think that thing dries up or decades. Or how long does that thing have left in it, runway left as a pricing variable?
You know what? I'm glad you brought that up, because we've been thinking about that a lot. I know there have been challenges, because of the pandemic on regulatory issues. Michael, this will be a lot longer answer, than you probably want. But I think it's really important for me, to make a couple of points. Basically on risk-based pricing, and then on what's happening in the world. First and foremost, we've been getting questions on the usage of credit. Specifically, does it affect race? Race is never used in pricing insurance products. In fact, it's illegal. If two people have the exact same risk profile. If there's a person that's just like me, same driving, same credit. And we happen to be different races, we get the same rates. Basically, we are risk-based, and race-blind.
I also want to make sure, that it's clear that Progressive supports. Legislation, and regulation that enables insurers to leverage . All the available data technology, and advanced analytics. To price insurance risks, when it reflects the insurance cost. That's really key. We want to have, a rate for the specific risk. For us, it's about accuracy, and it about people, and consumers, and small business owners. To fulfill their American dream, and achieve their economic opportunities that they desire. We've talked a lot in the past, about the virtuous cycle. If you've got rating accuracy, it leads to broader consumer availability and affordability. Which leads to growth, and financial success. And not just for our shareholders, but for the company, and for job creation. We've been able to create, so many jobs in the last several years.
That leads to innovation, and segmentation, and then goes back to rating accuracy. We've had that virtuous cycle, that we've been very proud of. In the past we've talked about, it's a regulator's role. To work with us closely in the industry to ensure solvency. Ensure compliance, and facilitate healthy, and competitive markets. That provide a wide variety of options for consumers. Key elements that I've mentioned before, to focus on is ensuring that prices for insurance. Are not inadequate, excessive, or unfairly discriminatory. We're staunch advocates for healthy, competitive, voluntary insurance, and broad distribution. For the U.S. insurance industry, we want to be able to continue. To facilitate the risk-taking, and transfer that drive economic growth. Through delivering products that are both available, and affordable.
For us, and in the industry, we believe we want to preserve. The sanctity of contracts, and the continued support for risk-based pricing. All that said we do recognize, that for some individuals, mandatory insurance protection, can be a significant financial burden. We are very open to collaborating with regulators, and other industry leaders on solutions. For those individuals versus creating massive, and unnecessary market disruption. That will likely have negative outcome for certain segments. That's sort of my spiel on, why we've continued to support risk-based pricing? Which credit is one variable of man? I think how we think about affordability challenges, and we just have to think about. Where we're at in this time of history? And decisions that we make, that affect the future for consumers. If you go back to our roots in 1937, I'm very proud of Progressive.
We started out as a non-standard insurer, allowing people in Cleveland, Ohio. Who couldn't get insurance, to be able to do that. Then, of course, you know the rest, eventually countrywide. And were able to have access, to affordable protection across many segments. We have a critical role, I believe, in inviting innovation, segmentation. And the use of technology, and data to provide greater access. To competitively priced insurance for all. We shouldn't confuse affordability challenges, that many face during this unprecedented pandemic. With our longstanding, and solvent model of providing affordable, and widely available protection. I think the issues that have arisen, regarding social injustice. Didn't stem from the insurance industry. They've been looming for decades, and the events of this year brought them to the surface.
Now I think, we need to really get together. And ultimately, solve the root problem of opportunity, and equality for all. Not just during the pandemic, but ongoing. From my perspective, and this list could go on, and I'll shut up. But very short term, after the election's decided. We need some form of stimulus, to get us through this next wave of infections. My hope is that we're able, to distribute it more surgically this time, to those that need it most. I believe that we need to raise, the minimum wage over time to $15 per hour. I will note that all active Progressive employees, already make over $15 an hour, and we're proud of that. As a country, our focus should really be on additional funding. So that schools can safely reopen, and deliver effective online communication.
You can't get ahead, if you don't have the ability to learn online. Which requires infrastructure investments, like access to broadband coverage. I could go on, and on, but the message here is that we as a country. Are facing a really great opportunity, to make substantive changes. And as an insurance company, we'll continue to play a role. In focusing on rational, and risk-based solutions. So that everyone is able, to achieve the economic opportunities they desire. I've been obviously thinking about that a lot. Michael, so I'm glad you brought it up. I think that credit is a powerful variable. It is not race-related. We do not believe it's race-related, and we'll continue to hold firm on that.
Okay, t hank you very much, Tricia. Appreciate it.
Our next question comes from, the line of Gary Ransom with Dowling & Partners. Go ahead, please. Your line is open.
Yes, good morning. Tricia, you mentioned in your letter, the creative ways of reaching customers. And we also saw how ad spend is up, and direct quotes were up. I just wondered, in looking at the success of all. That's going in, and getting customers into the funnel . And successfully getting a new customer, what are the actual key elements of success in attracting those customers? Either today in this COVID environment, or what you're seeing over the longer term?
I think ultimate success, Gary, is to be able to acquire customers. At or below our targeted acquisition cost. More importantly, as we look at, and expand our product line. We're able to do so, with our creatives. For years we had Flo inside the superstore. The whole message was savings, savings. Now we have, obviously, an entire network of characters. That talk about savings but also talk, about protection for your home, a nd we're seeing that. An example is, I don't know if you've seen it or not, we have had this campaign for a few years. And we've settled in on a character called Dr. Rick, which is Parenta-Life Coach. As you become your parents, when you buy your first home. I think that a lot of people can relate to that. We're seeing the results of that do really well.
We've done a couple of good campaigns, with the Cleveland Browns quarterback, and Mark and Marcus. Two guys that do the 10-yard line chains, that we are able to play during live sports. Which is what everyone's watching now, until we go back to regular television stuff. We look at what we call new prospects, that haven't shopped with us in the last six months. Then from that, we look at do they convert, and at what cost. All those things lead us to understand, when the creative works, when it doesn't. When it does, we double down, and get deeper in the campaign. When it doesn't, we move on, and get more creative. During COVID, I'm really proud of our marketing department, because everything shut down.
Initially, we did some nice campaign stories that were softer. Because everyone was sort of just nervous, about what was happening. Because it was so new. Now we're really doing, a lot that we're kind of moving forward. Even in the meantime, we did really creative opportunities. Where we had Flo, and her whole squad, that we call it, on a Zoom call, et cetera. We really got creative to make sure, that we didn't miss a step. We know this is a competitive environment, and we wanted to continue. To be on consumer shortlists out, and available. Thinking of Progressive, when they go to shop.
Maybe extending that, into the agency channel also. Where I think your conversion rates were up as well. Usually that just means, your price is lowest on the comparative raters there. Is there more to it than that as well? Are you seeing more coming into the agents? Are there agents incentives, or other things going on there?
We occasionally, do agent incentives. It may be based on things like EBI, and if we see something. That we'd want them to do more. We, over the years, have changed some of the agency commission structures. Depending on if you're selling Preferred, Robinsons Auto Home bundles, those agents, the Platinum agents get more commission. They're allowed to have 12-month policies on the auto side. We're giving them that. We've done a lot in our Platinum agency, to have incentives based on loss ratio, and other things. We didn't always do those in the past. Our relationship with our agents, has really changed in a very positive way. Like I said at the beginning, I've been able to talk to a lot of agents. Just not long ago, I had our Top 25 Platinum agents. Usually, we do something with them. We obviously couldn't this year.
While we'll keep our overall commission level, about the same rate. We have bifurcated, and we'll give you a different commission. Based on the incoming type of customer, which we believe is a long-term value of that customer. Obviously, cost matters a lot, brand matters a lot, commission matters a lot. Probably the last thing I would say, and coming from the claims organization. Agents are always so happy, to not have to deal with any complaints. Because our claims organization is so stellar. There's a lot that goes into it. Clearly, cost is one of them. They benefit from our brand. Yeah, we do incentives, and we have different commissions. Based on the type of customer that we get in, namely preferred.
I'll just elaborate on Tricia's last point, Gary, to say ease of use. Price competitiveness is extremely important. Ease of use is almost, as important in my perspective. As Tricia noted, not having to deal, with hassles on the back end with a claim, for sure, but front end as well. We've invested heavily in technology to make quoting, and now quoting the household, in our agents easier. That will definitely help drive business, to Progressive as well.
Yeah, I think this month or last month, we finished a full rollout of Portfolio quoting. The agent feedback is extraordinary. Just you got to make it easy.
Thanks, Gary.
Thank you.
Our next question comes from, Yaron Kinar with Goldman Sachs. Go ahead, please. Your line is open.
Hi, g ood morning. I actually want to continue, on this last line of questions. With regards to the kind of creative ways, to reach out to consumers. Beyond the kind of ease of use, and end quotes. And the innovative ad spend, in the traditional channels. Are there any new ways, to get to market? Any ways that you're exploring, maybe internet, social media, and the like to get to customers?
Yes. When I usually speak about marketing, I go to sort of the mass media. That's one portion, of how we market to customers. We're on streaming, we advertise on Hulu. We advertise on most of the social network channels, and affiliates on the internet. We have generic search. We have a variety of ways, to make sure we get our message to you . And do everything we can, to get our message to you. The right number of times, not too much, not too little. Because we don't want to bog you down. Yeah, besides the creative, there's also many different ways. There's sometimes on a digital platform, that we'll have characters. That we don't even have on mass media. It usually serves the specific demographic, that we're looking for in that channel.
Yeah, we have a variety of ways, and as things change. With how people watch TV or watch streaming, we'll continue to play a part of that. The great part is we have access, to so much data to understand. Pretty quickly if it's working, so we can remove it or double down.
Are there any metrics you can share on that? In terms of are you increasing your spend, in those kind of non-mass media channels? Is the take-up rate greater or improving there?
I think, John wanted to say something too. Yes, we're increasing the spend in those channels for sure. Because many people have cut the cord, and don't watch any TV. We need to have access to them, through those different channels. Did you want to add something?
The growth in spend in non-traditional media, has outpaced traditional for years now. We're constantly testing into new media, where we can. We have a group that entirely focuses on, new ways to reach people. The overarching philosophy is where, when, and how consumers want to buy. We are definitely investing, and normally. I think, relatively speaking, on the forefront of trying new channels. And ensuring that we can actually measure, the success of those new channels. We are very disciplined, that when we're out spending new money. That we find ways, to measure its effectiveness. I think that differentiates us, relative to a lot of other marketers.
Okay. My second question, it goes to one of the arguments, that we hear from Insurtechs. Which is that traditional insurers, even innovative, and successful ones like Progressive. Ultimately, face an Innovator's Dilemma in the form of, h ow much you push telematics-based scoring, and pricing? Because of the legacy blocks. These Insurtechs, as a result, could have an advantage. Over the incumbents over time, because they're not encumbered by legacy blocks. I'd love to maybe hear a little more about, how Progressive looks at the Innovator's Dilemma? And how it handles the right balance, between pushing these creative, and innovative ways? To price, and score versus maintaining the legacy block.
Yeah, I talked a little bit about that, when I talked about the virtuous cycle. In terms of when you have a segment, you innovate, et cetera, and you do that. I think that Insurtechs are serving a great purpose, in terms of ease of use, and it would be. I think, easy to be able to, or nice to be able to. I should say, start without having legacy systems. That said, we have them, we work around them. But we don't say, "Okay, we're just going to be here in time, and try to work around it." We're constantly innovating, from a technology perspective. Ease of use perspective, and we believe that. Part of our DNA is really innovation. We've been first in a lot, I won't go into naming that. And we don't intend to change that.
The great benefit that we have, that the Insurtechs don't is the cost of acquisition. For us, we're going to continue to hone in on that. And that's why we were able, to increase our policies 2.5 million in one year. That's the reason we're able to do so, and make our target profit margins. Which are also very important. We have shareholders, that own us. Because they know we're committed, to our 96% Grow as Fast as You Can. We don't have the availability, to say we're going. To test things regardless, if we make money or not. We're very innovative. We're always going to do everything we can to make a profit. It's one of our core values, and we're able to leverage our size, to have lower acquisition costs.
Got it. Thanks, and congrats on a good quarter.
Thank you.
Our next question comes from, the line of David Motemaden with Evercore ISI.
Hi, good morning. Just sort of following on along the lines of the unique ways of, or new ways to acquire customers. I was hoping maybe you could expand a bit, on any distribution partnerships. For the personal auto business, that you may have with the OEMs. Or online car sites like www.auto.com, that you have or that you might be exploring. I know that Ford has just entered an agreement, with Verisk Data Exchange to help offer insurance. I'm wondering, do you have any of these relationships? Is this something that you're exploring, as a new way to acquire customers? And just sort of how you view that, I guess, sub-channel of the D2C market?
Thanks, David. Yeah, we've worked, with many different OEs over the years. And I talked a little bit, about that express data quote. That will give us the functionality to work with OEs, and other aggregators. We have many relationships, and we have some in the works. That I'm not at liberty, to talk about right now. John?
Yeah. We've worked directly, with OEs over the years. We started a relationship with GM, I can't remember how many years ago now. Probably four years ago, as you know. To get the data directly from vehicles, and offer rates that are reflective of driving behavior. At the point of quote, and the point of sale. We have also worked with aggregators of that data, or third-party gatherers of that data. There are apps on your phone, that are tracking. Where you're going, and how you're driving? And we've worked, with those entities as well. It is a funnel as we think of it, when we talk about funnel economics. The number of people that come in the top there, versus the number that come out of the bottom. Meaning actually buy a policy, has been challenging.
That is not to say we won't continue, and are continuing to test in that space. In media, we normally see funnel challenges at the outset. And we work through the experience, to continue to refine it. And continue to make it better, and to get to the point. Where the funnel economics work for us. We've been testing into the data direct, from OEs in numerous manners. For a number of years now, and have shown some success. But not to the point that, it will be a considerable portion of our media spend anytime soon, frankly.
Got it. It sounds like those are interesting, but the conversion rates are still, below your other direct channels. Is that a correct characterization?
That's a fair way, to think about it. Think of conversion not only, as you got a quote, and you then bought the policy. But getting folks, from interested in the whole process. Even to get to the quote process. It's a longer funnel than just got the quote, bought the policy. When we talk about in conversion percentage, that's what we're talking about there. This is we think of the entire funnel efficiency.
Got it, o kay. That's helpful. That makes sense. Just switching gears, just more broadly. It's obviously been a profitable year for you guys. Notwithstanding the credit, and other actions that you've taken. Just wondering, how we should think about the variable dividend? And I guess how you guys are thinking about, that as we approach the end of the year?
Yeah. We meet with the Investment Committee, John and I, and Jon Bauer, our Head of Progressive Capital Management. Throughout the year, understanding our capital strength. Which is very strong, and always thinking about, leaving some dry powder for anything that might come up. We've had a couple sessions, that we have a range. That we're thinking about. Obviously, the Board will be the one that decides that. We meet with them at the beginning of December, and we'll talk through something. And get more in line with, what we believe the dividend, will be payable next year. Obviously, that's an unknown, because it'll be a Board's decision. We feel really great about our capital position. We feel great about our growth, and our profit. In the past, we've been able to share that with our shareholders.
We don't have any specific amount, I can share with you. But we feel really great about our year. Anything can happen. There's still a few months left, but we feel good.
Just cut in here.
Okay, great. Thanks.
We have approximately five minutes left in the call, and still have a handful of people in the queue. We will go through the last handful here, and go a little bit long. However, we will limit everybody to a single question. If you have additional questions, you may contact the Investor Relations Group, at the contact information on the website. With that, I'll hand it back over to James.
Our next question comes from, the line of Meyer Shields with KBW. Go ahead, please. Your line is open.
Great. Thanks so much for accommodating us. I was hoping that either Tricia, or John could talk us through. Sort of the monthly volatility in the Commercial Lines expense ratio, and what's been going on there?
Whenever we're looking at results monthly, you should expect volatility. Let me start there in terms of loss ratio, as well as the expense ratio. In our Commercial Lines business, we talked about non-acquisition expense ratio previously. We have actually been growing our expense ratio, in our commercial business. And that's been intentional, and planful. Because we're investing for future growth. Specifically, our Business Owners Program, we're now in 13 states, and are feeling great about our progress there so far. We would like to get basically, to the entire country with that program. Because we think it effectively triples, our addressable market in our Commercial Lines business. We've also invested heavily in what we call, our Small Business Insurance Initiative. Which is essentially the direct platform, for our Commercial Lines business.
Our BusinessQuote Explorer, which is similar to our HomeQuote Explorer. Makes it very easy, to get quotes from a variety of carriers. Through our direct platform there. We have long-term plans to bring that expense ratio, on our Commercial Lines business back down. But in the near term, it's going to be slightly elevated from where we've been. That said, on a relative basis, relative to our competitors. Meaning, we have a very competitive cost structure, in our Commercial Lines business. If you're looking for commentary specifically, on an expense ratio, loss ratio for the month. We encourage you to look a little longer term, at least to the quarter.
What I would say, Meyer, is that this was very specifically planned. Several years ago, when we set forth the Three Horizon concept. We saw some opportunities in Horizon Two. Mostly around Commercial Auto, and BOP, and T&C, and small business, and fleet. We knew that in order to invest there, that we had to put some money into it. Now we're seeing the fruition of that investment. We believe it'll come down over time, as we have more broad coverage with these products. We feel very good about that spend, because we felt like there was an opportunity . In that addressable market for us to do many, and new and different things to solidify. Again, our commercial auto customer, with even more products.
The pandemic's been a little bit odd for small businesses. But we feel positive about, that going forward in our ability. To win with that BOP product on both the agency, and direct side.
Excellent, t hanks so much.
Our next question comes from, the line of Brian Meredith with UBS. Go ahead, please. Your line is open.
My question. Tricia, if I look at average written premium per policy, for your personal auto business. It went from +1% in Q2 to -2% in Q3. Just curious, is that all due to the rate actions you've been taking? Or are you seeing any changes in customer buying habits, i.e., higher deductibles, lower limits? Those types of things, that may be having an impact on that as well?
I would say the majority of that, is our reduction in premiums. I haven't seen too much of a change, in our business mix profiles.
Great, t hank you.
Our next question comes from, the line of Josh Shanker with Bank of America. Go ahead, please. Your line is open.
Thank you for taking my question so late in the call. I'm just wondering, if we can compare shopping behavior right now. When we compared to, where it was three years ago? I've tended to believe that, when prices are going up? Progressive sees more shopping behavior, because people are unsatisfied. Now that prices are going down, maybe people widely know. That there's bargains to be had in auto insurance. It might stimulate a decent amount of buying. If you can add, is there a difference between the shopping behavior of people seeking just an auto policy? And people seeking an auto, and home policy?
Yeah. That's so hard, Josh, to look at and compare it three years ago. I do think that even, when prices are going down in this environment? It might be different. This is, hate to use the word, but so unprecedented. It really depends on the situation with the consumer. And what they're looking for in terms of, did somebody get furloughed or laid off, et cetera? I think it's hard to know. What we really focus on is making sure, that we have the message out there. That we have that broad coverage, that we have the ability to measure our acquisition costs. And know that they're under , our targeted amount to get the customer in there. It's really hard for me to say.
I think what we've tried to do, is just when they are shopping. Regardless of the reason, we're available, we're easy, and we're competitively priced. Do you want to add anything?
I agree with Tricia. There are many different metrics around shopping behavior, and they don't always agree. As Tricia noted, we're most concerned with is that we are spending efficiently. To get the prospects we are getting. As we know, prospects are up. In terms of prospects we are getting, and their behavior in terms of auto or auto home. We are increasingly being positioned, as the bundle provider for certain. We do measure consumers' perception on that. And certainly our quotes for bundles, both in the direct channel. As well as the agency channel, have been growing faster than in the monoline auto.
Thank you very much.
Our next question comes from, the line of Suneet Varma with Citi Research.
Great. Thank you. I wanted to circle back to Road Test. It sounds like you have had the technology for a while, but maybe haven't focused on it or marketed it. Just curious why the decision, to make a push now? And are you planning on rolling that out, to existing policyholders, as well as new customers or just new customers? Thanks.
Yeah, we had something called Test Drive years ago. I want to say five or six years ago maybe. At the time, there were some complications, because the way it was set up, they needed to put in some data. We think that that was probably one of the reasons, we did a little bit of advertising, not a lot. We've been working on Road Test just to give people the ability, to still have their own coverage. And test what it would be with Progressive. Again, we've been working on this for a while. We wanted to make it, very worthy of our customers. I'd say we've been working on this for over a year, rolled it out a couple of months ago. Data's really early because we want to continue, to learn as we broaden that coverage.
Yeah, you wouldn't do it if you were a customer for us, you'd probably have Snapshot already. These are for customers that, have other coverage. Again, we're going to work through the funnel economics on that. And then likely roll it out more broadly, in the very near future.
Great, t hank you.
That appears to have been our final question, so that concludes our event. James, I'll hand the call back over to you for the closing script.
That concludes The Progressive Corporation's Third Quarter Investor Event. Information about a replay of the event, will be available on the Investor Relations section, of Progressive website for the next year. You may now disconnect.