PROGRESSIVE INSURANCE CONCIERGE PROGRAM
QUESTION:1a.How many CSRs are required to staff the CSC at the expected volumes on Mondays? 1b.Your plan should ensure adequate CSR staff (even at peak) to obtain an average wait time of under 5 minutes.1c.How does the plan change if the goal is an average wait time of under 3 minutes? 1d.What about under 10 minutes?
CASE INFORMATION:PROGRESSIVE INSURANCE CONCIERGE PROGRAM
In the early fall of 2005, Matt Marko was busy planning the rollout of the first of Progressive’s centers to offer a concierge level of service in Maryland. To date, Progressive had set up 45 such centers in several states, including Ohio, Virginia, and Florida. The concept, the first of its kind in the insurance industry, had been a resounding success so far. As the product manager for Maryland, Marko was excited at the prospect of a center in his state, and he planned to tap into the many benefits that the service had to offer his customers and his business. Setting up a center was a complicated assignment, involving, among other things, territory and site selection, land purchase, facility construction, and marketing campaigns. While the Claims Department was primarily responsible for rolling out the centers countrywide, every state was unique and Marko had been tasked to help the department better understand how to make a center successful in Maryland. As he was still in the preliminary phase of working out the details, he had his work cut out for him. Progressive: A History of Innovation Established in 1937, Progressive Insurance was the third-largest auto insurer in the United States, offering private and commercial auto-insurance products to 12 million customers. Since its inception, Progressive had taken an innovative approach to auto insurance, and this mind-set had been responsible for the company’s growth, especially over the past 10 years (Exhibit 1). Between 1996 and 2005, Progressive’s net premiums grew at an average annual rate of 17%, from $3.4 billion to $14 billion. This rapid growth was a consequence of certain key competitive advantages that Progressive had developed over time. Of these advantages, Progressive’s ability to segment and price risks better than the competition was crucial to its success. This capability was made possible by Progressive’s focus on detailed data analysis and modeling, and was facilitated by the development of advanced information-technology systems. The company’s segmentation and pricing expertise allowed it to gain market share from its competitors by offering consumers extremely competitive rates. Progressive was also effective at identifying emerging industry trends and reacting to them rapidly. This capability was made possible not only by Progressive’s technology and data-management capabilities, but also by its organizational structure. At a tactical level, the business was run by product managers, who were organized by state and distribution channel. The organizational structure allowed Progressive to monitor the business performance at a detailed level and adjust business strategy rapidly. Moreover, Progressive utilized two distribution channels: Direct (Internet and phone) and Agency (independent agents and brokers). These channels, which were managed as separate businesses, allowed Progressive to reach a larger audience. A Concierge Level of Service In the early 2000s, Progressive changed its claims focus to provide a better overall experience for every party involved in a claim, including the customer and the body shop. For CEO Glenn Renwick, customer experience encompassed every aspect of a customer’s interaction with Progressive. “We asked ourselves whether we could change indemnification from handing customers a check to handing them a repaired car,” said Renwick. “In today’s society, time is so important, and the hassle factor of auto accidents is so high. If we can make accident insurance a more positive experience, we’re ahead.” In 2003, this focus led to the creation and launching of Progressive’s concierge level of claims service. Prior to the launch of this service, centers were rolled out in 2000 and tested for three years. With this level of service, Progressive oversaw all elements of the claims and repair process on behalf of drivers involved in accidents, which reduced the time drivers spent managing repairs from several hours to about 15 minutes. Customers simply dropped off their cars at a center, located in select markets, and picked them up once the repairs were complete—Progressive took care of everything in between. Once at a center, customers left their cars under a canopy. In the center’s colorful, utilitarian lobby, claims representatives waited at podiums (Exhibit 2). After a little paperwork, claims representatives reviewed the damage with the customers, and then customers walked out under another canopy to a waiting rental car and were on their way. The entire process took about 15 minutes. Meanwhile, the vehicles were whisked into estimate areas equipped with lifts and skilled technicians—out of the customer’s view. The repair estimate was then completed, and the damaged car was routed to one of the many body shops with which Progressive had a business relationship. Once a car was repaired, the body shop returned it to the center, where it was inspected by the shop and Progressive, which guaranteed every repair. According to Progressive, this was a service that none of its competitors offered. “A single point of responsibility is what we’re after,” said Renwick. “Customers value this and tell us so. It has become a real ‘wow’ factor.” Traditional claims process: customer experience - A customer called the insurance company to inform it of a collision event. During this call, the customer provided the insurance company with details about the collision. - A claims adjustor then contacted the customer and scheduled a time to inspect the vehicle. Typically, the adjustor would drive to the customer, inspect the car outdoors on a driveway or street, and prepare a claim for a specific dollar amount, based on the extent of the damage. - The customer then found a local body shop and took the vehicle to that shop for repairs. The customer worked directly with the body shop, making numerous follow-up calls. Generally, body shops took between a week and a month to repair the vehicle, depending on how quickly the work could be scheduled and the nature of the damage. - In the meantime, the customer had to arrange for a rental car. Furthermore, the customer had to deal with delays on the repair service and possible issues with the claim amount. If the repair shop found the adjustor’s estimate to be deficient, the adjustor would have to drive to the shop to reach an agreement as to the cost of repairs. Often, the customer was put in the middle of a debate about the cost of repairs. - The customer was responsible for inspecting the vehicle upon completion of the repairs and for negotiating any rework with the repair shop. - In a survey of consumers, Progressive found that it took customers an average of four days to get repair estimates, file reports, find repair shops, and set up alternate transportation. In general, the burden of the effort fell on the customer. For instance, if disputes arose between an insurance company and a body shop on the repair estimate, the customer was often stuck in the middle. Furthermore, because customers were responsible for reviewing and approving the repairs themselves, they needed to have a working knowledge of automobiles in order to ensure the quality of the repair work. The concierge level of claims service: customer experience - A customer called Progressive to report a collision and scheduled a time to drop off the car. - The customer drove the car to a Progressive center. The car could be towed if it was inoperable. -The customer provided a claims representative with information about the collision. The representative and the customer reviewed the damage to the vehicle. -The claims representative arranged for a rental vehicle, if required, and then helped customers move their belongings from their personal vehicle to the waiting rental vehicle. About 80% of customers requested a rental vehicle. The entire transaction took about 15 minutes. - After the customer left the center, a claims representative estimated the damage to the vehicle. If necessary, the claims representative could put the car on a lift to better complete the estimate. - A repair coordinator reviewed and confirmed the accuracy of the estimate. The clean, well-lit facility, the extra time available to review the damage, and the calmer, more controlled environment offered by a concierge center resulted in more accurate claim estimates than comparable estimates made in the field. Using the same parts, labor, and repair protocols, claim amounts had subsequently dropped from a national average of approximately $2,900 to a center average of $2,600.6 - The repair coordinator selected a body shop based on quality of past repairs and current shop capacity. Once the repair facility was selected, the coordinator reached an agreement with the shop on the cost of parts and labor. - A network representative visited the body shop every 48 hours to review the vehicle as it was being repaired in order to ensure the quality of repairs and to be certain the repairs were on schedule. Because of this proactive measure, repair cycle times had been reduced significantly.7 - After repairs were completed, the body shop dropped off the vehicle at the service center. The network representative inspected and approved the repairs. Cars were usually repaired within six to eight days. - A claims representative then called the customer to schedule a pickup time. On arrival, the customer reviewed the repairs, and received a guarantee on the quality of the work. Progressive also offered the Progressive also offered the concierge-service option to those insured by other companies if the Progressive driver was at fault in the collision. As expected, the concierge-service concept proved to be a huge win for both Progressive and its customers. Progressive’s 2005 Annual Report stated, “We seek to be an excellent, innovative, growing, and enduring business by cost-effectively and profitably reducing the human trauma and economic costs of auto accidents and other mishaps, and by building recognized, trusted, admired, business-generating brands.” The concierge-service concept supported this vision on many levels. It certainly supported the Progressive customer-value proposition, which stated, “Fast, Fair, Better. That’s what you can expect from Progressive. Everything we do recognizes the needs of busy consumers, who are cost-conscious, increasingly savvy about insurance, and ready for easy, new ways to quote, buy, and manage their policies, including claims service that respects their time and reduces the trauma and inconvenience of loss.”8 Moreover, it offered Progressive an avenue to differentiate itself from the competition. Rolling out the concierge-service concept might even keep automobile insurance from becoming a pure commodity product. In addition, the concierge-service concept was welcomed by most body shops, which were pleased with the steady volume of work and the opportunity to focus on vehicles as opposed to customers. 8 Progressive’s 2005 Annual Report. Because of the many observed and expected benefits, Progressive decided to accelerate the rollout of the service across the United States. The Glen Burnie, Maryland, Rollout Marko was eager to make the Maryland center a success. He was responsible for marketing the new location to both Progressive’s independent agents and consumers, and was anxious to know the critical mass of customers required each week to cover the costs of running the center. Typically, the break-even volume averaged around 20 vehicles a day for most centers, and this standard was used for purposes of the initial planning. However, Marko had obtained updated cost estimates of running the Glen Burnie site (Exhibit 3). Given the Maryland-specific costs, he wondered how crucial the marketing effort would be to the site’s success. The Claims Department was already working on staffing the new center. A center was usually managed by the following: - A site manager - Three to four claims representatives who acted in a customer-service capacity - Five claims estimators - Two repair coordinators (one was responsible for reviewing initial repair estimates and negotiating the repair costs with the body shop; the other focused on quality assurance of repairs and provided the repair shop with payment for services) - Two to four network representatives, whose primary responsibility was to visit body shops to inspect repairs and ensure on-time delivery In addition, every center also had a few representatives from a rental-car vendor on-site to assist with the rental needs of Progressive customers. Although the Claims Department planned to staff the center at the break-even volume as a starting point, it had also asked Marko for an updated forecast of the weekly volume of business he expected in the Maryland center’s area (Exhibit 4). The Maryland site was selected for its proximity to both Baltimore and Washington, DC. This area had a high density of Progressive customers and was thus expected to handle a larger-than-average volume of customers. Marko incorporated into his forecast, among other variables, the high customer density, his pricing strategy in the competitive Maryland market, product-design changes, accident-frequency trends, and his long-term marketing plans for the state. After several iterations, he was pleased to determine that the expected volume translated into 25 vehicles a day in the Glen Burnie area. Marko needed to deliver his recommendations by 8:00 a.m. the next day. Yet he still had many questions on his mind. Aware that forecasting was both a science and an art, he wondered what type of sensitivity analyses to run in order to capture the uncertainty in his forecast. He also wanted to make sure that he had considered all the attributes unique to Maryland. The most important question, however, was related to the level of staffing he should recommend. Should the center be staffed at the expected volume? Were there any significant benefits to overstaffing or understaffing? As he evaluated the various scenarios, he wondered what criteria Progressive should use to prioritize various and sometimes competing strategies, including quality customer experience, reduced customer attrition, and reduced operating costs. As the person responsible for the profitability of Progressive’s Agency business in Maryland, Marko also pondered the longer-term implications. If claim estimates were to fall, as expected, should he accept the higher margin or should he recommend price reductions? Moreover, how should he change his growth plans, given that the center afforded him greater flexibility? With all these uncertainties in mind, Marko turned his attention to finalizing his report. “I wish I had paid more attention in first-year Operations class,” he thought to himself. Exhibit 1 PROGRESSIVE INSURANCE CONCIERGE PROGRAM Examples of Innovation at Progressive Insurance 1. The first to offer 24/7 customer service by phone 2. The first auto-insurance group to launch a Web site 3. The first insurer to give consumers the ability to buy an auto-insurance policy in real time on-line 4. The only insurance group to offer a Rate Ticker® on-line 5. The first insurance group to pilot TripSense®, a usage-based insurance program to research driving habits Exhibit 2 PROGRESSIVE INSURANCE CONCIERGE PROGRAM Service Center Lobby Exhibit 3 PROGRESSIVE INSURANCE CONCIERGE PROGRAM Cost Breakdown of a Service Center (All figures are disguised.) Construction costs = $5 million (Construction costs were amortized over a period of 40 years) Utilities cost = $15,000/month Claims Representative salary = $50,000/year Cost of rental = $30/day Exhibit 4 PROGRESSIVE INSURANCE CONCIERGE PROGRAM Volume Forecast Hours of Operation: 8:00 a.m.–6:00 p.m., Monday–Friday Average Vehicle Volume by Day Mon – 39, Tues – 24, Wed – 18, Thu – 18, Fri – 27 Note: One-third of the volume comes through between 8:00 a.m. and 9:00 a.m. and another third between 5:00 p.m. and 6:00 p.m. The remaining volume is spread evenly between 9:00 a.m. and 5:00 p.m.