It is recommended that Progressive Corporation enter the Belgium market with its auto insurance policy product. The comprehensive business environment analysis has revealed that Progressive Corporation has a stable business strategy, innovative product development approach, and a flexible technology-based platform. These elements will make the market entry into Belgium smooth and relatively easy. Unlike the US Insurance Industry, the barriers to market entry in Belgium are weak. Moreover, Progressive Corporation could use its financial strength, Internet platform, and strong business strategy to counter the effects of these barriers. However, the entry process should be progressive, focused, and customer-oriented within the legal and commercial requirements in Belgium.
Progressive Corporation Globalization Strategy
Business environment analysis is important in establishing the performance and sustainability of an organization. This paper performs a comprehensive business environment analysis of Progressive Corporation. The rationale for selecting this company is based on its extensive market coverage and operations within the expansive US Insurance Industry.
Progressive Corporation was established in 1937 by two partners, Jack Green and Joseph Lewis. In the year 1956, they created a unique insurance niche in the US by concentrating on providing covers for more risky drivers. The firm quickly expanded its operations within the US and recorded written premiums valued at $1 billion by 1987 (Progressive Corporation, 2017). The business has experienced positive growth in the last 20 years. By the end of 2016, the written premiums were valued at $20 billion (Progressive Corporation, 2017). Progressive Corporation is the most innovative company in the US insurance industry. The company was the first insurance firm to integrate online businesses empowering clients to buy policies via its website. In the early 2000s, Progressive Corporation went a notch higher by introducing Smartphone apps and mobile browsers for managing and rating its policies. In addition, the company has created a 24/7 claim reporting system (Progressive Corporation, 2017). Through its one-stop insurance cover, that is, provision of different covers for a single individual, it has expanded its market share and is currently among the top 5 most competitive companies in the US insurance industry.
The organization’s business lines include ensuring home, commercial vehicle, RVs, boats, motorcycles, and personal car insurance policy. These interests are segmented into Commercial Auto, Personal Lines, and Other-Indemnity (Progressive Corporation, 2017). The Personal Lines segment concentrates on providing insurance covers for motorcycles, private passenger vehicles, RVs, and boats through direct or agency channels. The Commercial Auto segment focuses on writing physical damage and primary liability covers for business-owned trucks and other automobiles via an independent agency approach. Lastly, the Other-Indemnity segment concentrates on the provision of professional liability insurance mainly for principally directors, employee covers for selected companies and community banks. In the last ten years, Progressive Corporation has introduced insurance-related services to support its primary product segments in the form of claim adjusting and policy issuance in more than 25 states.
Progressive Corporation has a structure subdivided into seven sections. These sections are Finance, Human Resources, Research and Development, Information Technology Support, Logistics, and Special Projects (Progressive Corporation, 2017). The company is headed by a president. Under the president are two vice presidents and five board members. The employee substructure consists of the management team and other personnel. The company is spread across more than 34 states and headquartered in Mayfield Village, Ohio. The major customers are automobile owners at private and corporate levels. The company has diversified into private assets and liability market segments to target homeowners and those who own other assets.
In the last three years, Progressive Corporation has had a positive financial performance characterized by increased revenues and profitability (Progressive Corporation, 2017). The recent financial performance indicates that there is a positive growth in assets or equity, and shareholders have been able to receive dividends each year (see Table 1).
Table 1. Financial Performance of Progressive Corporation (Values in, 000). (Source: Nasdaq, 2018).
As captured in table 1, the net income grew from $1.281 billion in 2014 to $1.592 billion in 2017. The other variables experienced positive growth. This is an indication that Progressive Corporation is geared towards a positive future financial performance.
Strategy and Competitive Position
Progressive Corporation’s first business strategy is focused on product development and diversification of services to appeal to different customer segments. The prices for these insurance products have been made competitive and affordable through premium installments alternative. For instance, a corporate customer may be given a premium cover policy payable in three installments. Progressive Corporation’s second business strategy is a stable value architecture angled on delivery streamlined and effective value chain for each product bundle. This approach is aimed at managing the cost of operations through its 24/7 support and data centers (Progressive Corporation, 2017). Thus, the company should create focused and strategic operational modeling systems angled on reliability, efficiency, and dependability matrices to gain superior performance against the primary competitors. The third business strategy is a focused, diversified, and quality-based product management, which has given Progressive Corporation a competitive edge over other competitors. In addition, the company has embraced innovation and technology to outcompete other insurance firms operating on the traditional business platform.
The mission of Progressive Corporation is to provide innovative, excellent, and cost-effective auto and other insurance policy products. The vision of Progressive Corporation is to become the best choice for customers interested in auto and other insurance covers. The mission and vision are integrated with the core values of integrity, the golden rule, objectives, excellence, and profit (Progressive Corporation, 2017).
The strategic intent of the company is progressive and sustainable business modeling around quality and competitiveness. For instance, Progressive Corporation has created a flexible service charter characterized by the provision of multiple brands for each product segment (Thomson, Janes, Gamble, Strickland, Peteraf, & Sutton, 2013). This strategy functions under the recurring revenue business model characterized by the generation of earnings from a series of products. The research and development department is committed to creating innovative products that are adaptable to the dynamics of insurance cover business environment (Progressive Corporation, 2017). The value proposition of this business strategy is realized through a focused market targeting an enlistment of corporate entities. However, the overreliance on the corporate business segment has exposed the business to unpredictable financial swings. In order to cushion the business from market swings, Progressive Corporation’s core competencies are organized around the golden rule, integrity, and profitability. The golden rule promotes progressive stakeholder engagement, while excellence supports the quality meter. The integrity and profit values promote honesty and focus in adhering to high standards for accurate, timely, and complete customer service and financial reporting.
The value chain is driven by a progressive chain angled on data gathering and rating as factors determining a specific underwriting procedure. This is followed by a focused policy issuing, billing, and collections as part of the outbound logistics. Marketing and sales are driven by policy renewals, advertising, and new policy sales. Lastly, the after-sales services are organized under claims response and loss settlement or control (Progressive Corporation, 2017). The progressive, driven insurance has reaffirmed the company’s value chain and created a sustainable business model. The sales history has also been positive in the last three years. In 2015, the underwritten premiums were valued at $19 billion. The figure grew to $20 billion in 2016 and currently at $21 billion (Progressive Corporation, 2017). The company is concentrated in the US market and has expanded to Australia, Mexico, and Canada. However, 90% of the revenues are generated from the local market (Progressive Corporation, 2017).
Organization Competitive Advantage Development
The primary strategic challenge facing Progressive Corporation is a negative brand image. Over the years, the company has faced a series of lawsuits and public criticism on how they handle some claims. For instance, in 2015, the company faced more than ten legal suits alleging deceit in processing policyholder claims. Again, in 2016, the company faced accusations of hiding vital information to new policyholders about the nature of their covers (Progressive Corporation, 2017). These accusations and legal suits have tainted the Progressive brand image in the US, especially among youthful customers.
The key organizational processes at Progressive Corporation are organized in the form of a six-step approach. The first process is the identification of a customer interested in policy and verification of his or her qualification for that cover. This is followed by presenting different alternatives and professional advice to integrate these needs into the selected product. The third process is the identification of the value sources through knowledge integration in the underwriting of the proposed policy cover (Thomson et al., 2013). At the organizational level, the fourth step involves packaging and billing the policy in line with the set rules, after which cover is translated into a product (Progressive Corporation, 2017). In each stage, there are specific tasks assigned to different organizational representations to ensure a smooth transition in customer service. The last stage is the alignment of the final product to available resources to guarantee an optimal outcome for each service bundle. This process involves pricing, marketing, research, and constant innovative product review.
Value addition for the insurance policies is done at the development stage to gain competitive age. For instance, the ‘Pay As You Drive’ product is an innovative usage-based insurance cover modeled to provide customers with the alternative of a voluntary account (Progressive Corporation, 2017). This program allows drivers to salve on their insurance cover based on their shared driving habits. These habits are transformed into discounts through a periodic review of the driving data. Moreover, Progressive Corporation’s Driver Plug service is a value-added component to the insurance policy covers. This service comes with an on-board diagnostic port for cars insured. Based on this program, drivers with good driving habits may save up to 20% of the insurance cover and gain from an extended contract (Progressive Corporation, 2017).
The current factors that might lead to Progressive Corporation’s success are the diverse product portfolio and a very innovative approach in designing or adjusting the current services. The company has a dynamic, focused, and customer-oriented service charter driven by constant innovation, affordability, and relevance (Thomson et al., 2013). However, the stringent rules by the insurance regulatory authorities in the local and international markets have made the business environment sensitive to financial dynamics. Moreover, Progressive Corporation operates in a market with many perfect substitute products with competitive prices and low cost of product switch (Progressive Corporation, 2017). These factors may lead to the firm’s failure when imbalanced.
Organization Financial Position
Progressive Corporation has performed well in the last five years. From 2013 to 2017, the financial aspects of the company indicate progressive growth and sustainable business strategies. Specifically, the profitability margin has grown by an average of 7% in the last five years. The highest profitability margin growth was recorded in 2016, at 9% (Nasdaq, 2018). The same growth margin was recorded for other variables such as revenues, shareholder dividend, and equity (see Table 2). The financial ratios also indicate a positive gearing towards predictable future performance. Progressive Corporation’s financial performance data is sufficient evidence suggesting a positive outlook and strong equity in the current and future business environment.
Table 2. Financial Position over the Last Five Years. (Source: Nasdaq, 2018).
|Period Ending/ (000,000)||12/31/2017||12/31/2016||12/31/2015||12/31/2014||12/31/2013|
|Cost of Revenue||$24,413||$21,715||$18,705||$17,297||$16,396|
|Net Income||$1,592 0||$1,031||$1,267||$1,281||$1,204|
Analysis of Industry Trends
Progressive Corporation operates in the Property-Casualty Insurance Industry. The top competitors are Safeco Insurance, Esurance, and Geico. At present, Geico is the biggest competitor since it generated almost 90% of Progressive Corporation’s revenues. Geico operates in the US Health and Life Insurance sector and has been in the market longer than Progressive Corporation. Another serious competitor is the Esurance Company (Nasdaq, 2018). This company has penetrated the Casualty and Property Insurance sector and currently employs more than 30,000 workers (Deloitte, 2018). The other competitor is Safeco Insurance. This is the oldest company among the three competitors since it was founded in 1923. In the 2017-2018 financial year, Safeco Insurance generated $21.9 billion in revenues more than Progressive Corporation. These competitors have capitalized on product diversification, focused business strategy, and competitive pricing to penetrate and sustain their market share (Progressive Corporation, 2017). Moreover, since they have been in the market for a close to a century, especially Safeco Insurance and Geico, they understand the insurance business environment terrain and constantly change with the external dynamics.
The US Insurance Industry is very complex and controlled by a series of market and financial matrices. The primary barriers to entry in the US Insurance Industry are government regulations, start-up costs, technology, economies of scale, product and differentiation among others. The US insurance services are regulated at the state level. Each state has regulations that are unique to it. For instance, in the interest of policy holders, the states have come up with stringent rules on licensing requirements for an insurance service provider to be granting business permit. Besides, the patent rules are strict and attract hefty fines at state and national government levels. In addition, there are other basic requirements such as minimal deposit with the central bank and membership of the insurance regulation authorities (Thomson et al., 2013). These requirements are very expensive and time consuming to meet. Thus, a new entrant might not find the insurance industry welcoming, especially when it is unable to meet these basic government requirements.
Another barrier is the high start-up cost for an insurance service provider in the US market. In addition, the cost of advertisement and promoting the new business to increase it visibility in the sensitive market requires substantial financial outlay. Another barrier is high technological obsolesce in the US insurance industry. The cost of acquiring and maintaining the relevant technological support systems is a serious investment. However, due to constant paradigm shift in technological application, a previously acquired expensive technology may be easily rendered useless by a newer version.
The profitability of business sustainability in the US Insurance Industry is dependent on the magnitude of economies of scale (Thomson et al., 2013). A new entrant might not be able to gain from lower cost of product or efficiency in the insurance industry since the already existing firms are well positioned to offer affordable quality services and still make profits due to benefits of economies of scale. Lastly, the insurance industry is characterized by high product differentiation to appeal to specific customer segments. The existing companies have strong brand recognition, steady market network, and effective customer service. This means that most US insurance service consumers perceive the existing companies as having high quality products.
The US Insurance Industry is expansive and covers more than seven sectors, that is, property insurance, health cover, automobile insurance, and litigation among others. There are more than 3,000 registered insurance service providers and about 100,000 insurance brokerage agencies. According to the Deloitte 2018 industry outlook report, the industry directly employs more than 500,000 workers and at least 2.5 million indirect beneficiaries through the agencies (Deloitte, 2018). The capital investment in the insurance industry is estimated at $1 trillion and the figure is projected to grow to $1.5 trillion by 2025 (Deloitte, 2018). The primary consumers of insurance services in the US are private and corporate property owners, organizations, health institutions, government institutions, and individual customers. These customer segments are categorized into corporate and individual clients. The annual revenues from the sector are estimated at $650 billion (Deloitte, 2018).
Driving forces of change in the industry
The primary drives of change within this industry are innovation, competitive pricing, trust, and quality services. The industry is associated with constant variations in customer needs dictated by the economic class of an individual or corporate client. This means that companies within the industry must invest in innovation to create products that can appeal to and satisfy the needs of each customer segment. Another important driver is the quality of insurance policy products. The industry is characterized by existence of thousands of perfect substitute products and low cost of switching from one service to another. Therefore, insurance service providers must concentrate on quality and flexibility in their products to captivate and expand their market.
The third change driver in the insurance industry is the element of pricing. Firms with the sector compete constantly to offer competitive pricing to sustain their current markets and expand into new territories. This means that organizations within the industry such as Progressive Corporation have strong and flexible pricing policies or strategies to protect their markets from potential competitor. Lastly, the element of trust controls brand image perception and magnitude of product intake within the insurance industry. For instance, consistent poor reviews or controversial business practices might result in sudden loss of market through massive customer withdrawals (Thomson et al., 2013). Moreover, the legal suits disagreement in settling claims might result in a public debate, which is not good for an industry influenced by customer perception.
Critical success factors in the US Insurance Industry
The insurance industry is characterized by several success factors such as technology, financial strength, and business strategy. It is critical for insurance service providers within the US Insurance Industry to sustain financial strength due to increasingly unpredictable and tough economic environment. A strong financial position is an assurance to customers that their decision to seek insurance services with these providers is financially responsible. Financial strength within the insurance industry entails ability to raise adequate money reserves, long-term capital, and manage actual and potential risks. Thus, a high financial rating gives an insurance service provider an upper hand in appealing to existing and new customers. In application, a stable business strategy is a prerequisite for stability in the mix of unpredictable market dynamics or fluctuations (Thomson et al., 2013). Thus, a sound business strategy should focus on specific market and balance the product quality elements. Lastly, the US Insurance Industry has experienced a paradigm shift in the way businesses are conducted. At present, the Internet’s as “a marketing tool will provide the industry with an undeniable ability to continue to grow and increase revenues by reaching people quickly” (Thomson et al., 2013, p. 34). This means that insurance providers should embrace, integrate, and institutionalize the Internet as a business platform.
Porter’s Five Forces Analysis
The US Insurance Industry five forces analysis reveal that the competitive rivalry and bargaining power of customer are strong forces. The threat of substitute and bargaining power of suppliers are weak forces (Thomson et al., 2013). Lastly, the threat of new entrant is a moderate force as discussed below.
Competition or competitive rivalry
Progressive Corporation is facing strong rivalry from other established insurance service providers such as Safeco Insurance, Esuarance, and Geico among others. The competitive influence is based on external factors such as low switching cost and high aggressiveness of the other firms. Most of the major competitors have been in the market for a long time and understand the business environment terrain (Thomson et al., 2013). As a result, these firms have aggressive business strategies in product development, marketing, and market expansion. Moreover, the cost of switching from one product to another is low. It is easy for a customer to switch from Progressive products to Safeco Insurance services. Thus, Progressive Corporation must have equally aggressive strategies to counter this impact.
Customer bargaining power
Clients within the insurance industry have a high bargaining power. Progressive Corporation’s business environment is characterized by low cost of switching from one product to another and relatively small size of individual clients. Thus, the current customers of Progressive Corporation may easily change their preferred brands, thus, compelling companies in the industry to sustain customer satisfaction. In addition, the individual purchase of Progressive Corporation products is small in comparison to the company’s total revenues (Thomson et al., 2013). Although customers are weak at individual level, their collective bargain makes it a strong force. Thus, players in the industry must come up with strategies to sustain customer satisfaction as a significant element of strategy development.
Bargaining power of suppliers
The impact of suppliers is relatively low in the insurance industry. Progressive Corporation and other players operate in a business environment with high overall supply and number of suppliers (Thomson et al., 2013). Organizations within this industry have unlimited options in selecting the alternative firms to supply their products. The high level of suppliers for components or products offered in the industry empowers the current players to gain control of the impact of suppliers.
Threat of substitution or substitutes
This is a weak force. In application, the threat of substitution controls the strength or existence of perfect substitute products in the industry. In the case of Progressive Corporation, the force exerted by substitutes is strong because of their high availability and performance. The services provided by Progressive Corporation are readily available at competitive prices in the insurance market. For instance, a typical customer in the US insurance industry might use policy covers provided by competitors. These substitutes have high performance due to unlimited, advanced, and customized features and packages (Thomson et al., 2013). Thus, substitution has a strong influence in impacting Progressive Corporation’s business environment. Therefore, players in the industry should prioritize this force in managing business processes to remain competitive and sustainable.
Threat of new entry or entrant
This is a moderate force due to high capital requirements, low capacity for a new entrant, and high cost of developing a new brand. Establishing an insurance company to successfully compete with Progressive Corporation demands intense capital investment and considerably costly brand development. These factors make a new entrant weak. However, a large firm expanding into this market environment or an established business switching to insurance service provision might easily counter these barriers (Thomson et al., 2013). Therefore, Progressive Corporation should consider sustaining its competitive advantage through aggressive marketing and innovation to survive potential new entrant’s activities.
Entry in Belgium
International Expansion Assessment
Based on the current successes in the US, Australia, and Canadian markets, Progressive Corporation should consider expanding into Belgium to tap the readily available market, especially for automobile insurance policy product. The rationale for selecting this market was informed by its expansive nature, few insurance players, and healthy business environment. The barriers of market entry in Belgium are weak as compared to the US. At present, there are relatively few policy providers using Progressive Corporation approach in Belgium. This means that proposed internationalization strategy will give the company an upper hand in the provision of automated and competitively priced insurance policy covers.
Political and Legal: To enter the global market, the company should consider different laws that apply to the car insurance industry in the EU. In the US, the discussed firm has a negative brand image because of the lawsuits that it had to deals with in previous years. Therefore, the accent on following regulations in the newly entered country may become a crucial step to success. Moreover, strict rules apply to a bigger capital base and spending on risk monitoring and mitigation (Barbara, Cortis, Perotti, Sammut, & Vella, 2017).
Economic: A wave of financial crises has affected the country in the 2000s, making the market for insurance unstable (Barbara et al., 2017). However, as this sector has high profits, strong insurance companies may succeed while smaller and weaker competitors do not have similar opportunities.
Social: The job mobility in the region is increasing, allowing people to move not only from one city to another but also between countries (Barbara et al., 2017). However, the dependency on a vehicle may grow in this environment, which may positively affect the car insurance industry. The rate of college graduates in the country is high, and many of them possess a stable job. However, a high level of education may require the company to pay more attention to their brand image.
Technological: The speed of technological development in the country is similar to that of the US (Barbara et al., 2017). New areas of insurance may be considered, including devices and programs (such as cruise control) installed in cars. Internet services and platforms should also be taken into account.
Environmental: Belgium is a county with a high concern for the environment (Barbara et al., 2017). Therefore, the company has to focus on sustainable practices in all operations. An environmentally-friendly focus is advised. Moreover, it is vital to consider natural disasters that may happen in the region and adjust the products to catastrophic events.
Global Value Chain Analysis
While the digitization of services may reduce the need for a complete relocation, some activities in the value chain have to be moved to the country. The claims department, payments processing, and some customer service workers need to be relocated to adhere to the standards of the new placement. Some parts of the sales management can also be moved to enhance the understanding of the local market.
The multilingual nature of the country demands additional efforts from the company to appeal to all language groups. Thus, it is vital to introduce products in French, Dutch, and German, along with the English version for immigrants and international workers living in Belgium. The documents should also be processed in multiple languages to avoid problems for customers.
The report has confirmed that Progressive Corporation has a strong financial gearing, sustainable product diversification, and stable business strategy. Unlike some of the competitors, the company has a focused product development strategies characterized by innovation and integration of technological applications to support its business platform. At present, the company offers 24/7 claim underwriting through the online platforms and an interesting value proposition approach. A customer can order a policy cover, make payments, and even lay a claim without having to visit the company’s physical location. Moreover, the company has come up with customized policy covers to accommodate all customer segments. These insurance covers are differentiated by their features, prices, and maturing duration. Thus, Progressive Corporation has empowered its customer based to enjoy fast, flexible, affordable, and comprehensive insurance policy covers.
Barbara, C., Cortis, D., Perotti, R., Sammut, C., & Vella, A. (2017). The European insurance industry: A PEST analysis. International Journal of Financial Studies, 5(2), 1-20.
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