Progressive bolsters reserves, raising rates, will cut advertising

By John Hilton

The new Florida litigation reform is likely to cost insurers more in the short term, and Progressive Corp. hiked its reserves in preparation.

Progressive CEO Tricia Griffith sought to reassure Wall Street analysts Wednesday as executives discussed first-quarter earnings. Progressive reported first-quarter net income of about $448 million, up 43% over Q1 2022. However, the insurer took nearly $152 million loss for the month of March.

The March results were due to unfavorable prior-year reserve development of $146.5 million during the month, the insurer has said, partly attributable to its personal auto product and a majority from the Florida legislation.

"We started seeing data come in over the last few months that was not in line with what we were anticipating," Griffith said Wednesday, "which caused us to increase reserves and react with rate increases. In personal lines, our reserves strengthening have been largely in the short-tailed fixing vehicle coverages. In these coverages, we can recognize and react to new trends relatively quickly, and we feel good about our reserve levels today."

Progressive stock down

Progressive stock is down about 17% since April 11 and close to 10% in May alone. Griffith pointed out strong sales numbers as evidence of Progressive's continued presence in the market.

"This quarter we grew policies in-force 1.4 million," she said. "We grew premium $2.6 billion, which is approximately one point in market share. If you look at even a 12-month span, we've grown more than $5 billion. And if we think about that, that's the size of a top 10 carrier."

In addition, net premiums written during the first three months were about $16.1 billion, a 22% increase from the same period in 2022.

Florida lawsuit reform

The bill signed by Gov. Ron DeSantis transitions Florida from a pure comparative negligence system to a modified comparative negligence system. The law took effect March 24 and grew out of an insurance crisis that saw insurers bolting the state or sharply hiking premiums.

Many pointed fingers at the state's high lawsuit culture. Florida has just 8% of all property insurance claims filed in the U.S., yet is home to almost 80% of all lawsuits.

Under the previous laws, a plaintiff could recover in proportion to the defendant’s percentage of responsibility for his injuries regardless of the plaintiff’s own liability. Thus, a plaintiff could be 90% at fault for his own injuries but could still recover 10% of his damages from the defendant.

Under the new modified comparative negligence standard, a plaintiff is barred from recovery if he or she is more than 50% at fault for his or her injuries. The change does not apply to medical negligence.

However, the law change created a rush to file lawsuits under the old laws. Tens of thousands of lawsuits – an almost 700% increase – flooded the offices of court clerks across Florida days before the bill took effect.

"In March, there were 280,000 lawsuits filed in Florida," Griffith said. "Not ours, but overall in Florida, which is up nearly 130% since the all-time high of May 2021."

Short term, Progressive needs to be prepared for any of those lawsuits involving its policies, she added. Long term, the law will be good for insurers, she said.

"There's a safe harbor for bad faith, which is really important to us because it takes some time when you get into claims to actually gather the information to actually start to negotiate if there's a demand," Griffith explained. "And probably most importantly, [the law repeals] one-way attorney fees. There's a little bit more than that, but we think those are really good."

A disappearing Flo?

Progressive will also be cutting its advertising budget, Griffith said. The insurer is noted for its long-running campaign starring the enthusiastic, quirky saleswoman named Flo and her friends, who all like to explain the benefits of Progressive's insurance, bundling and products such as the Name Your Price tool.

Cutting the ad budget could lead to depressed sales, Griffith conceded.

"I think anytime you reduce advertising, the likelihood of growth subsiding a little bit is going to happen," she said. "We see that in our data. And we have seen our competitors take breaks compared to us and even more so than us. So the hard market really has to do with, are people shopping? And they are so we do feel bullish on our growth."

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.