Progressive (PGR -0.08%) is often thought of as a legacy insurance company, and since it has been around for nearly 90 years, there's some degree of truth to that. However, you might be surprised at how much of a tech leader it has become in its industry.
In fact, Progressive introduced the first mass-market telematics device in 2011. If you've ever been offered an insurance discount in exchange for installing a tracking device in your car (or using a mobile driver tracking app) to assess how you drive, that's telematics. And since the initial rollout of those devices 14 years ago, Progressive's telematics capabilities have evolved dramatically.
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Why is telematics such a big deal?
The short version is that telematics devices allow Progressive to monitor its customers' driving behavior and collect data on it. This has a few major benefits. First and most importantly, this allows Progressive to assess risk more accurately, allowing it to give its customers personalized (and often lower) rates on their auto insurance. Lower rates help Progressive attract new customers more effectively than its peers.
In addition, more accurate risk assessment means that Progressive's underwriting profits are better than those of most of its peers -- and are more predictable. Finally, the massive quantity of data Progressive collects from its millions of customers gives it a competitive advantage when developing new products.
In recent years, Progressive surpassed GEICO to become the auto insurance company with the second-largest market share, and even GEICO's leaders admitted the company's massive tech advantage. Investors have been winners too -- Progressive's total return has roughly tripled the S&P 500's total return over the past decade.
