Progressive to Gain from Drop in Driving - BodyShop Business

Progressive to Gain from Drop in Driving

Progressive Corp., the third-largest auto insurer in the United States, expects to cash in as consumers cut back their driving in response to record-high gas prices and the sluggish economy. In the first four months of 2008, Americans drove 20 billion fewer miles – 2.1 percent less – than last year, according to the Federal Highway Administration. The rate of accidents per insured vehicle decreased by 0.5 percent this year, according to the Insurance Services Office, Inc.

Progressive’s customer base is made up mostly of “non-standard” drivers – a group made up of typically younger drivers considered more likely to get into an accident and to cut down on driving because of tight budgets – which means the company will probably benefit more than other insurance companies from a drop in miles driven, analyst Meyer Shields told Bloomberg News.

Also, Progressive’s revenue comes mainly from auto insurance, not homeowner’s insurance, which means the company isn’t as vulnerable to high numbers of claims from tornadoes, flooding or other natural disasters. Allstate, however, will probably see a drop in income thanks to claims from policyholders whose homes were damaged by tornadoes recently, Bloomberg reported.

However, a cut in new car sales – which dropped 12 percent in the second quarter of 2008 – means fewer opportunities for Progressive and other insurers to sell new policies. Bloomberg research also shows consumers are turning away from expensive trucks and SUVs, which have expensive premiums, to smaller cars that require less costly premiums.

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