Progressive’s Margins Leave Room for Tariff Impacts; Others Ready Too

With its 2024 combined ratio falling comfortably more than 7 points below a targeted level of 96, Progressive has room to deal with the impacts of tariffs on car repair and replacement costs, the chief executive said yesterday.

But that doesn’t mean the company is not working to understand potential tariff effects, Tricia Griffith, Progressive’s CEO, said yesterday during an investor call to discuss the company’s fourth-quarter and full-year results. She described the in-depth work that Progressive’s pricing and economics teams are doing—working together to deliver insights to leaders and prepare to flex personal lines pricing models as tariffs take effect. At one point, she also spoke about longer term potential frequency dips and tailwinds to the commercial auto insurance line.

Speaking just before Canadian Prime Minister Justin Trudeau responded to the imposition of U.S. tariffs on Canadian imports by U.S. President Donald Trump with immediate and still-to-come retaliatory taxes on U.S. goods, and after Mexican President Claudia Sheinbaum vowed to announce retaliatory taxes in the coming days, Griffith contemplated a narrower insurance industry-focused question about how tariff-induced loss cost jumps in the second-half of this year might impede top-line growth initiatives of personal auto insurers.

“Typically tariffs are a one-sided risk to our loss costs,” Griffith said, responding to what she described as a timely and relevant question that’s garnered the attention of Progressive’s pricing and economic teams. “I’m not going to share with you the raw data or the assumptions we use, but… we actually have what we think, at this time, percentages would be if certain tariffs happen now,” she said, referring to loss cost percentage jumps.

“Those will ultimately change and we’ll be able to flex our models,” she said. “It will depend on the countries, the products, the magnitude of severity, but ultimately we will price those into our indications.”

She went on to suggest that there are a lot of “puts and takes” to consider as the tariff war situation unfolds. “With the tariffs that went to effect today, we’ll have to think about new car prices. Do those prices get passed on from the OE[M]s to our customers? What does that mean to values?”

“Obviously from both Mexico and Canada, we get a lot of our parts to repair cars. When will those play out,” she asked, noting that she agreed with the questioner that impacts on loss costs would likely come in the second-half of 2025 and into 2026.”

On the other hand, she noted that tariffs on oil, at some point, could increase gas prices. “Does that make people drive less? Does that change frequency?”

“Is there a talent shortage in the body shop industry, [like one] that happened a couple of years ago,” she asked referring to the impact of the immigration policies of the Trump administration.

“It looks like there might be some additional tariffs on lumber from Canada at a minimum,” she continued. “What does that do to home prices, and of course home repair prices?”

Impacts to the costs of fixing homes and fixing cars are factored into Progressive’s models, she said. “We’re modeling all of that together, and a lot of it will depend on how much inventory is out there.”

Offering a more future-looking view of second- and third-order effects, Griffith said that any initiatives to source more lumber for rebuilding from inside the United States, creates a need to build more sawmills. “That can’t happen overnight. What does that do to trucking and loggers?” she asked, suggesting that there could be a “tailwind” impacting the commercial lines insurance organization inside of Progressive.

Bottom line, she said, all the macroeconomic data is being digested and planned inside the walls of Progressive. “We have a bunch of models. We are able to flex those models every time we get a new piece of data or the data changes.” Progressive’s general counsel and his team “are reading through all the executive orders and understanding how they affect us. “When there’s disruption in pricing, we are really good [at reacting] really quickly. And you’ve seen that,” she said, referring to Progressive’s moves to raise auto insurance prices in response to inflation in recent years.

“The last thing I’ll say on this is that we are sitting in a good position because right now our margins are below our 96,” she said, referring to a long-held goal of the company to achieve a 96 combined ratio. “We are sitting on some margins. So, we can play this out as things evolve,” she concluded.

The Q-and-A part of the investor conference took part after pre-recorded presentations from John Murphy, Progressive’s president of claims, and Matt White, business leader for claims data and analytics, who explained how company culture and investments in technology combine to achieve an optimal balance of claims handling accuracy and efficiency—key contributors to last year’s results.

Murphy began the conference noting that the combination of an 88.8 combined ratio and 21 percent growth in net written premiums to $74.4 billion made 2024 the greatest year in the 87-year history of the company.

“In true Progressive fashion, more than 65,000 of us worked diligently together to deliver what may very well be the best combination of growth and profitability in the industry,” Murphy said, before he and White described how Progressive has grown both staff and policies-in-force—but with an ever widening gap between the two. PIF growth is outpacing staff growth, they said, diving into the technology investments that drive those results.

(Editor’s Note: Carrier Management plans to publish a separate article on that part of the investor conference later this month.)

More Executive Views: We’re Ready

During a separate event, the 46th Annual Raymond James Institutional Investor Conference, executives from two other personal lines insurers—Allstate and Kemper—also discussed their improving results for 2024 and gave their views on the impacts of tariffs. In short, Jess Merten, chief financial officer of Allstate, and Joseph P. Lacher, Jr., president and CEO of Kemper, said their companies are ready for whatever loss cost changes the tariffs bring.

“What I’ve been focused on is less about trying to predict exactly what’s going to happen and what the effect is going to be, [and more on] what we learned through the last inflationary cycle, [which] was you have to react quickly,” Merten said. “You have to watch trends. You have to react very quickly to those trends,” he said, noting nonetheless that Allstate had done some math signaling a low- to mid-single digits effect to Allstate’s underlying loss costs from tariffs.

While ultimately the company will want to make sure the impacts that actually play out are reflected in pricing, “you’re going to have offsetting impacts,” he said, referring to the fact that profitability is good in the industry overall. “There are some favorable loss cost trends that fed that,” he said. “What we have to do is get really tactical about the way that we think about the loss cost trend going forward, pricing for that, and just make sure that we’re staying on top of small rate increases to reflect the potential impacts.”

“To the extent that those impacts get larger because of the tariffs, we’ll adjust.”

Merten stressed that there are factors to consider beyond car parts that go into vehicles. “We’re very dependent on what [happens] to used car values because used car values determine whether we call a car a total loss…. Labor inflation matters a lot to us as well….”

“What we’re going to do is just get really laser-focused on what’s coming through in actual claims and adjust for that,” Merten concluded.

Kemper’s Lacher drilled down on the loss cost components in a slightly different way—first, separating bodily injury-related claims from metals-related claims. “Tariffs have no impact on bodily injury claims. So, take half the losses aside.” Focusing on the physical damage claims, he also said roughly half of those aren’t metal-related. “They’re the hourly rate of the body shop employees. They’re rental car expenses. They might be storage at a body shop. They might be towing fees. There are any other number of fees that aren’t directly related to the actual cost of the steel.”

“So, we’re actually at a fairly smaller subset of the overall dollars that might be impacted,” he said.

Lacher also said his company for that smaller subset where tariff consequences will emerge, Kemper has been thinking about the potential impact since election day last year—a necessity because even the fastest-acting insurers face lags in getting rates filed and approved to reflect loss cost changes.

After CFO Bradley Camden stated that Kemper is assuming mid- to high-single-digit severity over the next year to year-and-a-half, Lacher reminded conference attendees that if an auto insurer decides to increase rates in a state today, it will take a month or two to prepare the documents and send them to the state, then a few more months before it’s reviewed and approved. “Then we have to have somewhere between 45 and 60 days notice to a customer before we can change their rate. That’s almost six months…. And then if we’re running six month policies, it’s going to take a full six months for all of those to renew with the new rate–and then it will take another six months to fully earn that.”

“We’re thinking 12 or 18 months out in terms of what inflation is all the time, not what tariff got dropped on yesterday. We have to have that longer-term view.”

Noting that President Trump was vocal about his intent to impose tariffs on other countries during his campaign, Lacher said, “On the first Wednesday in November of last year, we knew that he was coming [into office]. So, our inflation outlook took that into account.”

In November, December, January, February, and March, “we’ve already had this in our pricing plans. We’ve had it in our view of what’s coming, and have been working that process on a going-forward basis.”

Bottom line, “this is a little bit of pressure. But it’s not outside of our range of what we would’ve expected or what we’re tuned to handle and manage,” Lacher said.