Thread by @joinditto

Progressive's risky road to success:

How an insurance company built a profitable business insuring high-risk customers. (A thread...)

👉One of the biggest problems an insurance company can have is adverse selection: a situation where insurance companies want healthy customers that pay premiums regularly while making little to no claims, but the reality is far different.

This is because the people actually seeking insurance are the ones most likely to make claims. These people are known as high-risk customers and most insurance companies try to steer away from them.

💡But did you know that one insurance company embraced these people and became of the most successful insurance companies in the world?

The company is Progressive Corp.

👉Progressive got its start in 1930s when it fashioned an innovative strategy focusing on people with a record of traffic violations that drove high performance cars, the so called “high-risk” category of drivers.

Progressive understood that these drivers were quite wealthy and therefore not so sensitive to the premiums while actively looking for an insurance solution since most insurance companies were not too keen to insure them.

Therefore, Progressive realised that if they could get the math just right, they could charge high enough premiums to cover the added risk and still stay profitable.

💡They welcomed these high-risk customers with open arms and gave them a streamlined process to get insurance without the usual annoyance they faced dealing with other insurance firms

🚀And their strategy worked.

Progressive became a leader in the market for luxury-car insurance and has since become one of the largest auto insurers in the US.

What began as a side hustle for 2 lawyers turned into an innovative behemoth churning out $5Bn in profits annually