Many investors spent 2023 looking for ways to play the mania over artificial intelligence software. One out-of-the box option for 2024 is the insurance company
Progressive.
In a recent note on key takeaways for the insurance space heading into 2024, Cathy Seifert, vice president at CFRA Research, said insurers will be “forced to reckon with AI,” which represents both a threat and an opportunity for them.
“AI has the potential to greatly improve insurers’ profitability by enhancing the underwriting and claims management processes and reducing costs,” Seifert wrote. “AI is also a bifurcating force among insurers, since not every insurer is ready or able to fully embrace and integrate AI into their workflows.”
CFRA expects most of the larger carriers will increase their expenditure for AI and integrate it into their systems in 2024. Just as important, though, is watching which insurers don’t embrace AI.
“The insurance industry as a whole tends to be a technology laggard,” Seifert said in an interview. “There are not a whole lot of early adopters in the insurance industry and in many cases they are playing catch-up.”
One company that stands out, however, is Progressive, a provider of auto and homeowners’ insurance. “Progressive’s AI capabilities are ahead of the curve,” said Seifert.
Back in 2017, years before OpenAI changed the world overnight with the release of ChatGPT, Progressive introduced a chatbot version of Flo, the quirky fictional employee in a white apron it has been using in its advertisements since 2008. It noted at the time that its new tool was “enhanced by artificial intelligence and quoting technology.”
In a tough year for financial stocks, Progressive’s shares have almost kept pace with the
S&P 500.
The stock is up 22% this year at $158.34 against the broader market’s nearly 25% gain.
Seifert rates Progressive at Hold with a 12-month price target of $160.00. “It’s a great company and they do a lot of things right,” she told Barron’s. ”It’s just that the stock adequately reflects that.”
Josh Shanker, senior insurance analyst with
Bank of America,
is more sanguine on Progressive. He has had a Buy rating on the stock for some time and recently lifted his price target to $225.00.
“Progressive seems to keep pace with the Magnificent Seven stocks and it does it at a beta of .5,” he said. A beta of one indicates that a stock’s price tends to move with the market while a beta of less than one means it tends to be less volatile than the market.
“I always tell people I think it’s the best stock in the S&P 500,” said Shanker. “Where are you getting this kind of return with this little volatility? People perceive it as an insurance stock and insurance is dowdy and uninteresting. I think it’s really a technology stock and a growth stock.”
Shanker said AI has become a buzzword to refer to a phenomenon that has been around for a while: using computer intelligence to solve problems. “Large language models are a new level of AI, but AI has been used for a long time and I would argue that Progressive has been using AI probably since the 1960s.”
The company is the industry leader in the use of telematics, drawing on real-time data on how people drive to price their policies. Telematics can benefit insurers because the technology tends to appeal to good drivers, helping companies bring in customers who are less likely to get in accidents and file claims.
Drivers who sign on use an app, or a device they plug into their cars. “These devices can capture data on a variety of driving activities and potentially reduce your premium, provide rewards, or result in a discount if you meet certain criteria,” Progressive says on its website.
Telematics also sits well with regulators critical of the industry’s other ways of pricing insurance, including credit scores and geography.
“Progressive is more advanced than everybody else in this regard,” said Shanker. “Using computers to crunch data to figure out what the right price of insurance is, is a form of artificial intelligence.”
As Barron’s wrote in 2022, “With unmatched analytics, including a leading position in the use of real-time driving behavior to price policies, Progressive is the class act of the industry.”
Write to Lauren Foster at [email protected]
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