Why Is Progressive Interested in Auto Fuel Efficiency?

Last week, Cleveland-based Progressive Insurance (PGR) announced that it was sponsoring the Progressive Automotive X Prize: $10 million to develop a market-ready automobile that would achieve 100 miles per gallon fuel efficiency.

The Associated Press reports that 60 teams from nine countries have already signed up for the competition, which will occur in 2009 and 2010, involving cross-country and urban driving tests. It will be interesting to see the technologies, designs, and approaches employed by the teams to produce such the required breakthroughs.

What would cause an insurance company to offer so much money to improve auto fuel efficiency? Clearly, Progressive has concluded that increasing gasoline prices, and perhaps increasing scarcity of oil products generally, are a major threat to their auto insurance business. Unless auto efficiency improves significantly, auto ownership and mileage-driven will decline -- thus leading to lower insurance premiums paid to companies such as Progressive. Evidently, Progressive estimates the net present value of this threat to their company at many millions of dollars.

It's also quite telling that a major corporation in a highly competitive industry isn't putting much faith in the auto/energy markets to drive auto manufacturers to achieve the desired auto energy efficiency improvements on their own. Perhaps Progressive sees what many free-market advocates haven't: that the auto/energy markets are encumbered by so many barriers to competitive activity that the beneficial forces of Adam Smith's "invisible hand" can't and don't operate effectively.

Comments

[pk de cville]

Let's see now... Do you think a $10 mm dollar prize and associated PR and advertising might result in about $100mm of free ads?

Huh, maybe Progressive is seeing the 'light'!

Also, it doesn't hurt their public image. After all, the name is 'Progressive'.

[Disappointed]

They sponsor this to the tune of 10 million, and on the flip side are giving away 150K in free fuel cards to truckers. PLUS..... They're almost the # 1 rated company on jobvent.com where employees say they hate their employer. Is this a Spin tactic ? Generating revenue so CEO Glenn Renwick can buy his personal jet ? (although the stock price has tanked in the last year ?)

[TAS]

The company CEO is a far left loon, as are the ilk of characters such as Mark Cuban.

Progressive's head has also donated millions to organizations such as moveon.org and anti-military, Georg Soros-initiated programs which hurt, not help our country.

Progressive probably spent more on the new naming rights to Cleveland Stadium (formerly Jacobs Field) than any alternative fuel initiative.

Let the "baby boys" have their fun.

[mikden]

This is just another gimmicky project. $10 million won't buy a design for a meaningful proposal that could be built in volume and meet all regulations together with real world customer needs. We don't even have a meaningful measure of fuel consumption in America. MPG is a geometric number and very misleading. Europe uses Liters per 100 kilometers, which is a linear measure and a true statement of use. Any improvements over 30MPG becomes increasingly costly and less effective in saving fuel. Maybe something of value will emerge from this competition but it won't come close to solving our energy problem. The problem is poitical not technical.

[Strat]

Increasing gas prices are a major threat to the auto insurance industry? If people drive less, they have fewer accidents and file fewer claims. Most insurance companies earn their money through investments anyway. Take a look at the combined ratio for some companies- a 96 CR means a 4 cent underwriting profit on every premium dollar earned. And higher has prices causing fewer people to own cars? Unless you drive an RV on a daily basis, your fuel costs have gone up about 15-20 dollars per week for a mid-sized car. Hardly a reason to leave it in a ditch somewhere. People will just cut back on their lattes.