Former Massachusetts Attorney General Frank Bellotti was the one who brought in John Donohue to Arbella Insurance Group, a property and casualty insurance company.
Bellotti, who was the AG under Massachusetts Governor Michael Dukakis, was hired by the Kemper Insurance Companies to start this new insurance company in Massachusetts. He recruited Donohue to the law firm Bellotti was a partner at to help set up the insurance company. “I jumped at the chance, you know, the chance to start a company from scratch and try to mold it and strategize and figure out how to make it successful,” Donohue recalls.
By 1988, Arbella Insurance Group was established and Donohue worked in an advisory capacity while he staying on as a lawyer at Bellotti’s firm. After 10-15 years of advising Arbella from the outside, Donohue decided he wanted to be full time with the insurance company and took on an executive role. The rest is history. The Quincy, Massachusetts-based Arbella recently celebrated its 30th anniversary and pulls in $800 million in revenue with $1.5 billion in assets.
Donohue spoke with Chief Executive about the growth of the company, how the company overcomes its various day-to-day challenges, the hyper-competitive nature of the insurance industry and more. Below are excerpts of this conversation.
What have been some of the keys to the growth of the company?
It really comes down to effective communication because when we started Arbella, as it is everywhere in the country with property casualty insurance for homes, small businesses and commercial and personal auto, there was—and is— lots of competition. We were selling our products through independent agents, which means they had lots of other markets in their offices for their customers. So the first part of the communication was to convince the agents to take a chance and put their customers’ business with us instead of more established companies.
We also took on a bunch of employees, about 200, from Kemper. And obviously, we had to convince them it was worth it taking the chance to come with this new company as opposed to staying at Kemper, which had been around for 100 years or something like that. So convincing people to take a chance with you, obviously, means you’ve got to have a good story to tell, a reasonable argument about why it’s worth that risk, and then you have to be effective at getting that story out there and getting in front of people and having them listen. So that was a big part of the beginning of the company.
We ended up starting with about 200,000 customers, probably 300 or 350 intended agents and 200 employees. And so that was the kind of startup phase. And then as we’ve gone on, the importance of communication has always been there.
The strategy that we built Arbella on and we think has made it successful is that we really focus on giving both our customers and our agents what we call exceptional levels of service, not just kind of okay service or good service, but exceptional levels, being very committed to their best interest. To do that, you have to have employees that are very engaged. They’ve got to really buy into that concept, that brand, that strategy and they’ve got to live it every day. So again, that comes back to communication and for employees to make sure they understand what that strategy is, why we’ve chosen that as our strategy, and to get them excited about it and buy into it.
What are some of the big challenges you guys are facing, whether it’s in the insurance industry or just in general?
Let’s start with the insurance industry. Obviously, it’s very competitive out there. There’s lots of companies trying to chase all the same customers. So that you always have to be, very much on your toes to make sure you’re getting your story out there, to make sure that you’re managing your costs so you can be profitable and making sure that you’re giving your customers a reason to stay with you. Because if you think about it, with all those companies out there, it means that any individual customer could leave one company and go to the next without a whole lot of trouble. So you have to convince them that they should not only choose you, but then stay with you. And so that’s a big challenge.
Then in this period of very, very low unemployment, both keeping and retaining good employees and attracting new ones is a big, big challenge because again, they have lots of options of places to go. And so trying to attract and retain those employees, those are the big challenges.
And then with all the technology changes that are coming in, there are some challenges. If you look at cars… the newer smarter cars…those cars present a lot of challenges because they’re very expensive to repair. And that’s supposed to be offset by what we call lower frequency, which means less accidents, but that safety element has not shown up in the numbers because there are not as many of them on the road. People aren’t sure how to use them effectively. Sometimes they take it for granted and it gets them in trouble or they think it’s going to keep them safer than it can. So that’s creating a real challenge for all the insurance companies about how to figure out how to effectively insure and underwrite those new safer cars that aren’t yet bringing a whole lot of positive impact to insurance clients.
I know you’re big into the charitable endeavors, you have an insurance foundation. And you’re very active in the local charity scene in the Boston area. Why is that such a focus? Is that a strategy or is that just the right thing to do?
I think it’s probably some of both. We started the Arbella Foundation in 2005 after having built up enough capital to be able to invest and create a foundation. We felt that, a corporation is allowed to exist by the laws, is allowed to have customers by people responding. And so you should be giving back to your communities where you do business. So we always thought that was part of it.
And then our parent company is a mutual company, which means that we don’t have stockholders or investors. Our owners are our customers. And so when you’re a mutual company like that, we believe the obligation to give back is even stronger because our owners are our customers who live in the communities where we do our business. And that also makes our employees part of our owners because most of our employees get their insurance through Arbella. So as a mutual company, we really think it’s very incumbent on us to give back.
And then the strategy is, again, part of what we think our brand is, which is a commitment to great service, the next logical step of that is to give that service out and to support other organizations, nonprofits, that are also giving great service to the community. So when we give out our dollars, we try to look for the nonprofits that are really doing it well. And we find a lot of those through our employees and our agents who volunteer or work for them or know about them in their local communities.
You talk about the competitive nature of the insurance industry. And I mean, you don’t have to turn on the TV for more than two minutes to see an insurance ad or on the radio. I mean, it’s really everywhere nowadays. So I’m sure that, you know, you’re trying to get your name out there in a strategic way. Is that part of it?
We want people to think of us as a good company, both from a service element and from a commitment element. And the other thing that we continue to see in research… And this isn’t just about Arbella. It’s kind of across the board, even though people obviously pay a lot of attention to advertising and do a lot of research through the internet, at the end of the day with insurance, because it’s so complicated, the number one way most consumers pick their insurance company or their insurance agent is by word of mouth.
You know, they’ll do all this research, listen to the ads, then they as a friend or a neighbor, “Who are you with?” And so that’s where we try to get our name embedded into our communities that people think of us as a good company and will make that recommendation. And so clearly, if we’re helping in the communities, helping to give back, whether by volunteering or supporting nonprofits, that helps with that image.
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