NEW BERLIN — In a research report issued in December 2013, Conning Inc., an investment-management firm for the global insurance industry, identified “18 standout companies which led their peers in both growth and profitability.” 

The report analyzed the performance of 241 insurance companies’ personal-lines products over the past five-year and 10-year periods. Preferred Mutual Insurance Co., headquartered in New Berlin, was cited as one of the leaders, which grew collectively at a compounded rate of 6.2 percent compared to an industry average of just 2 percent.

The concept of mutual insurance in America dates back to 1752 when Ben Franklin brought independent, fire-fighting companies together to form the first successful fire-insurance company in the colonies. The concept was designed to offer the public lower-cost insurance than could be obtained from a stock company, which needed to show a profit and satisfy third-party investors as well as the policyholders.

In 1896, Frank E. Holmes, who grew up on a farm outside New Berlin, decided to model his own insurance company on Ben Franklin’s original concept. The business was incorporated as the Preferred Mutual Fire Insurance Company of Chenango County and employed three people. The founder of Preferred Mutual introduced two new ideas to Franklin’s model: He insisted on receiving advanced premium payments, and he sold the policies through agents. The first year in business generated assets of $4,559.89, premium income of $11,871.14, and a surplus of $4,539.89.

In 1899, the offices of Preferred Mutual burned to the ground along with 11 other buildings. Holmes, ironically, carried no fire insurance on his business property. The company quickly regained its footing and began a long record of growth and profitability. Today, Preferred Mutual Insurance Co., which changed its name in 1957, employs 270 people — with 240 of those residing in Central New York. The company owns its 84,000-square-foot headquarters, another 18,000-square-foot office in Norwich, and leases space for its office in Latham, near Albany. 

Preferred Mutual’s key numbers
According to the 2013 Preferred Mutual annual report, the insurance carrier operates in New York, New Jersey, Massachusetts, and New Hampshire, serving 235,000 individual and business customers through 457 independent insurance agents. As of Dec. 31, 2013, company assets totaled $484.84 million, premium income (direct-written) equaled $279 million, and the surplus topped $185 million. The annual payroll is $17.5 million. Revenue totals $295 million, which includes the premiums, another $11 million from investment income, and $5 million from other sources. 

“Most people think of us as selling property-and-casualty insurance such as homeowners, auto, business-owners, and commercial packages,” says Christopher Paul Taft, president and CEO of Preferred Mutual, “which is true. But what the industry really sells is a promise that we will be there for you [in the event of a claim]. It’s all about trust and living up to promises. Our role is to separate ourselves from the competition who all promise the same thing. Our challenge is to convince our business partners (agents) and customers of three things: our stability, our service, and the fact that the products are current and relevant.”

To ensure its position in the marketplace, Preferred Mutual decided in the 1990s to withdraw from six of the 10 states in which it sold insurance. “The board [of directors] made a strategic decision to be number one in the marketplaces served,” asserts Taft. “We couldn’t be number one in 10 states, so we stopped selling insurance in Ohio, Connecticut, Florida, the Carolinas, and Rhode Island. When we consolidated [our sales area], premiums shrank by $27 million. At the time, no agent sold more than $1 million in premiums; today, we have more than 70 agents [each] selling in excess of $1 million annually. This was a critical move to position us for continued growth, as evidenced by an overall 7 percent increase in premium dollars last year over 2012. [Of the growth in 2013,] … the commercial lines increased 18 percent, which is helping to move us from a 75/25 ratio of personal to commercial lines toward a 60/40 ratio.”

Preferred Mutual’s people
When asked why Preferred Mutual is consistently successful in growing the company’s premiums and profitability, the president points to the employees and to the board of directors. “We focus on talent,” asserts Taft, “especially in the last decade. Our employees are our primary resource, and it’s management’s role to develop each one to … [his or her] maximum. Preferred Mutual has a very knowledgeable staff which is encouraged to grow personally and to help their … [fellow] employees grow. On average, the staff earns 50 new, job-related certifications yearly in areas such as underwriting, claims, project-management, and risk management, an effort supported by tuition reimbursement and direct company payment. In addition, we sponsor educational monetary awards and funds for continuing education for employees pursuing an undergraduate or graduate degree.”

To create the optimum work environment for the staff, Preferred Mutual says it invested $1.5 million over the past two years updating facilities. “We invested this money not only to make the workplace more pleasant, but also to help form an environment that promotes an entrepreneurial spirit,” declares Taft. “We believe strongly in empowering the employees to collaborate with agency partners to help the customers identify the right solutions to meet their needs. You can’t become the most highly regarded insurance company without an exceptional [corporate] culture that fosters a team relationship to deliver superior insurance products and customer service that is unsurpassed … The key words to our continual growth are ‘innovative,’ ‘ethical,’ ‘responsive,’ ‘passionate,’ and ‘collaborative.’ ”

In describing the Preferred Mutual culture, Taft notes the importance of transparency in operations. “If you truly want your employees to be empowered, it’s not enough just to say the words,” he says. “How can they make decisions unless they understand the impact on the company’s bottom line? If you want to hire the best [people] and encourage them to take responsibility, they can’t be accountable without understanding the company P&L (profit-and-loss statement). That’s why we created ‘The Connection’, which updates every employee monthly on our performance. The staff also gathers quarterly to hear from senior management on our progress. That’s how we hold ourselves accountable. At year-end, our policy is to distribute 6 percent of the bottom line to reward the employees for their contribution. After all, they should share in the financial success.”

Taft next shifts his praise to the board of directors. “We have a brilliant group of leaders on the board who help to give us a competitive advantage,” opines the president. “Their role is vision and governance: They have to be two steps ahead and looking around the corner [to see what’s coming], identifying strategic investments [at least] three years out. Everybody on our board has run a company, and each takes a personal interest in his or her role at Preferred Mutual. The board has a keen level of awareness [of how the company runs], and the members meet quarterly to measure how well we are executing.”

Technology
Preferred Mutual’s efforts to differentiate itself on its service and be current rest in large part on the firm’s investment in technology. “Technology drives revenue,” asserts Taft. “We started using computers decades ago, largely for electronic storage. Then we discovered efficiencies in data sharing, and by the 1990s the company really began to understand the value of the data it had. In 2000, we started making better business decisions by creating analytic models, and we made it easier for our agents and customers to do business with us through our customer portals. We continue to strive to make our systems user-friendly by [simultaneously] expanding the amount of information available while reducing any friction [in the technology platform].In addition, technology makes it easier for us to attract outstanding employees who prefer to work remotely.” Preferred Mutual has 33 employees in its IT department.

According to Taft, being an industry leader also involves giving back to the communities in which Preferred Mutual operates. In 2013, the company launched a program to encourage its employees to support local charities by matching their individual contributions up to $300. Preferred Mutual continues to sponsor community events and organizations including the YMCA, American Heart Association, American Cancer Society, performances at the Chenango Council of Arts, Chenango Memorial Hospital Foundation, Bassett Hospital, and the Chenango United Way, to name a few. The sponsorships are underwritten by the Preferred Mutual Foundation, a 501(c)(3) corporation with assets of $1 million, which acts as the corporate-giving arm. The foundation also grants four college scholarships annually, without any preference for the families of company employees.

Giving back means more than donating money. “Our employees donate thousands of hours as volunteers to help our communities,” Taft says with pride. “When the Mohawk Valley was devastated by floods, nearly 30 [company] employees volunteered to help in the affected communities. Closer to home, Preferred Mutual employees cleaned a stretch of Route 8 in New Berlin. In addition to volunteering, the employees also raise their own funds to donate for disaster relief, not just at home but as far away as the Tuscaloosa Disaster Relief Fund. These are just some examples of the broader commitment we cultivate here at the company.”

Taft, 49, is not only active in guiding Preferred Mutual as a growth and profit leader, but he also finds time to help guide the industry association — the National Association of Mutual Insurance Companies (NAMIC). NAMIC is the country’s largest property/casualty insurance trade association with 1,400 insurance companies writing more than $196 billion in premiums annually. He currently serves on the board of directors and as the group’s secretary/treasurer. 

Taft left Coopers & Lybrand to join Preferred Mutual in January 1995 as the vice president of financial services, advancing to the position of CFO the following year. In 2006, he was promoted to president and COO before assuming his current role as president and CEO in 2009. A 1987 graduate of Clarkson University, Taft is a certified insurance counselor and a licensed CPA. Raised in Utica, he married his high-school sweetheart, Maria. The couple resides in Clinton and has three children.

Preferred Mutual is projecting to add another $20 million in premium income this year, continuing the tradition Frank Holmes started of progressive growth and conservative financial management. The only difference between 1896 and today, aside from the size of the current organization, is that Preferred Mutual now carries fire insurance on its own property.       

Contact Poltenson at npoltenson@cnybj.com