Originally Commerce Insurance in Massachusetts, in 2008, Spanish-based global insurer MAPFRE made the announcement that it would be acquiring The Commerce Insurance Group and entering the U.S. marketplace. While many may at first have questioned why a global insurer would acquire what had long been considered a “Massachusetts only” company, time has shown the wisdom of its decision.
By relying on the regional expertise and an existing leadership team, MAPFRE has been able to seamlessly transition into the U.S. marketplace from a position of strength. Over the past decade, the company has been able both to maintain its leadership position in Massachusetts, as well as to use that source of strength in which to expand throughout the country. As a result, the “A” rated carrier, MAPFRE now operates in 14 different states, ranks as the 20th largest private passenger auto insurer in the U.S., with a network of more than 5,000 independent agents and brokers nationwide.
Moreover, while the company’s decision earlier this year to realign its organization for “profitable growth” may have worried some at first, it signals a new chapter for the insurer. By reorganizing and refocusing on its strongest attributes, the company is positioning itself to be more agile, competitive, and efficient within the markets in which it competes as well as in the face of the tremendous innovation and transformation happening within the industry.
To get a little more insight into MAPFRE’s past as well as its future, Agency Checklists had the opportunity to speak with Alfredo Castelo, MAPFRE USA president and CEO and Patrick McDonald, MAPFRE CEO for the Northeast Region for their thoughts and views on MAPFRE’s evolution over the past decade and its prospects for the future. Here is what they had to say.
Thank you for taking the time to speak with us. You both have had quite varied careers in the insurance industry. Could you share with our readers your current position and responsibilities at MAPFRE along with your backgrounds in insurance?
[Alfredo]: I am the Regional CEO for MAPFRE in North America and the President and CEO of MAPFRE USA. I also serve on MAPFRE’s Executive Committee.
I assumed my current role at MAPFRE in the U.S. in August 2016, after serving in several positions at MAPFRE’s corporate business in Spain. Most recently, I served as Chairman and CEO of MAPFRE Global Risks. Prior to joining MAPFRE in 2004, I spent 10 years at another European insurance group, holding positions based in Spain, Italy and Asia.
[Patrick]: I am currently the CEO of the Northeast Region, which consists of Massachusetts, Rhode Island, New Hampshire, Maine and Vermont. The Northeast Region is MAPFRE USA’s largest region, and our success is critical to the overall success of the organization. I have worked at MAPFRE/Commerce for nearly 28 years with the vast majority of those in the Business Development team. I began my career at Aetna P&C in Boston/Quincy and spent a short time at an agency before joining Commerce in 1990.
MAPFRE is celebrating its tenth anniversary in Massachusetts this year. What initially attracted MAPFRE to enter the U.S. market through Massachusetts?
[Alfredo]: The U.S. had always been an attractive market for us; accounting for 30 percent of the insurance premiums worldwide.
The company was presented with an opportunity to enter the U.S. 10 years ago through the acquisition of The Commerce Group. As the leader of the Massachusetts market, the acquisition of Commerce not only gave us access to Massachusetts, but to other states in the U.S.
How has MAPFRE’s first decade been thus far in both the U.S. and in Massachusetts?
[Alfredo]: In some respects, it has been a learning experience for the company, but overall MAPFRE has been very pleased with its decision to enter the U.S. property & casualty marketplace.
Since entering Massachusetts with the purchase of The Commerce Group, we have been able to maintain our leadership position here and have been able to grow outside of Massachusetts. When MAPFRE first acquired Commerce, 90 percent of the business was based in Massachusetts, while the remaining 10 percent came from outside Massachusetts.
Ten years later, that picture is very different. Massachusetts is still a very important market for us, but while 70 percent of the business now comes from Massachusetts, 30 percent comes from outside. MAPFRE also has developed very strong agency partnerships both across the U.S. and especially here in Massachusetts during the past decade as well, which has been important to the company.
Earlier this year, MAPFRE announced a restructuring of the company. Could you both share your thoughts with our readers about this decision?
[Alfredo]: While we were pleased with having been able to grow the business outside Massachusetts, we also have acknowledged that now we have to make all those businesses more profitable. Therefore, our focus now is “Profitable Growth.”
Part of that focus meant reducing our geographical footprint. Many may ask why we decided to exit five states. The reason is we realized that we did not have the size we needed to compete effectively in these states. We want to concentrate our efforts in those states where we have economies of scale, and where we can compete in a market as one of the leaders.
MAPFRE already has officially exited from three markets (Indiana, Kentucky and Tennessee) and is exiting the New York and New Jersey markets as well. The transfers have started in Indiana, Kentucky and Tennessee, and we are awaiting regulatory approval to move forward with our announced sale/book roll of the New York and New Jersey business.[pullquote]Obviously, any time that you exit a state; it is not an easy decision, as it affects both our customers and business partners, the independent agent [/pullquote]
[Patrick]: Obviously, any time that you exit a state; it is not an easy decision, as it affects both our customers and business partners, the independent agent. However, I think we managed those exits gracefully. The agencies in a number of those states all have said, “If you decide to come back, we want to do business.” That is a good indication as to how well we managed the relationship and this transition.
As part of our restructuring, we have switched from four territories to three territories, with the Northeast being our largest territory. Our East Central region consists of Ohio, Connecticut, Pennsylvania and Florida. Our Western region includes California, Arizona, Washington, Oregon and Idaho. The restructuring provides some focus with our regional teams from product, underwriting and claims perspectives in each territory. It also gives us the knowledge base that will help us achieve our objective of profitable growth.
Speaking of challenges, what are some of the other major challenges the company has dealt with over the past 10 years in Massachusetts?
[Patrick]. As you know, MAPFRE is the leader throughout the private passenger side of the house as well as homeowners and commercial auto.
I think the biggest challenge that we have had as an organization has been to maintain our leadership position in Massachusetts and the confidence of our independent agencies during the transition to “Managed Competition”.
That transition has been successful. We effectively compete in all the markets in which we operate, including Massachusetts; and whether there are eighteen players or thirty-six players we still compete effectively. We still have the confidence of our independent agencies, and that is probably the most important thing to us. They are our distribution network. They are our lifeblood. Sure, we [insurers] have all seen a slight decline in market share, but you would expect that to happen when you go from eighteen carriers to thirty-six carriers in the marketplace.
As for some of the other challenges that we have faced, the winters of 2011 and 2015 come to mind. The 2015 ice dams were unprecedented – putting challenges on not only MAPFRE, but also every company in the industry. Fortunately, our CAT team was in place and able to react quickly to all those issues, so we responded fairly well to all of the CATs.
There has been a relatively low attrition rate considering what was expected with the advent of “Managed Competition”. It has been less than what many people expected would be the devastating effect against the agency companies of these direct writers, would you agree?
[Patrick]: Yes, and I think that is a testament to the relationships and expertise that the independent agency brings to the customer, as well as the service that we provide to our agents’ customers.
Having had the unique opportunity to have worked both with the Commerce Insurance Company before and after its acquisition by MAPFRE, what are your thoughts on the past decade?
[Patrick] Thank you for recognizing my 28 years here. You know, this has been a positive transition.
MAPFRE brought some financial stability, intellectual capital and new ideas. They helped us to mature our operation. We were able to leverage some of their worldwide learnings, not only from Spain, but also from their other operations around the world, including Brazil, Italy, Germany, Latin America and South America. Many local MAPFRE leaders have had the opportunity to visit with their colleagues and share ideas. We are well beyond our little borders of Webster and it has been a very fun ride.
I think it has benefited both the employees here in Webster and throughout the United States, as well as our independent agency partners throughout the country.
How has the integration of company cultures between a global insurer like MAPFRE and a local insurer like Commerce been? Was there any friction in trying to combine such different cultures into one?
[Patrick] It was fairly seamless. I will tell you, the leadership in Spain would initially talk to us about incorporating English and Spanish. Now, it is encouraged that we speak two of three languages: English, Portuguese and Spanish. However, I remind my friends in Spain all the time that I speak two languages, English and Rhode Island, with Rhode Island being my primary language.
In all honesty, it has been a very smooth transition. Many of the leaders in our organization have been here for years. When Commerce was bought and MAPFRE leadership came in, they really respected the fact that we had the knowledge of the market here. They shared their global knowledge. This is just one example of the learnings that we have tried to implement countrywide. We want to introduce this regional approach because that is where the expertise lies.
As a market leader, how is MAPFRE responding to the insurtech movement and is it launching any digital endeavors itself?
[Alfredo] Yes. At the end of 2017, MAPFRE launched Verti, a digital insurance company offering auto insurance in the state of Pennsylvania. While Verti is also offered in Spain, Germany and Italy, in the U.S. we will focus on Pennsylvania for the next few years before making a decision to expand to other states.
[Patrick] We also will leverage some of our expertise to introduce more digital opportunities within other states and through independent agencies as well.
And is Verti run out of MAPFRE’s headquarters in Massachusetts or Pennsylvania?
[Patrick] Right here in Webster.
Are there any other innovation efforts that MAPFRE is focusing on?
[pullquote]We want to be a more efficient company, which means we have to focus our efforts on three main pillars – our customers, the profitability of the business and our agency partners.[/pullquote][Alfredo] MAPFRE has put a lot of effort and investment into innovation, not only in Spain and Brazil, but also in the U.S. We are very committed and have a clear agenda to make sure that we will have a leading position with respect to innovation. We want to be a more efficient company, which means we have to focus our efforts on three main pillars – our customers, the profitability of the business and our agency partners.
The rate of change in the insurance industry is accelerating for a number of reasons. First, consumer expectations are increasing. They want to have more control and the ability to speak directly with us. Second, technology is evolving very rapidly with Big Data, AI, Robotics and Blockchain, for example. Third, the sheer number of people who are now investing in insurtech to spur innovation is growing.
At MAPFRE’s last annual shareholder meeting in March, the chairman of the group announced that MAPFRE would create “MAPFRE Open Innovations” to accelerate research into new technologies. Fundamentally, this is a new business model to strengthen the company’s position in the insurtech innovation space. We recognize the challenges in improving efficiency and facilitating the cultural change needed within the organization because of all that is happening in the industry.
What about any innovation efforts with regards to Massachusetts or the New England region?
[Patrick]: We are investing heavily in a new agent system in New England, with both a front-end system and a back-end system that we will introduce in Massachusetts, initially. It is going to be a platform that handles policy processing, billing, claims, and the entire gamut of activities between our agents, customers and us.
We have just completed its inception phase, and we are moving to our next phase. It is a very exciting opportunity for us to move forward with this new platform.
We are also working on digital here in Massachusetts and New England to make more things available to the customer and our agencies, so that they are able to handle some of the self-service capability that they want to do today.
We have to compete with Amazons and the Apples from a customer service perspective, not just with our industry peers, so we are trying to make it easy to do business with us.
As you look to strengthen your position in the Northeast and Massachusetts are you considering appointing more agents?
[pullquote]We are always looking to appoint agencies that have the same type of goals and objectives…So, yes, in Massachusetts we are looking to grow…We are also looking to expand our presence in the upper New England states.[/pullquote][Patrick]: You know, at one point in my career I was responsible for marketing. We are always looking to appoint agencies that have the same type of goals and objectives.
It is a relationship business, and every meeting that I attend with our agencies, I reinforce the fact that it is a relationship business. For a relationship to work, both parties need to comply with their commitments.
So, yes, in Massachusetts we are looking to grow, we are looking to expand, we are looking for ways to reach the customer where the customer wants to be reached. We are also looking to expand our presence in the upper New England states. When we moved to a regional approach, we considered New England a super region. We can write business everywhere, and we have many Massachusetts agencies who write business in Maine, Vermont, New Hampshire or Rhode Island and vice versa. I think that is part of the advantage that we bring to the table.
Whom should interested agents contact at MAPFRE?
Andrew Drayer is the leader of our business development team for our Northeast Region, which comprises Massachusetts, Rhode Island, New Hampshire, Vermont and Maine. He can be contacted at email@example.com.
What about agents who are based outside of Massachusetts or New England, who may read this and want to get in touch?
Agents who are based in other states should contact these business development leads:
- Jeffrey Alexander – Ohio, Connecticut, Pennsylvania; Jalexander@mapfreusa.com
- Maureen McCormick – California, Arizona; firstname.lastname@example.org
- Rick Staten – Oregon, Washington, Idaho; email@example.com
- Nuria Palacios – Florida; firstname.lastname@example.org
Earlier we discussed some of the challenges that MAPFRE had faced this past. What about some of the major successes MAPFRE has had over the same time period?
[Patrick]: Again, I would suggest the biggest success is maintaining our strong relationship with our independent agencies and maintaining our market share in Massachusetts while expanding into other states.
I also would be remiss if I did not mention the service center that we bring to the table. Our service center has been very helpful to a number of our independent agencies as they try to manage their staffing and service levels. We have put well over a $150 million into our service center operations to help our agents seamlessly serve their customers.
[Alfredo]: I would just add what I said before about the launching of Verti. I see this as a very important milestone for the company.
What are your thoughts about the state of the insurance industry both globally, nationally and with respect to Massachusetts?
[Alfredo]: The insurance industry is going through an extraordinary transformation process with the introduction of new technologies that make us more agile and responsive. These are exciting times for all of us in the industry.
[Patrick]: I believe that we will continue to experience revolutionary changes in our business, and at the same time, the value and expertise the independent agency brings to the customers will be recognized. Working together, MAPFRE and our agents will find ways to meet the customer’s expectations at all transaction levels, making it easy for them to do business with us.
Are there any other issues or items that we haven’t touched on and that you would like our readers to know?
[Patrick]: I will just jump in to just say that, obviously, the insurance industry is changing rapidly. It is exciting. Technology is bringing both challenges and opportunities to the table. Autonomous vehicles, reduction in frequency, increase in severity are all bringing different opportunities for us to leverage. Being part of a global company positions us to leverage those opportunities very well.
[Alfredo]: I would like to add that MAPFRE is not just a company focused on profits; it also is one that gives back to society. We do this by giving away part of our profit. MAPFRE Group is actually owned by Fundación MAPFRE or the MAPFRE Foundation in English, our largest shareholder. Created in 1975, the foundation has a presence in 29 countries. Fundación MAPFRE has made a significant commitment in the U.S., especially in Massachusetts and other states, where we do business. In Massachusetts, for example, the foundation provides funding to support the Worcester Community Action Council’s Head Start meal program. The foundation also supports the Boston Children’s Hospital Injury Prevention van. These and numerous other programs and initiatives that MAPFRE supports across the U.S. reflect our strong commitment to society.
[Patrick]: We have a unique ownership structure and many people don’t understand it. Fundación MAPFRE owns 68.3 percent of our stock, and their mission is to help people around the world with support and initiatives that focus on five key areas: social action, culture, health promotion, prevention and road safety and insurance and social protection. We are a stock company, but so much of our profit is returned to society.