Harleysville Group Inc.
Harleysville Group Inc.
Chartered: 1917 as Mutual Auto Theft Insurance Company/Mutual Auto Fire Insurance Company
Sales: $824.8 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: HGIC
NAIC: 524210 Insurance Agencies and Brokerages
The Harleysville Group Inc. oversees the operations of The Harleysville Insurance Companies, which offer a variety of insurance products to people and businesses in 32 eastern and Mid-western states. A Fortune 1000 company, Harleysville ranked 46th on A.M. Best’s list of leading property/casualty insurance groups in the year 2000. Harleysville entered the 21st century by reaching the billion-dollar premium milestone, posting $1.07 bil-lion in consolidated direct premiums. Commitment to people has been a hallmark of Harleysville’s business strategy since it was chartered in 1917. When it was founded, Harleysville had little more than 100 insured members, mostly friends of the founder, and offered only automobile insurance. Today, the company’s insurance products include personal and commercial auto, home-owners, commercial multi-peril, workers compensation, and life insurance. According to the company’s breakdown, 27 percent of its business is personal auto insurance; 21 percent commercial multi-peril; 19 percent commercial auto, 15 percent workers compensation, and 11 percent homeowners. (These figures reflect the group’s total consolidated operations.) As of 2001 the company has some 2,600 employees and 20,000 agents working through 3,000 independent agencies. Forbes magazine named Harleysville one of the “200 Best Small Companies in America” in 1989. Harleysville is a leader not only in the delivery of insurance but in its employment of technology to manage information, both internally and externally. It was honored by Computerworld magazine as one of the 100 best places for information technology professionals to work in the United States.
A Community Grows Up: Harleysville’s Background
Harleysville Insurance attributes part of its success to a company culture that provides a “small town” feel for its employees. This can be traced to the origins not only of the company but to the village of Harleysville itself. Originally part of the land settled by William Penn in the late 17th century, it took its name from Samuel Harley, a local businessman active before the American Revolution. The region was also heavily populated by the German immigrants commonly known as the Pennsylvania Dutch—a group that still has a strong presence in the community more than 300 years later.
In 1732, Friedrich Altdorfer arrived from Germany to work as an indentured servant. He eventually bought his freedom and later married the widow of the man who had held his indenture. In time the family became prosperous. It anglicized its name to Alderfer, a name that is still prominent in southeastern Pennsylvania. (Local businesses that bear the Alderfer name include a meat and dairy company and an auction house.) One of Friedrich’s descendants, Alvin C. Alderfer, was an enterprising businessman who founded the Harleysville National Bank and Trust Company in 1909 and Harleysville Savings Bank in 1915.
Alderfer’s decision to create what would become Harleysville Insurance stemmed from a problem not commonly associated with the early 20th century: car theft. The editor of the local newspaper brought the first automobile to the village in 1903, and the people were mesmerized. Those who could afford them began purchasing their own “horseless carriages.” Needless to say the cars were a source of envy, and some enterprising individuals from the surrounding areas began stealing them.
Protecting the Public in the Early 20th Century
As the problem of auto theft grew, Alderfer decided something needed to be done. In 1915 he convened a meeting of the village’s leading citizens at the local hotel and put forth his idea for an “association” that would protect its members against theft. His status as a business leader gave him the clout he needed to get his plan accepted.
Actually, the idea of this sort of protective association was hardly new; for generations, farmers had formed similar groups to minimize the costs incurred when a horse was stolen. Why not extend the same idea to automobiles, Alderfer reasoned. Each member would pay a membership fee of up to $5.00 (depending on the car’s value), and the collected funds would be used to help members find or replace stolen cars. The initial group included 102 people, mostly friends of Alderfer.
Two years later, Pennsylvania’s Department of Insurance informed Alderfer that his group would either have to charter itself according to state regulations, or else disband. The group obtained a charter on October 9, 1917. Actually, two groups were chartered: the Mutual Auto Theft Insurance Company and the Mutual Auto Fire Insurance Company. This was because at the time insurance companies were not allowed to sell more than one type of coverage.
Over the next few years the laws changed to accommodate a growing number of automobiles and drivers. By 1922, the Harleysville Mutual Casualty Company had been established; it merged with the Mutual Auto Theft Company 11 years later. Over the next few decades Harleysville continued to grow and expand; at the time of Alderfer’s death in 1941 the company was quite different from the “association” he had originally formed with his friends and neighbors.
As the insurance industry changed to meet the increasingly complex needs of individuals, Harleysville adopted a long-term approach that allowed it to identify market trends and customer requirements. This included continued expansion. In 1956 the company changed its name to Harleysville Mutual Insurance Company. Harleysville branched into the life insurance market not long after that. By 1960, it had established Harleysville Life Insurance Company, which offered not only life insurance but also disability insurance and retirement plans.
Further Growth in the 1960s–80s
In 1966, Harleysville underwent a corporate restructuring that is still reflected in the makeup of the current company. Harleysville Mutual was established as the parent company with several subsidiaries. Gradually, Harleysville began strengthening its presence in the consolidated commercial insurance market. The company had always focused primarily on personal lines, but by the mid-1970s the personal/commercial ratio had shifted. (In the 1990s, commercial lines would account for around 60 percent of Harleysville’s premium volume.) In 1979, Harleysville Group was formed to manage the growth-and the diversity-of the organizations’ subsidiary operations. As of 2001, it owned 11 companies and manages an additional five.
One method of growth is acquisition of other companies. Harleysville saw acquisition as a way to increase not only the scope of its offerings but also its geographic reach. In 1982, Harleysville Group acquired McAlear Associates, which specialized in excess and surplus brokerage, as well as the related Huron Insurance Company. (McAlear was sold in 1986.) The Worcester Insurance Company, a 150-year-old firm that specialized in fire insurance, was acquired by Harleysville in 1983.
Perhaps the most important move Harleysville made during the 1980s was its decision to take the company public. For a long time, Harleysville had wanted to expand its operations to other states with the ultimate goal of creating a national network of regional insurance companies. To get started, it would take money. In 1986, Harleysville successfully sold 2,156,250 shares in its initial public offering.
New Directions and Challenges in the 1990s and Beyond
Much of this growth was orchestrated by a management team headed by Harleysville chairman Bradford W. Mitchell. Mitchell joined Harleysville in 1976 as president and director. A year later he was named CEO, and in 1985 he was named chairman. He retired as CEO in 1993 but stayed on as chairman until his death in June 1998. It was during Mitchell’s tenure that Harleysville developed its strategy of developing a national network that would extend to several states. Upon Mitchell’s death, company president and CEO Walter R. Bateman was named chairman. Bateman joined Harleysville in 1988 as senior vice-president of field operations. He continued in that position until 1991 when he was named executive vice-president. He became president and chief operating officer in 1992, and was named chief executive officer in 1994.
As a company with a strong community base, Harleysville has been proud of its “small town” feel even among its 2,600-employee base. Part of this was reflected in a culture that valued employees and encouraged ongoing two-way communication between management and staffers. Commitment to the community extended beyond being a good employer, however, and Harleysville met what it felt was an important obligation through such programs as the Care Force. Created in 1993, the Care Force operated on the belief that people could make a difference by reaching out to those in need of support and who had no support network of their own.
The Harleysville Group has three primary goals: to deliver superior insurance products and related services to its customers; to achieve consistent, profitable growth to enhance shareholder value; and to provide growth opportunities in a learning environment for those who contribute to the company’s success.
As company literature explained, the Care Force “connects people who want to make a difference with those who so desperately need assistance.” Employees who participated in the Care Force identified the kind of assistance they wished to provide and then joined individuals or group volunteer activi-ties. Care Force volunteers might work in programs for the disadvantaged, the environment, neighborhood development, and education. A Care Force Council identified different groups and provided employees with information so that they could choose where they volunteer. The employees worked with the Care Force Council to identify specific activities and projects that they could work on.
The 1990s were a challenging decade for insurers, largely because of a series of expensive natural disasters including hurricanes Andrew in 1992 and Floyd in 1999. Such natural disasters wreaked havoc on local and regional communities, and they were hard on insurance companies as well. Harleysville minimized the impact of such disasters with a 1996 strategy aimed at reducing the company’s overall exposure to homeowner losses. Whereas 91 percent of the claims in 1992 following Hurricane Andrew came from homeowner policies, only 35 percent came from similar policies after Floyd. Although Floyd’s costs had an impact on insurance earnings, Harleysville’s solid strategy helped lessen the blow; the success of the company’s long-term strategy was evident as financials for 2000 showed stronger performance. Among the company’s initiatives for improving performance were programs that would reduce future business costs while improving customer service, a reorganization of claims operations, a streamlining of field operations, and a commitment to advancing expertise in information technology. At a meeting of the Chartered Property Casualty Underwriters in September 2000, Harleysville chairman and CEO Bateman noted that he envisioned exciting times for the insurance industry. “The real winners,” he added, “are not the trend watchers, but those who lay down the groundwork.”
Nevertheless, the company faced some very real challenges with increased competition in the industry during good economic times in the United States. Insurance stocks as a whole fell an average of 15 percent in 1999, and Harleysville’s stock fell along with them, though it fared better than many. In response to this trend, and believing its own stock to be undervalued, Harleysville initiated a stock repurchase plan in June 1999, authorizing the repurchase of up to one million shares, a move it hoped conveyed the confidence management had in Harleysville’s future.
Harleysville’s success was recognized professionally in 1999 when it was named to Ward’s 50 Benchmark Group for “outstanding financial results in the areas of safety, consistency, and performance.” The top 50 list was compiled annually by Ward Financial, a Cincinnati, Ohio-based firm specializing in insurer management consulting and investment banking. Ward measured corporate performance based on such criteria as surplus and premiums, adjusted net income, risk-based capital, and compound premium growth. Harleysville was named to the Ward’s list again in 2000.
The predicted “Y2K” disaster of the late 1990s, which stemmed from the fear that computers would be unable to read the year “2000” accurately and thus be unable to run properly when the date changed, never quite materialized. The Y2K situation did mean, however, that Harleysville, like all companies, had to review its programs and systems, and in doing so it found a number of areas that required replacement or updating. The ultimate result was that Harleysville was able to streamline its computer systems and make them run more efficiently.
Such maintenance and improvements were particularly important for an industry like insurance, which lived and died by the quality of the information it could access and distribute. One of Harleysville’s primary ongoing goals related to information was to constantly upgrade its information technology structure. A user-friendly and informative web site was launched in 1996 to provide easy access to information for clients and potential clients. The company also worked to make sure its internal technology structure allowed quick delivery of important information among company managers. Some of Harleysville’s efforts were rewarded in October 2000, when it won an award for “E-Commerce Excellence,” given by the Pennsylvania Chamber of Business and Industry. The state office recognized Harleysville’s “significant transition to incorporate technological advancements in its day-to-day operations,” as well as its “substantial contribution to electronic commerce.”
Great Oaks Insurance Company; Harleysville-Atlantic Insurance Company; Harleysville Asset Management L.P.; Harleysville Insurance Company of New Jersey; Huron Insurance Company; Insurance Management Resources L.P.; Lake States Insurance Company; Mid-America Insurance Company; Minnesota Fire and Casualty Company; New York Casualty Insurance Company; Worcester Insurance Company; Harleysville Mutual Insurance Company; Harleysville Garden State Insurance Company; Harleysville Life Insurance Company; Pennland Insurance Company; Berkshire Mutual Insurance Company.
The Allstate Corporation; The Chubb Corporation; State Farm Insurance Companies.
- Alvin Alderfer forms “association” of 102 neighbors to insure against auto theft costs.
- Alderfer’s company receives two state charters (for theft and fire insurance).
- Harleysville Mutual Casualty Company is founded.
- Harleysville Mutual Casualty merges with Auto Theft Company,
- Alvin Alderfer dies.
- Harleysville Life Insurance Company is founded.
- Companies are joined together under parent company Harleysville Mutual Insurance.
- Harleysville goes public; sells more than two million shares in IPO.
- Harleysville is named to Ward Financial’s list of top 50 insurance companies in United States.
Boone, Elisabeth, “Harleysville Insurance: National Network with a Hometown Flavor,” Rough Notes, November 1, 1998, p. 34.
Drill, Herb, “Not Down on Main Street,” Focus, February 28, 1990, p. 14.
“Harleysville Group and Harleysville Mutual Authorize stock Repurchase Plans,” PR Newswire, June 23, 1999.
“Harleysville Group Inc. Captures Only Statewide Award Recognizing E-Commerce Excellence,” PR Newswire, October 10, 2000.
“Insurer Harleysville Group Selects Unisys to Deploy and Manage Next-Generation Distributed Computing Systems,” Business Wire, January 5, 1999.
“Largest Publicly Held Companies (in Philadelphia Area),” Philadelphia Business Journal, May 26, 2000, p. B10.
Leming, John, “Harleysville Group Positions Itself for New Strategic Directions,” Eastern Pennsylvania Business Journal, September 20, 1999, p. 11.
Salvidge, Mariella, “Harleysville Group Rated a ‘Hold’ by Analysts,” Allentown Morning Call, September 3, 2000.
——, “Harleysville Group Sees Lower Profit,” Allentown Morning Call, April 27, 2000, Bus. Sec.
—George A. Milite