Arrowhead innovation with an entrepreneural spirit
San Diego-based MGA expands beyond its nonstandard auto roots, broadening its niche market expertise
If necessity truly is the mother of invention, then don’t tell Pat Kilkenny He believes talent, experience and instinct breed that invention. Just analyze his management style. The San Diegobased Arrowhead Group of Companies, a high-powered managing general agency is owned and guided by Patrick J. Kilkenny, a son of Oregon farmers. Kilkenny’s instinct told him years ago that he would need roots in education and some of the highest-powered insurance talent in America to grow structure for his team.
His business-savvy blueprint mind and impeccable people skills have led him down a constructive path, in much the same way that a talented architect’s plans result in a multi-million dollar skyscraper with all the amenities. In fact, Kilkenny and his senior-level management team now occupy such a prestigious building located among the rejuvenated high-rises and streets of downtown San Diego.
His team is high-powered, eager, visionary, entrepreneurial and approachable.
Enter diversity, the conquest for change, and the need for development and growth and you have a picture of the Arrowhead Group. There is opportunity for those who work there and dedicate themselves to the Arrowhead task. There is technology dripping from the walls. There is success there, too.
The 48-year old Kilkenny is ever the visionary. He is , chairman and CEO of the Arrowhead Group, which is one of the largest managing general agents on the North American continent. In the 16 years Arrowhead has been in existence, Kilkenny has built the managing general agent from a nonstandard, automobile-only middleman to a leading cutting-edge wholesaler and insurance writer that has diversified, spread and grown into several markets and taken on numerous products. “Arrowhead will always be a work in progress,” says Kilkenny.
Kilkenny’s crafting blueprint? As difficult as it seems, the concept is simple. He realizes that he alone can’t do it all, nor is he the supreme expert. He maintains numerous contacts in the business, financial, educational, entertainment and sports communities. He knows insurance too and that helps. But his guiding light has been his ability to build a seasoned and trustworthy management team.
Through these 16 years and through more than a few hard times, Kilkenny, for the most part, has always shined. He surrounded himself with business associates, even close confidants from his University of Oregon days, cohorts and acquaintances who bring expertise, understanding and compassion to the table and help build a corporate structure where the whole is greater than the sum of its parts.
Kilkenny exudes enthusiasm when he recounts the history of Arrowhead and how it got to where it is today. It began as the purchase of Classified Financial Corporation. “When people would ask me what the name of the company was that I was becoming involved with, I’d say, `It’s Classified.’ They’d respond by saying, `Really, you can’t say what the name is?’ I’d tell them, `Yes I can tell you; it’s Classified.’ It turned into kind of a `Who’s on First’ type banter.”
Shortly after it was founded, Classified asked him to provide leadership; and shortly after it became profitable (in 1985), Kilkenny had the opportunity to essentially buy the organization. “The only things I owned at that point in my life were my golf clubs and my television,” Kilkenny says. Today Arrowhead is poised to write a projected $400 million in premium in multiple lines by year-end and works closely with 12 paper-providing carriers as well as 27 reinsurance business partners.
In the beginning, Arrowhead was focused strictly on nonstandard personal automobile coverage. In 1986 the company formally put roots down in San Diego’s Sorrento-Mesa business community. It had 30 employees and was writing about $5 million in single-state premium. Kilkenny continued to surround himself with friends and business confidants who became minority investors in Arrowhead’s financial stability. As the company evolved through the I980s, Kilkenny noted that what they teach you in Economics in college is true: “If you constrict capitalism, prices go up and availability slips.”
By 1994, the California nonstandard auto market was becoming more competitive. Arrowhead designed what Kilkenny calls a 360 point-of attack was designed. The company put together a plan to purchase and organize body shops and, with the thought of the most efficient use of product, designed Insurance Express, a revolutionary method that established point-of sale nonstandard auto sales through Mail Boxes Etc. retail outlets in California.
“About the same time we began investing heavily in in-house technology. We designed an `Expert’ underwriting system for our policies and we crafted the ability to slice and dice results into classes and territories and run reports from that data,” Kilkenny says.
Then came the 1994 Northridge earthquake. As others balked and pulled in the reins, Arrowhead’s vision became one of opportunity. It entered the California homeowners market swiftly at that point and has never looked back, diversifying both geographically and by product lines.
“Since that time, we started fostering Arrowhead hybrids,” Kilkenny says. “We’ve built with talent and technology and keyed on marketplace opportunities. We can achieve extraordinary results in niche opportunities. The `Montrose’ case earlier in the decade allowed us to get into the specialty contractor field as really our first specialty line. In 1994 we began bringing in leadership. At that point we began to leverage infrastructure,by establishing a strong actuarial compliance group, built on what we’d been building and knew how to do in our marketing organization,” Kilkenny says.
Arrowhead is now 300+ employees and 6,000 appointed brokers and agents strong in the retail field, with personal and commercial presence in more than 20 states. Each Arrowhead division is unique in that each department head that Kilkenny has recruited is responsible for its own profit center.
“We never develop products ahead of people,” Kilkenny says. “Products are secondary to the person in that philosophy. Each division functions as a silo or profit center that serves each opportunity but leverages off the whole.”
Kilkenny’s has fostered an entrepreneurial spirit among the company’s divisional leaders. At the beginning of this year, he brought in Frank Ruyak, former president and chief operating officer of New Yorkbased Constitution Reinsurance Corporation. In addition to sitting on its board of directors, Ruyak serves as a senior executive committee member and is overseeing the design and implementation of Arrowhead’s latest venture, an insurance company enterprise, Sorrento Group Holdings, Inc.
A very soft-spoken executive, Ruyak started out as an architecture and urban planning student, but he soon turned from that path and went into insurance. He lived in New Jersey and commuted for 17 years to New York. In 1998, Gerling Global Re acquired Constitution Re, and quite a few changes ensued. Ruyak says “here” is a great place-not only the inside of Arrowhead and the working environment, but San Diego itself.
“Having known Arrowhead from outside, I have a lot of respect for it, virtually more than I expected. At Con-Re we did a fair amount of business with Arrowhead and they do better than most MGAs, especially in attention to detail,” Ruyak says. “Here you see incredibly strong actuarial, compliance, and, underwriting departments and very strong relationships with issuing companies.”
Like the other executives working within Arrowhead, Ruyak notes Kilkenny’s unique attention to management style and how he allows his team to function as entrepreneurs and run their own businesses.
The customer is important to Ruyak. He defines them widely from Arrowhead’s risk partners of insurers and reinsurers to his fellow employees all the way down to the policy buying public. He sees the independent agent at the frontline retail shop as his customer, as well, and believes it is all the more important for a wholesaler to treat agents as valued customers today when they might feel just a bit overwhelmed with the advent of technology.
Being somewhat of a high-level new kid in town, and someone who had been an outsider often dealing with Arrowhead, Ruyak sees the tremendous diversity in Arrowhead’s staff as one thing that makes it a great company.
Prior to Ruyak’s arrival, Kilkenny brought in several other insurance industry leaders with entrepreneurial drive and know-how-Andy Barite, John DiFalco, Richard (Dick) Rohde, and Kieran Sweeney Kilkenny doesn’t stop with just these names, though. In conversation, he is quick to compliment the many others who assist in the success of the whole. Tongue in cheek, he calls some of them, experienced, but young “relative renegades.”
“Water seeks its own level over time,” Kilkenny says. “With this leadership, all elements will fall into place. All things shake out when you have quality people. Quality leadership. Anyone here who is uncomfortable with change had better realize it is all about changing based on what the marketplace is telling us.”
Kilkenny is quick to elaborate that marketplace is also all about the customer. It is customer driven. He is quick to establish customers as both internal and external. Good corporate structure must realize that. “There are more efficient processes. Take direct writers like 21st Century. And, generally speaking, there is a handful of niche writers that does a better job than we do. So, our challenge is to differentiate ourselves to our agents and customers,” Kilkenny says. “We do it on numerous fronts, like investing in an expert managing system for softtissue claims. Processes like PPO use that has grown in popularity over the last decade. Then you have cutting-edge items like our YouZoom Network that is Internet driven.
“We’ve spent millions of dollars of corporate assets in building technology and distributing technology, to drive premiums down and get more dollars back in the hands of the insured,” Kilkenny adds.
And speaking of millions spent on technology, enter the YouZoom, Inc., and its entrepreneurial president and CEO, Kieran Sweeney. The 33-year old Sweeney exudes a youthful charm with a fast-spoken style.
Along with his responsibilities for YouZoom, Inc., he is also president of the Arrowhead Underwriting Management Division. He is responsible for existing personal automobile and ancillary products and programs. He is also responsible for developing new alternative distribution and customer-driven programs. He joined the group in 1996 as senior vice president of Arrowhead’s marketing division. A 1987 graduate of University College, Galway, Ireland, Sweeney started with Willis Faber in 1987, moving on to U.S. Capital in 1990.
“Pat said come and join Arrowhead and build a business within a business. I’ve never looked back,” Sweeney says. “Pat endorses forward-thinking vision, with capital and enthusiasm, which is rare in this industry.”
YouZoom, is a multi-fold, Internetbased software product that gives Arrowhead agents and customers the ability to shop different Arrowhead carriers on a comparative basis, purchase the coverage and obtain customer service from their agent 24 hours a day. As for the agents, it provides a creative template for their own Internet presence and a method of developing and marketing a customer base over the Internet in addition to other more traditional methods they might use.
The vision took two years to develop and YouZoom, Inc., finally was born with Sweeney and Arrowhead driving the belief that people will choose this mechanism over time. Arrowhead began live demonstrations of YouZoom’s capabilities in December 1999, while at the American Agent’s Alliance in Indian Wells, California.
For now there are about 150 auto agents using YouZoom. Many more are being added every month with about 250 being the goal for year-end 2000. It is available only in California, but in 2000 YouZoom will open up to Arizona agents. There are also plans to add Florida, Oregon, Texas and Washington as well. Even homeowner products will get into the YouZoom act, including H03s, H04s, and H06s that will be available along with current auto products. Life insurance products are scheduled to be online by the end of the year, and small commercial products should be online by the first quarter of 2001.
Arrowhead’s move into the commercial insurance realm was the first outside its comfortable nonstandard auto walls. It happened in 1997 soon after Andrew (Andy) Barile, CPCU, a long-time niche market specialist joined Kilkenny’s management team.
Barile’s position and tenure with Kilkenny the longest of any in his upper management force, is based on the development of the group’s commercial division. Barite moved to Arrowhead from Agency Programs, Inc., where he was president and owner of a consulting firm for insurance agencies and insurers. In this role, Barite acted as a consultant to the Arrowhead Group of Companies along with other clients. Today, Barile’s principal focus with Arrowhead is overseeing the development of profitable niche commercial business, a process that takes instinct, insight and often intestinal fortitude. Today, its Artisan Contractor program serves as an aggressive market.
Now in its fourth year, it has grown to be extremely successful-a program that started with no commercial producers onboard but now has 1,000 plus and an internal support staff of 22 commercial underwriters.
As of June 1999, in just two years Arrowhead had written $10 million in artisan contractors liability at an average premium of $1,400. “We’ve grown so much and added experienced staff who can handle both lines of business,” Barite adds. “Our goal is to set ourselves apart by our service commitments of 24-hour turnaround time on quotes and policies.”
Arrowhead’s growth goals in commercial lines are aggressive. It is launching its next niche program October 1-a California public livery automobile program. Everything in the public transportation mode, except taxi cabs.
“Pat is interesting in the way he has done all this,” Barile says. “He allows us to recommend, develop and remain responsible for it. From here my team went to work on the public livery program. Each division takes on an identity of itself, so to speak, in terms of coordinating what the market needs.”
“Our team is always accessible, and we take a proactive role in visiting producers to hear what they are saying to us. It is the first barometer,” Barile says. “If producers tell me things are roaring, if there are big losses by class or if carriers are pulling out somewhere, it is time to evaluate and think about creating something and going in.”
Another concept Barile has promoted within the walls of Arrowhead, but multi-dimensional in scope, is the concept of field underwriting. It is a concept he credits Commercial Division Vice President Robert Young with evolving into a prototyped, valuable tool. The concept allows commercial underwriters to go into agency offices and go face to face periodically with the agent.
“It allows up-front, timely turnaround where the underwriter is already there quoting the risk on a laptop using our technology, and it makes the agent ask, `Do I really want to spend the time sending this out?”‘ Barile says. “If the business is priced appropriately and the insured is not upset with the price, then the concept always has potential.”
Next on Kilkenny’s team of experienced professionals to fit Kilkenny’s mold of entrepreneurial spirit, is Richard S. (Dick) Rohde, a rejuvenated 25-year veteran of Barney & Barney, a top-50 privately owned insurance agency founded in San Diego in 1909. Rohde joined the management team on January 1 of this year.
Rohde is president and CEO of the ArrowSource division. ArrowSource was formed to develop Arrowhead’s existing products and technologies by focusing on the use of its Internet platform, as well as extending “worksite” sales, strategic partners and association opportunities. ArrowSource’s objectives, Rohde explains, “are to increase sales of Arrowhead products, using our core competencies of distribution, underwriting and marketing and still supporting the independent agent, but our ultimate goal is to define new and different methods of doing it.”
Arrowhead’s prototypes and models, along with its think-tank like style under Rohde’s direction, is all in the works and just waiting to be unveiled. “All this is exciting,” Rohde says. “I look back on my 25 years and it was time for new vistas. It was a commencement of new enterprise. The automation side of our business is essential in making the independent agent strong. With Arrowhead, I can work with interest in bringing them into a position of greater strength and depth that they won’t necessarily develop on their own.”
At this point in the mix, Rohde’s instinct and experience are still churning out ideas vs. conducting any type of formal marketing research. “There are known needs demonstrated from my experience,” Rohde says. “They have been demonstrated based on the needs in our industry.”
“Insurance is challenging,” Rohde says. “It is a necessary public service. We wouldn’t have all this [looking at his 15th floor view] without the concept of sharing and risk spreading.”
Next on the Kilkenny management team is John DiFalco, president of the Arrowhead Special Risk Division.
This division, which came into existence in April 1998, started with one product, a difference in conditions policy or DIC, where, in a nutshell, everything is covered that is excluded by an all-risk policy. It applies to commercial risks and is generally purchased for businesses that want to obtain coverage for earthquakes.
Arrowhead wrote $12 million its first year in writing the line of business and is at approximately $25 million currently looking to $35 million by year-end. They have since added two other lines of business.
DiFalco notes that his group is currently working on another project-liability for public entities. Its first policies will likely be written in August 2000, and will be based in an Arrowhead satellite office managed in Richmond, Virginia. It will target small municipalities, mostly on the East Coast, in the Midwest and Southeast.
“For now, the last product we’re working on is residential earthquake,” DiFalco says. “The goal size for the entire book of business will be about $85 million.”
In managing this division, DiFalco is enthusiastic about its diversity, which seems to fit his entrenched attitude toward his career. He started out in 1961 with the New England Fire Insurance Rating Bureau which is now Insurance Services Office or ISO. He spent many years with Wausau Insurance Group in Philadelphia, New York and Portland, Oregon. In 1985 he moved to San Diego to serve as senior vice president responsible for commercial underwriting, ceded reinsurance, assumed reinsurance and program development with Insurance Company of the West (ICW). He joined the Arrowhead Group in 1998.
“I met Pat in 1986 when he first acquired Arrowhead,” DiFalco says. “He came to ICW looking for a nonstandard auto carrier. He wanted us to be it, and we wanted to be it. I think we wrote about $1 million to $1.5 million in premium for about a year. We went away and he went away. I kept seeing him at conventions where we’d shake hands, but we never really talked. In 1997, one of our reinsurers came to visit and told us, `You ought to be doing business with Arrowhead.”‘
DiFalco adds that a trucking program is something that Arrowhead will likely develop down the road, and it could happen very quickly. The reinsurance piece is complete for it; there is staff in place; and they are working on the last hurdles. It could start within 60 days-or in up to six months to a year if the hurdles are not surmounted.
DiFalco is fascinated with the dynamics of Arrowhead, pointing out that in April 1998 Arrowhead was almost completely nonstandard automobile with virtually all of its product in one basket. Now, just a little more three years later, it is a 5050 entity, meaning it is split 50% nonstandard auto and 50% other personal and commercial lines. Arrowhead is managing a $400 million total book, $200 million of which is commercial lines.
What is the biggest news on the horizon for Arrowhead? All news is equally important on the premium generation and development front for Arrowhead. The design and implementation of Sorrento Holding Company is something not too far off and will be under the leadership of Ruyak and J. Richard Hoye.
With his experienced and empowered management team at his side Kilkenny has put together the momentum and the charge that supports his dream and keeps it evolving into the future. That is Kilkenny’s mother of invention.
Brett Hanavan is a San Diego, California-based freelance journalist who has worked in the insurance industry for 13 years. He is a former staff writer for Insurance Journal West.
Copyright Rough Notes Co., Inc. Sep 2000
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