Even before the Bastrop conflagration came to be known as thecostliest wildfire in Texas history, Dave E. Talbert and employeesof the insurance company he leads were on the scene, handing outhot dogs to the blaze's victims.

"We took shifts," says the CEO of Hochheim Prairie Farm MutualInsurance of Yoakum, Texas, recalling the aftermath of theSeptember 2011 devastation. "We're less than 100 miles away. Youcould smell the fire at our office."

And when CEO Daniel E. Stone reported to the office early themorning after a March 2, 2012 tornado leveled Henrysville, Ind., his staff was already there, somewith their spouses, getting ready for the road trip to begin tohelp clients reassemble their lives. He went with them and talkedone-on-one with his policyholders.

The stories told by Talbert and Stone point to an importantpoint of differentiation between small and large insurers: The"we-are-one-of-you," personalized approach to providing insuranceis what separates small carriers from the big dogs, they say.

And 2011, a year marked by catastrophes, wasan opportunity—albeit an unwelcome one—for everyone at smallcarriers, from the top executive down to junior claims personnel,to show policyholders how well their companies could perform whenthey were needed most.

'UGLY' NUMBERS; BUT WITH CLAIMS COMEOPPORTUNITIES

Like many of their larger brethren, small and regional carriershad a tough 2011.

"Our numbers are ugly," Sandra Parrillo, CEO of ProvidenceMutual in Rhode Island, says of the insurer's 2011 financialresults.

But, with some exceptions, the little guys were able to weathera year of extraordinary storms.

"Our surplus is down modestly, but we paid every claim," notesParrillo. "It was a rough year, but we did what we had to do."

Providence Mutual, which insures homes, automobiles and smallbusinesses in New England, New York and New Jersey, experienced acatastrophe every quarter in 2011. It received about 8,200 claims,significantly more than its yearly average of 3,200.

Surplus at Hochheim Prairie dropped $12.6 million, to about $80million. Germania Farm Mutual Insurance, also in Texas, sawcatastrophes take a $17-million bite from surplus. Indiana Farmersdoubled its catastrophe losses compared to 2010.

Ohio Mutual Insurance recorded about 4,200 catastrophe claims in2011, and the group had $20 million in catastrophe losses—doubleits annual average.

"You get into this business knowing you're going to havebad-weather years," says James J. Kennedy, president and CEO ofOhio Mutual.

But to hear Kennedy tell it, the claims-packed year of 2011presented thousands of opportunities for his company. "Every claimwe took this year was a chance to show we have the resources tocompete with the big guys," he says. "People have to believe we'reas good as anyone. It's the best advertisement."

THE BEST MARKETING MONEY CAN'T BUY

Leaders of small/regional insurers often speak of the neighborlyservice they provide—an "alignment with our customers," as Kennedysays. Or "localness," as a marketer at Indiana Farmers phrasesit.

"Being local is important because we know the region, theweather, the culture and the communities," says John Donohue,chairman, president and CEO of Arbella Insurance Group, a NewEngland insurer based in Massachusetts. "When weather causes painand hardship, we feel it because we live here too."

And this local emphasis—and ability to empathize—is a core partof the business strategy of small/regional players.

While customer satisfaction remains a priority to everyinsurance company no matter its size, small/regional carriers,without big advertising budgets, have to rely very heavily on thevalue of their insurance products and word of mouth.

"The number-one goal is the customer experience," says PaulEhlert, president of Germania, a rural property insurer. "We hadmany opportunities in 2011 to establish the value we bring."

Parrillo notes that within 90 days ofHurricane Irene, 90 percent of her company's claims were settled.Perhaps even more telling, 98 percent of its policyholders sayProvidence Mutual performed as expected or better than expected,she adds.

Talbert says Hochheim Prairie fused "stronger connections" topolicyholders because of the company's response to claims.

"When people get hit, that's when they are going to makejudgments about the value of the product," says Chuck Chamness,president and CEO of the National Association of Mutual InsuranceCos. "That kind of opportunity can pay dividends for years."

FEELING IS MUTUAL

Most small/regional insurers adhere to the mutual businessmodel—another advantage over giants, in their view.

"Our focus is on policyholders," says Parrillo. "We have noother motives—no one else to answer to."

Shareholders of stock-structuredcompanies may not be so aligned with the insured, executives atsmaller carriers say, adding that many of those shareholders likelyaren't even policyholders with the company in which they holdstock.

"If we are doing this job to please a lot of stockholders, thisdoesn't work," Kennedy says.

Adds Stone, "We don't answer to investors' expectations."

Policyholders are "the only reason we exist," Talbert adds.

Many small/regional mutual companies have been in business formore than a century. Providence Mutual, for one, has been aroundsince 1800.

"These are companies that are built for the long haul becausethey can think long-term as opposed to quarter-by-quarter," saysChamness.

Additionally, leadership at these smaller insurers is typicallywell-tenured.

"They have seen the heavy catastrophe cycles and been throughthe hard- and soft-market cycles," adds Chamness. "They've seen itall, and they don't overreact."

"When those in the C-suite have a shorter duration in theirpositions, you tend to develop short-term strategies," Stoneadds.

Strong reinsurance partners are critical elements ofsmall/regional insurers' success.

For instance, Hochheim Prairie was able to recoup $48 million ofits $161 million in insured losses in 2011 via reinsurancetreaties. About $40 million of losses Germania took from theBastrop fire were absorbed by its catastrophe program.

And tight relationships with independent agents are alsostandard parts of the game plan for successful small/regionalcarriers.

"Independent agents are the best way for our clients to buyinsurance," says Kennedy at Ohio Mutual. "They know the area andwhat we are looking for and can explain the policy to aninsured."

HARD LESSONS LEARNED

While 2011's catastrophes may have provided the chance toshowcase the claims-handling skills of small/regional carriers, theyear also, of course, delivered plenty of hard lessons.

Ehlert says Germania hadn't budgeted for the type of destructioncaused by the Bastrop Fire. Going forward, the company will be moreconscious of brush and vegetative overgrowth on its properties, hesays.

Homes with metal roofs fared much better in the fire, HochheimPrairie found. The insurer discovered the discounts it offers thesehomes are indeed valid.

Parrillo says the frequency and severity of claims in 2011 hasallowed the company to assess itself from an operationalperspective. How quickly were representatives able to get into thefield? How well did the independent claims-adjustment firm handleits tasks?

"If you don't use last year to learn, you're missing a greatopportunity to grow," she says.

Interestingly, despite the losses they enduredin 2011, many small or regional insurers say they would write thesame risks again, given the chance. Talbert says Hochheim Prairieisn't going to change a thing—that the fires were an anomaly: "Wecouldn't have underwritten against this. We know what we have.We're standing firm."

DIVERSIFYING BOOKS

Going forward, a growth strategy many small/regional carriersbelieve is important to their futures: diversifying their books ofbusiness, particularly by looking at lines other thanhomeowners.

Providence Mutual will "look for greater productdiversification," says Parrillo. The company rolled out anauto-insurance product several years ago, she notes, and is so farexcited about the response.

Germania, too, will encourage growth in auto lines to mitigateweather volatility in the homeowners' line, says Ehlert. Likewise,Kennedy says Ohio Mutual will "reinforce the package concept,"cross-selling its products.

Each company says it will look for rate increases to adequatelyprice homeowners business.

"It's not tricky," says Stone of Indiana Farmers. "Yourisk-manage properly. You take rate and maintain sound reservephilosophies."

In the face of severe losses, it's important to remember thebusiness upon which your company was built, says Talbert: "If weever stray from what we have been and who we are, then we'reprobably in hot water."

Hochheim set a goal of 5 percent growth in property in 2012.

"We're not nursing our wounds," adds Parrillo at ProvidenceMutual. "We're raring to go."