The beginnings of ArbellaInsurance weren't very auspicious. Massachusetts' Commonwealth AutomobileReinsurers (CAR), the state's reinsurance pool created in thelate 1970s, dominated a market in disarray. By the early 1980s,more than 60 percent of all drivers were in the pool, which carrieda deficit of around $500 million. Insurance fraud was rampant, withoverworked courts and police disinclined to do much about it.

Insurers were leaving the state in droves, including KemperGroup, which insured 7 percent of the Massachusetts automarket. The move would have required Kemper to pay a deficitof $40 million to CAR, cease writing all other lines of business,left more than 400 personal lines employees out of a job, andthousands of policyholders without coverage, said Frank Bellotti,former Massachusetts attorney general and current vice chairman ofArbella's board of directors.

Instead, Kemper's general counsel Lee McClain hatched a plan tocreate a mutual insurer—the first in the state in the last 50years–to assume Kemper's personal lines business in Massachusetts.The plan required a special act from the state legislature.

Once the structure was in place, Kempermerged its agents and personal lines employees into Arbella andprovided back-office functions for a year, said John Donohue,Arbella chairman and CEO. McClain stayed on to serve on Arbella'sboard of directors, and there are still two Kemper agents on thecurrent board.

Today, still headquartered in Quincy, Mass., Arbella has morethan 900 employees and provides personal and business insurance inMassachusetts and Connecticut, and business insurance in RhodeIsland and New Hampshire, with $600 million in revenue andapproximately $1 billion in assets.

Its agency force of about 450 is a key factor in its success,Donohue said. “We've always been focused on being a local companythat understands what's involved in succeeding in this uniquemarket,” he said.

Over the years, the Massachusetts auto market graduallyunderwent a transformation. Arbella helped create an insurancefraud bureau in the 1990s, which helped bring the problem undercontrol. Finally in 2008, the state allowed rate competition, whichopened the door for large national direct writers.

Read related: “Mass.Auto Insurers Hail Improved Market Since Reforms, Despite AGCriticism”

But in spite of the geckos and camels, independent agenciesstill dominate almost 70 percent of the Massachusetts personallines auto market—primarily because of their generationalrelationships with policyholders, and because they have a deepunderstanding of Massachusetts' unique market, Donohue said.Arbella's current percentage of the the state's auto market is 9percent.

In fact, one of the reasons Kemper left the market is because asa national company, they had difficulty operating in Massachusetts' unique environment,Bellotti said. “National companies have trouble understandingregulatory structure in Massachusetts and considered itoverregulated,” he said.

Mix a high concentration of vehicles and drivers in a smallstate with old roads, New England weather conditions, and“assertive” drivers—“put it all together and it creates some verybig challenges on how you can operate profitably,” Donohuesaid.

“Agents have a finger on the pulse of what's happening,”Bellotti said. “National companies do a lot on Internet, but theydon't know what people are thinking.” He cited recent studies thatshow while most insurance buyers shop coverage on theInternet, most want to deal with a “real person” when it's time tobuy.

Arbella keeps communications open with agents with regionalbreakfast meetings twice a year in several different locations, anagency dedicated website, and a force of marketing reps travelingall over southern New England to meet producers face to face. “Ifwe're not getting it right–whether it's pricing, coverage orservice–we hear about it real quickly from our agents,” Donohuesaid.

Arbella's mutual structure also keeps it competitive, Bellottisaid. “The good thing about mutual companies is that you don't havedual obligations to stockholders and policyholders. Mutualcompanies don't have that conflict: their only obligation is topolicyholders. This allows us to take a longer-term approachbecause don't have to satisfy stockholders every quarter.”

Read related: “MutualsMaven: NAMIC's Charles M. Chamness”

And although Arbella wants to “dominate” the New England marketin all lines of insurance—it has almost doubled its commercialbusiness over the past 5 years–there are no plans to go national,Donohue said. Arbella stays close to its roots, with about 60percent of its business in auto, 25 percent in commercial, and 15percent in homeowners.

Commercial growth is especially targeted since smallmanufacturing is coming back in the region, Donohue said. “We'reseeing some very strong growth across Massachusetts and southernNew England. We can write workers' comp, general liability, auto,everything that employers need for their business,” he said. “Andas the economy comes back, we're also seeing growth in restaurantarea, especially in new immigrant and ethnic communities.”

Finally, Arbella is heavily engaged in giving back to the NewEngland community with several charitable initiatives, includingthe Arbella Insurance Foundation (“Foundation”), established in2004 to support the not-for-profit organizations serving NewEngland. In seven years, the Foundation has donated more than$13 million to 960 different charities.

In recognition of Arbella's 25th anniversary, the Foundationcreated 50 to 25,” a program that awarded one-time grants of$50,000 to 25 regional charities, suggested by Arbella employees,independent insurance agents and longtime charitable partners.Checks were presented to the selected charities at a celebratoryluncheon in September.

Not a bad run for a business born of chaos. “Like our customers,we live here and are devoted to New England,” Donohue said. “Weknow this territory, and understand the weather challenges and ourcustomers' needs better than anyone.”