In September, the city of St. Paul celebrated the arrival of a new business headquarters to its downtown.
Lured in part through efforts by Governor Tim Pawlenty, Great Northwest Insurance Company had relocated its base of operations from Boise, Idaho, to Minnesota. Then-Mayor Randy Kelly and Capital City Partnership President John Labosky gave speeches at a ribbon-cutting ceremony in front of the Securian Tower, Great Northwest’s new home.
“I kept thinking: ‘Don’t tell them who we are,’” Great Northwest CEO Steve Doucette jokingly recalls. “‘Maybe they think we’re Northwestern Mutual Life!’”
Compared to the massive “quiet company,” Great Northwest Insurance (despite that “great” in its name) is small. And in a sense, that’s the way Great Northwest wants to be. Doucette describes his company as a “micro-insurance” firm. Focusing on personal lines (consumer home and auto insurance), Great Northwest uses Internet-based technology to deliver service more directly and at a lower cost.
Doucette contrasts his concept with the traditional auto-and-home insurance-company model, which centers on a “home office,” or headquarters, that manages a network of branch offices. Each branch, in turn, oversees individual agents who make the sales and manage the claims process. More recent models include Washington, D.C.–based Geico, whose home office sells directly to the customer; and Ohio-based Progressive, whose agents sell the policies, then hand off the policyholders to the home office for service.
Great Northwest’s model does away with a large home office and the branch offices. Instead, independent agents provide service more directly. In this micro model, “what the agent brings to us is the knowledge necessary to take care of the customer,” Doucette says, adding that local independents “know which body shop to use, which contractor you might want to use for repairs.” The Internet allows the headquarters to become a stripped-down “quality control center” that manages regulatory matters, maintains the IT infrastructure, and keeps an electronic eye peeled for any irregularities from agents and the local independent adjusters they use.
Doucette devised his model based on his experience as both an agent and an executive. A Milwaukee native, Doucette started his own insurance agency right out of college. Seven years later, he sold it and took an executive position at Milwaukee Insurance Group (now part of Chicago-based Unitrin), where he rose to CEO and president. There he envisioned the micro-insurance concept.
In 1992, he left to start Great Northwest, raising venture capital from Boston-based Century Capital Insurance and what was then called the St. Paul Companies. His non-compete agreement with Milwaukee Insurance Group covered most of the Midwest, so he moved out west to Boise, a site Doucette chose for its good economy and lack of a dominant insurance company. Since Great Northwest was a new firm without a lot of capitalization, it wrote policies on the St. Paul Companies’ “paper” (that is, its insurance license and capital backing).
But in 1999, the St. Paul departed from the personal lines business, leaving Great Northwest to fend for itself, “renting” another company’s paper. By 2004, Great Northwest had its own paper, thanks to fresh outside capital. Those investors also pushed for the move to St. Paul, believing that the company would better be able to recruit talent in Minnesota.
Great Northwest currently has around 26,000 policyholders; its 18 employees are divided between St. Paul and Boise. “We employ a third or a fourth of the people that a company our size would normally employ,” Doucette says. Still, he adds, “we want to be 10 times our size in the next three to five years, primarily through acquisitions.” Perhaps Great Northwest’s destiny is to become a macro-micro insurance company.
