AGENCY OF THE MONTH

CHK TRIPLES ITS BUSINESS IN THREE YEARS AS THE REBIRTH BEGINS

Small New Jersey agency treads water until grandson
of founder reenters the family firm

By Dennis H. Pillsbury

Third generation owner Mike Castellini sees an opportunity for more "astounding growth" by the turn of the century.

This month's agency was very close to becoming a statistic. The principals had moved on to other things and the agency existed primarily to serve a shrinking client base. At some point, the agency or its business probably would have been sold and another 75-year-old independent agency would have disappeared from the scene.

But that didn't happen. Instead what happened was that the grandson of the original founder decided that he didn't want to see this occur.

CHK Insurance Agency traces its origin back to 1922 when Armando Castellini, Sr., founded his agency in Hoboken, New Jersey, a town perhaps best known as the birthplace of Frank Sinatra and, with its location directly across the Hudson River from downtown New York City, even better known by New Jersey commuters as the last stop before transferring to the PATH trains under the Hudson or the newly revived ferry. Armando started out as a property-casualty and real estate agent. In the late 1940s, his son, Armando, Jr., joined him in the business.

The CHK team includes (back row, from left) Mark McCormack, Mike Castellini, Ellen Fuchs, (front row) Pat Hrie and Armando Castellini.

As the suburban sprawl moved west, so did the agency, opening an office in 1960, in Denville, New Jersey, about 25 miles west of Hoboken. Denville was a relatively small town at the time, located in the center of Morris County, one of the fastest growing counties in the state. The agency was situated right on Main Street, serving the local businesses and residents. Pat Hric joined the agency in 1962 and became a principal in 1972. Pat joined the agency as a Gal Friday and advanced through the ranks. She is a member of NAIW International and a director of ARC School. David Kleinwaks became a partner in 1985. CHK (Castellini, Hric & Kleinwaks) Insurance Agency was the result. As the Denville office grew with the area, the Hoboken office became less important and was closed in the 1970s.

Meanwhile, Armando, Jr., had developed a successful insurance school and education seminar business and became heavily involved as an expert witness in insurance litigation. As a result, his agency activities lessened; so he sold his majority interest to one of his partners, David Kleinwaks. However, David had also developed another enterprise outside the agency activities. His Abbey Rating System proved successful, and that success meant that more and more of his time was spent in managing that growing business. With the principals otherwise occupied, it was hardly surprising that "in the decade of the '80s, CHK Insurance Agency basically was just self-perpetuating," Michael Castellini, Armando, Jr.'s, son, explains.

Placing a renewed importance on ownership

Michael did not move directly into the agency business. In fact, when he graduated from college in 1981, he joined the Golden Nugget in Atlantic City as front office manager and was on the fast track to success. But that track also meant that he was starting to get calls at 2 or 3 in the morning and was working every day. "If I was going to put in those kinds of hours, I wanted it to be for my own business," Mike says. In 1986, he went into financial planning. Then in 1990, Mike took the plunge and decided that the business he wanted to be in was the family agency. He decided that he wanted to bring the agency majority ownership back to his family. He purchased it from David Kleinwaks and stepped into an agency that had about $900,000 in volume.

Soon after that, Mark McCormack joined as a principal and commercial lines producer. He had been a captive agent for nine years and saw the benefits of becoming a principal of an independent agency. He had a substantial personal lines book from which the agency is now marketing commercial lines business. Both Mark and Michael have been members of the Denville Rotary since 1995.

Mike admits that it was a very scary step. For the first few years, he made almost no money. He spent much of his time meeting with the current clients and making certain that the business that was still on the books stayed there. And, in his "spare" time, in lieu of sleep, he went after new business. It was difficult, and then the state of New Jersey decided to add to Mike's woes with the passage of "take-all-comers" auto insurance legislation.

"Suddenly we were growing, but not in the direction I'd hoped," Mike says. "We were getting business that would come and go as companies changed prices. We really weren't making any money that way, but it kept us so busy we hardly had any time to develop new commercial accounts or round out the personal lines customers. It cost us just as much to service the auto business as we were bringing in. And the state made matters even worse by contributing to the shopping frenzy with consumer guides that stressed price."

"The turnaround"

What followed over the next three years is the reason CHK is being honored by Rough Notes. The past indeed is prologue to a story of an agency that now is showing astounding growth and has plans to reach the $6 million level by the end of the year 2000.

In 1995, things settled down as much as they ever do in New Jersey. CHK found itself with a viable book of business amounting to around$1 million in premium. A lot of the personal auto business had moved on or had been weeded out, and Mike was ready to build the business sensibly. "We were looking to round out the personal lines accounts and increase our commercial business," he notes. Both of these efforts were designed to bring in business that would stay on the books. Today, the agency boasts premium volume of$3 million, and is well on its way to its year 2000 goal.

The agency actively sought out commercial accounts in the $25,000 to $40,000 premium range. "We found these smaller accounts were less subject to the vagaries of the soft market," Mike says, adding that larger accounts were a problem for an agency of CHK's size because they would represent a significant percentage of the total premium. "We needed to have a large number of accounts so the loss of one account wouldn't jeopardize our viability."

Customer loyalty is still a top priority for independent agencies, despite the erosion of loyalty caused by the current soft market and the preceding hard market of the mid-'80s with its huge rate increases and outright cancellation of policies. "Everybody looks at pricing," Mike admits, "but we still have managed to engender a loyalty to our agency among our clients. It starts right with the first visit. We use a five-page commercial client form which was self-developed by Armando Castellini.

"We ask the right questions and present ourselves as professionals. The form allows us to thoroughly review their current coverages and their needs. We often find gaps in coverage or understated values and bring these things to the prospects' attention."

Stick to the basics

But the initial meeting is only the start. "We're still a 'Mom and Pop' type of shop that has contact with clients on a day-to-day basis. We review their coverages regularly to make certain that we don't get complacent, leaving our clients with gaps in coverage or understated values. We also understand how important a client's perception is. We work very hard for our clients. Whenever they have a problem with payment or a loss, we're right there with them. We'll work to get them reinstated if that's the problem or if there's a claim outstanding, we go in and try to have it closed quickly and completely."

This effort has resulted in a higher retention ratio for the commercial business, which now represents about 37% of the agency's total volume, up from around 25% in the early 1990s.

The personal lines effort has been focused on account rounding in an effort to improve persistency, and that too has paid off. "Our personal auto retention ratio was around 83% last year. That's certainly not where we want it to be, but it represents an improvement of four points, which means we're headed in the right direction," Mike says.

The agency's activist stance toward client service also extends to its marketing effort. "We ask for referrals the second or third time we meet with a client," Mike says. "They're usually happy to recommend us to their business colleagues because we've done a good job for them. And a referral is the best approach for new business. We tried advertising, but most of the prospects that came in from that effort were shoppers and we got plenty of those without spending money to find them. An agency our size cannot afford to write mediocre business. We have to have consistently good loss ratios. Contingencies are extremely important to us."

Mark McCormack (standing) and Mike Castellini discusses client coverages.

Don't overextend

The other half of the marketing effort, as agencies know all too well, involves approaching the insurance companies. CHK now has four markets--Pawtucket Mutual, Mercer Mutual, Penn National and Central Mutual. "We keep the number of companies down so we can satisfy them," Mike notes. "And we don't look to add any new markets unless we're ready," he adds. "Because of our size, we don't want to overextend and ruin our reputation with our carriers. We've grown with every carrier and we want to be able to continue with that." CHK's latest appointment came from Central Mutual in 1996. "We were able to show them strong, consistent growth and good loss ratios," Mike says. "We got the appointment because of our track record over the past few years. We were the only agency appointment for them in New Jersey that year."

This year, CHK is taking another giant step, adding two new producers and a branch office in Brielle, New Jersey, a town located on the Atlantic Ocean. They'll join the three owners (Mike, Pat Hric and Mark) and one receptionist, boosting the agency size to six people. The new producers will be focusing on marinas and yachting business. Both producers have been involved in yachting for around 25 years, one as a life, health and annuity agent. Mike has been a regular commuter between northern and central New Jersey setting this up and working with the two producers.

"The yachting and marina business consists of a very close-knit group of people. The strong relationships these two new producers have within this group, combined with our ability to provide property/casualty coverages should make for a profitable fit," Mike says. "Right now our average new commercial account is in the $12,000 to $20,000 range. The marina accounts are in the $30,000 to $50,000 range. We really think this will help bring our average account size up to the area I'd like to see."

Meanwhile, in addition to working in both Denville and Brielle, Mike also faces the need to beef up both the computer and staff in order to be able to continue to serve clients in the 'Mom and Pop' fashion they've grown to expect and still grow to the next level. "We're purchasing a new agency management system this year and hiring a CSR, and that's a major outlay for an agency our size. But it's something we have to do. We've used Agency One and it was a very good, inexpensive way to get started with automation, but it's time to move on. I guess we're facing the same types of problems of any agency our size," Mike says. "We've got limited resources and have to prioritize. We've got to be fully automated, especially if we're operating from two locations, so it's time to bite the bullet."

Back on the main street again

This month, CHK is celebrating its turnaround by moving back into the center of Denville and out of its current location in an executive campus on a New Jersey highway. "We're going to be in our own building and have a Main Street presence again."

Mike concludes that he has never regretted his decision to get into the family business. "There's always a challenge and I enjoy that. I enjoy meeting new business owners and learning from them. What other business gives you the opportunity to sit down one-on-one with successful business owners and have them tell you everything about their business? I like developing a rapport."

It is clear from talking to Mike that the success of CHK is in large part due to the fact the family atmosphere still exists and agency personnel like what they are doing. This is reflected in the way the agency serves its clients and in their willingness to recommend the agency to others. That's why we're certain that when the end of the year 2000 rolls around, CHK will be at or above the $6 million level.*

©COPYRIGHT: The Rough Notes Magazine, 1998