Talking with Richard Welch: Growth and Innovation at Hospitality Mutual

Mr. Welch is CEO of Massachusetts-based Hospitality Insurance Group

Hospitality Mutual’s origins can be traced back to the establishment of the Liquor Liability Joint Underwriting Association (LLJUA) in Massachusetts in 1985, aimed at ensuring the availability of liquor liability insurance. The transition to a mutual insurance company occurred in 2008, marking Hospitality Mutual’s inception as a commercial carrier. Under Mr. Welch’s direction, the company has expanded its reach in the seven states where it presently writes business and Introduced products such as a Business Owners Policy (BOP) in 2021 and a comprehensive brewery product in 2023.

Richard (Dick) Welch has accumulated over thirty years of experience in the insurance sector, serving as the CEO of Hospitality Mutual since January 2018. With a background covering personal and commercial insurance lines, Mr. Welch has guided the company through its recent period of growth and expansion.

In this interview with Agency Checklists, Mr. Welch shares his perspectives on how Hospitality Mutual has evolved and carved out its niche within the hospitality sector. He delves into topics like product development strategies, underwriting practices, and expansion efforts, as well as his views on the broader insurance industry landscape. Additionally, Mr. Welch imparts advice to aspiring professionals looking to pursue careers in insurance based on his industry experience.

Could you share how you came to work in insurance and ultimately into your role as the CEO of Hospitality Mutual?

Sure. I graduated from Columbia University in 1983 with a degree in economics. Initially, I worked a couple of jobs outside the insurance industry. With the last company I was working at, seeing it was getting close to bankruptcy, I decided it would be prudent for me to move on, and I ended up landing a job with Travelers.

I started at Travelers in 1987, where I was quickly exposed to the somewhat messy Massachusetts auto insurance market at the time. In 1990, they moved me up to Massachusetts, where I began working on Mass Auto issues full-time.

In 1993, Travelers founded the Premier Insurance Company of Massachusetts, and I was named the COO of that company. We were focused on personal lines business in Massachusetts. I did that job for about eight years and then became CEO of that company for eleven years. During the latter part of those years, reform came to the auto insurance industry in Massachusetts.

After it was clear that the reform was going to stick and it was going to work, as had always been the strategy, Travelers folded that business back into their main operation. At that point, I left Travelers and spent a couple of years doing independent consulting. Then, I worked for Concord Mutual in New Hampshire for about five years. Hospitality Mutual knocked on my door, we had some conversations, it worked out, and I started here on January 1st, 2018.

You mentioned working a couple of jobs outside the insurance industry after graduating from Columbia. What kind of work were you doing in those early roles right out of college?

Right out of college, I began my career in the economic sector. I was working for the economics division of McGraw Hill, which owned S&P at the time.

Specifically, I worked for a company called Data Resources, Inc. They were the first company to sell a computerized macroeconomic forecasting model, and I was part of their consulting team. I did that for a couple of years, and then I ended up working for a toy company called Coleco in Hartford. They were famous for the Cabbage Patch doll at the time.

I spent a few years there, and they were good years, but the Cabbage Patch phenomenon came and went. The company started to teeter a little bit because they weren’t able to follow up on the success of the Cabbage Patch dolls with any additional wins. I was in the treasury area at the time, and one of my major responsibilities was cash flow forecasting. I probably knew better than anybody that the end was near, so I decided to put myself on the market before that happened.

Reflecting on your extensive career in the insurance industry, what are some pivotal lessons that you’ve learned early on that continue to guide your leadership today?

Well, I would say a few things. First, you always want to surround yourself with good people. Second, you always want to be willing to learn. Third, integrity matters. Fourth, you do well what you measure, so be careful what you’re measuring. And fifth, value diversity.

That’s a very good point about being careful what you measure. It’s a great line and very true – what gets measured gets done.

Absolutely. If you’re measuring the wrong things, you can really get hurt because people will make that measurement happen whether it helps the company or not. But if you’re measuring the right things, then everything’s going to work out.

Turning to your present role, could you please give us an overview of Hospitality Mutual’s origins and how the company came to be what it is today?

The short story is there was a crisis in the liquor liability market, and we grew out of that, starting as the Liquor Liability Joint Underwriting Association (JUA) in Massachusetts. That crisis came and went. I think everybody associated with this company is proud of the role we served in the time before the market straightened out.

Then, about 15 years ago, legislation was passed in Massachusetts that converted us from the JUA to a mutual insurance company. At the same time, we got licensed to write other lines besides liquor liability, so we started to write commercial property and general liability. Moving forward, we entered six other states, and in 2021, we introduced the Business Owner’s Policy (BOP) product as an additional line of business.

As I recall, the original JUA board was not made up of insurance people. It was mostly restaurant owners, right?

Yes, our original board was all restaurant and bar owners.

What kind of products have you developed under your leadership since you came in January 2018?

As I mentioned, the biggest development is probably the introduction of the BOP product in 2021. We also just introduced a comprehensive brewery product at the end of last year. It’s a commercial package product specifically targeted at breweries. Those are what I would consider the major product developments.

The BOP line of business has allowed us to expand our appetite and accept risks that are outside of our original fairly narrow charter of bars, restaurants, social clubs, package stores, and caterers. With the BOP, we’re able to write convenience stores and main street retail. We do some lessor risks under the BOP product, and it’s allowing us to grow the business and diversify it somewhat, too.

That’s a great point about the potential of your BOP product for businesses with liquor exposure. Could you expand on what makes Hospitality Mutual’s BOP offering unique compared to standard BOPs and why agents should take note?

Exactly. We’re writing BOPs, and we’re continuing to write them for risks that may have liquor exposures, because we’re specialists in that. We’re not afraid of it.

What it comes down to is that we originally introduced the BOP so we could get deeper penetration in the restaurant segment, where a high percentage of them are written on BOPs. It’s allowing us to bring our expertise in the hospitality industry and hospitality business to the BOP line.

In particular, I would highlight the fact that the vast majority of restaurants do serve liquor. Liquor can be a difficult line of business, sometimes difficult to get coverage for. As experts in that line of business, we’re able to provide comprehensive coverage that some other carriers are not willing or able to do.

You mentioned expanding your BOP appetite to other businesses with peripheral liquor exposure, such as convenience stores. Could you elaborate on some of the other classes you’re now able to write through the BOP?

Yes, Convenience stores with or without gas, liquor stores, main street retail businesses, and even professional offices are in our BOP appetite as well.

In addition to the BOP, you also mentioned introducing a brewery program. Could you tell us more about that program and how it’s structured?

We write that as a commercial package policy (CPP). It includes property coverage, general liability, and liquor liability as well. The intention with the brewery product was not just to provide the general coverage that we offer with all of our business policies but to recognize the specific special exposures that exist in breweries.

Obviously, if you think of what a brewery is, it’s a manufacturing operation at some level. It’s a distribution business. But almost all breweries have tasting rooms, sometimes full restaurants, sometimes full bars to go along with that. Again, it’s a place where the manufacturing part is somewhat new to us, but for many insurers, it’s the bar exposure that’s the hard-to-insure piece. That’s where we already bring expertise.

Additionally, there are some special things that are just part and parcel of being a brewery. Breweries tend to bring their product to lots of trade show-type events, and when they go to these events, they are serving liquor. So they need a liquor policy that extends to them when they’re at special events, and we’re able to do that for them.

It seems like craft breweries are really proliferating these days, with new ones popping up all over Massachusetts. When you were developing this brewery program, what kind of market research did you do to assess the opportunity and target market?

One of the things we do as part of our business is to be close to the industries that we serve. We’ve got a long-term relationship, for example, with the Massachusetts Restaurant Association. We belong to the restaurant associations or hospitality associations in every state that we do business in.

So, one of the first things we did when we started talking about introducing a brewery product was to become an associate member of the Massachusetts Brewers Guild. They have been a great source of information for us about the 200-plus licensed breweries in Massachusetts. We’re able to go to the meetings and hear directly from the owners and managers of those businesses about their challenges, what they’re doing, and how they’re doing it. It really helps us understand the size of the business, what these businesses look like, how they run, and what they need. That’s an important part of what we do as a company.

With Hospitality Mutual connecting with the Guild on this issue, do you write directly at all, or is the company’s marketing still through independent agents?

No, all of our business is through independent agents.

How are you getting the word out to agents that you have this specialized brewery product available? It seems like an untapped opportunity that agents might not be aware of.

We’re just getting started there. We’ve actually written brew pubs for a long time. What’s new for us is breweries that have distribution, but we’ve only been in the market for a couple of months now. As time goes by, this is going to start to contribute more and more to what we’re writing. We expect over time, we’ll carve out a pretty nice niche there.

You mentioned the core system several times. Which one is it?

We’re using a system called Finys. It’s produced by a company called Innovative Computer Systems (ICS) out of Troy, Michigan. It’s a really nice small to medium-sized company system. The price point for us was attractive, but at the same time, they had a really good implementation team. We were able to get it implemented without a lot of pain or difficulty, and it has served our needs really well since we went onto the system.

Okay, the American Agency System is a cornerstone of the property and casualty insurance industry’s distribution model. How do you see its role evolving, and what implications does this have for Hospitality Mutual?

As a commercial lines writer, particularly as a specialty writer, I think that’s really one of the last places where the independent agency system is going to get challenged. Most of our competitors are non-admitted writers. So, like I said, I think that’s probably the last place the independent agent will get challenged.

I spent most of my career in personal lines, and there was always this question as to whether the American Agency System was going to get disintermediated or put out of business. I know there was a long period of time when the agency system’s market share did drop, but it seemed to me that it stabilized, and the agency system has kind of found its level.

I think for those customers that are being served by the agency system, they feel they are being served well. I don’t see any big threat to the agency system, to be honest.

Shifting gears to technology and innovation, how is Hospitality Mutual thinking about and approaching Insurtech and emerging technologies?

We’re always looking for new opportunities. As I mentioned, we contracted with a data provider as part of our underwriting process. We have done a number of things to improve our level of automation to allow a higher level of agent self-service. We’ll continue to do those things, and I think it’s going to continue to be important for us to find ways that we can squeeze out more productivity and make it easier for our agents and customers to access us. We’re always on the prowl for new opportunities there.

One area where technology is creating new risks is cyber. Does Hospitality Mutual currently offer any cyber risk insurance products?

Yes, we do offer it. However, we only offer it for standard risks. If you’ve got any exotic exposure, we don’t consider ourselves the market for it. But if you’re in our niche and everyone has some cyber exposure, we have a nice product for that. That’s basically how we cover it.

Now, would that be your own product, or is that something from a company like Hartford Steam Boiler?

No, that’s a Hartford Steam Boiler product. It goes straight on our policy as an endorsement.

Another major disruptor for the industry is climate change. How is Hospitality Mutual responding to the challenges and opportunities presented by changing climate and weather patterns, especially in terms of catastrophe modeling and risk assessment?

It’s not really a major issue for us. We’re primarily a casualty writer. So when we look at our profile of risk facing the company, catastrophe is on the list, but it’s actually not near the top of the list.

We do the standard things – we have a catastrophe reinsurance program, we look at the AIR and RMS models, and we get the standard inputs there. Especially now that we’ve got the BOP product in place, we are growing our property business, so that’s something we have to keep an eye on. But for the time being, that’s a second- or third-order concern for us and not something that consumes a lot of time and attention.

Looking ahead, are there any particular emerging areas of insurtech that interest you or that you’re excited about incorporating into Hospitality Mutual’s operations or offerings?

My biggest wish is probably the ability to integrate with the point-of-sale (POS) systems that the vast majority of our core bar and restaurant customers use.

I’ve always wanted to be able to integrate with those systems because that would allow us to get inputs of much higher integrity than we’re able to provide today, even though what we’re getting today is much better than it was a few years ago. Something that would allow us to connect in that way would be high on my list.

In terms of what’s out there right now, I wouldn’t say there’s any game changer we’re looking at. It’s more that there are a bunch of small things we can plug in to get a little bit better.

That’s a good point that ties right into the much-discussed Internet of Things.

Exactly.

Where do you see the most significant opportunities for growth and expansion for Hospitality Mutual in the coming years?

Again, we’ve had the product expansion, so I think we’re going to continue to chip away with the BOP product. I think the brewery product is going to be another nice add-on that’s going to generate premium over time. And then, as I said earlier, we’re going to methodically pursue state expansion and move ourselves into new markets. I think the combination of those three things will allow us to get the growth that we want and need over the next five years or so.

If you ask about the grand vision, we’re a hospitality insurance company. Just as you were talking before about the need to expand beyond what you sometimes think of as your appetite, we want to fulfill everything that our name implies.

Right now, we’re not writing hotel/motel exposures, but ten years from now, I would think that will be an integral part of what we do. I think anything that you would consider as being part of the hospitality industry is something we should ultimately be pushing into as we have the resources and ability to do so.

That’s a clear vision for expanding the boundaries of Hospitality Mutual while staying true to your niche. Thank you for sharing that.

As an industry veteran, what advice would you give to young professionals considering a career in insurance, especially on the business and leadership side?

I think it’s just to seek to learn all sides of the business. The more well-rounded you are, the better you’re going to do with your career, particularly in this industry.

Secondly, keep up with technology. Technology is always changing the business. If you’re keeping up with technology, you’ll always be at the forefront of what’s moving the business.

Reflecting on your decades of experience, what are your thoughts on how the Property and Casualty insurance industry must adapt to remain competitive and relevant to customers in the future?

The industry is always going to be there because the need is always going to be there. With things like climate change and cyber risk, there are always new areas of risk and exposure that individuals and businesses face, and this industry stands ready to help meet those needs.

I think the most important thing, ironically, is that insurance companies need to think of capital as king. We can stub our toe on the marketing end, we can stub our toe with technology, and those aren’t the things that are going to kill us because if we do a good job of managing our loss ratios and our expense ratios over time, we’re going to have the capital that we need to maybe get some of those other things right the second time if we don’t get them right the first time.

I think if we go out there with things that aren’t well thought out and really hurt ourselves, those are the things that are more likely to drag us down as companies and as an industry. But if you’re built for the long run, then you’ll weather both the more challenging times and the easier times.

Why do you believe that Massachusetts agents should see Hospitality Mutual as a viable and desirable option for placing their business?

Again, we’re a niche player, and we know the businesses in our niche better than anybody. So, if you’re doing business within our niche, I think we have a great deal to offer. We’re always keeping up with that relationship with the associations. We offer discounts to businesses that belong to the restaurant and hospitality associations, the Brewers Guild, or the package store associations. We view ourselves as being very much a part of the businesses and industries that they’re a part of.

You make a great point about being a specialized niche player and really understanding your target classes. From your perspective, do you think insurers sometimes miss opportunities by not letting agents prove the relationship first with some small pieces of business before requiring a big premium commitment?

Every company has its own strategy for agency management. As a niche player, we are not competing for all of an agency’s business, so we have to have a smaller value commitment. But we also write with wholesalers and the Number One Agency. We don’t like to miss out on opportunities.

If an agent is interested in placing a risk with Hospitality Mutual, who should they contact, and what else would they need to know about the company?

If it’s an agent coming to us directly, the person they should talk to is Mark Trombly. His number is (774) 512-9266. Mark can take them through the agent appointment process. If it’s more of a one-off situation where an agent has a piece of business here or there, he can get them set up with a wholesaler to get the business written that way.

Again, if you’re an independent agent with a one-off piece of business, one of the other things you can do is talk to one of the several wholesalers that we do business with, and they can get you hooked up with us fairly quickly. The only other thing I’d say is that we think we’re a really good market in our niche for any agency.

You mentioned that for an agent coming to you directly versus going through a wholesaler, there is a commission advantage. Could you explain that a bit more?

We don’t actually pay the wholesalers much more than we pay the retail agents. So if you come to us through a wholesaler, the wholesaler is going to take their cut, and you’re going to split the commission with them. The advantage of coming directly to us is that you’re not going to have to split the commission with a wholesaler.

Thank you for taking the time to talk to Agency Checklists about yourself and Hospitality Mutual.

You’re welcome.