Acordia Inc. is one of the premiere insurance companies in the US. A subsidiary of Associated Insurance Cos. which owns 59%, (the remainder is publicly held), Acordia has been growing rapidly in a relatively flat industry, and is often highly touted by analysts and other insurance industry observers to be the model insurance provider for the next century.

Product and Market

Acordia’s product is simple – insurance. However, they began as solely a provider of health-care insurance and in the last 5 years have managed to substantially add to their portfolio of products offered, including property & casualty, life, and other services. The difference is that these practices were not grown from within; rather, Acordia adopted an acquisition strategy to obtain the experience and infrastructure needed to expand their service base. In 6 years, the company has diversified their portfolio to the level where health-care insurance accounts for less than 55% of their revenues.

Acordia sells their services to the business market and has to date stayed out of the personal insurance marketplace. Most of the business market that Acordia has targeted rely on them to provide a full-range of insurance services, and usual sign on with long-term contracts that provide Acordia with a steady revenue stream; furthermore, they have a large success rate of resigning clients when contracts expire.

Strategy

Acordia management felt in 1989 that the midsize business segment was being underserviced. Primarily this segment was defined as businesses ranging from 150 - 4,000 employees with revenues of $10 million to $400 million. These companies had only two choices when seeking out insurers: either small, local independent companies who offered tremendous personalized service, but had a limited range of product capabilities; or very large corporations that offered full product ranges, but offered no personalized service.

Seeing the opportunity, Ben Lytle, Chairman and CEO of Acordia Inc., began to design a company that he felt could better service the midsize business segment. It began by his recognition that these businesses based their decisions very highly upon personal interactions and customized insurance plans. Large corporations did not have the ability to be flexible enough to customize each insurance package they sell to new customers. And unlike local independent insurers, Acordia was going to have the resources and abilities to offer the same products that large insurers provided.

Organizational Structure

The uniqueness of Acordia’s strategy required a fundamental shift in the operational structure of the insurance company. It began by fractionating itself into 28 completely independent companies, located in mid-sized cities across the US. With a regional and domestic focus, Acordia has expanded to a network of 32 companies, each solely focused in a specific geographical/demographic market.

Each separate company carries the Acordia name, but it is followed by the region it serves, (i.e. Acordia Indianapolis, Acordia Ohio, etc.). This was a conscious decision to keep the brand awareness growing, and giving a feeling of large corporate resources behind the individualized services provided at the regional level. Each regional entity may go so far as to make their own acquisitions of other regional, independent companies. This has led to gaining increasing local market shares and new services expertise.

The division into separate entities has led to virtually no true centralized functions. With the exception of each company drawing upon a “bank” of central capital and intellectual capital, each company is responsible for their own sales, operations and account servicing. The understanding is that each company has it’s own P&L statement – and is held extremely accountable to meeting profit targets and revenue goals. How they get there is completely up to them.

Management

Each individual Acordia company has its own senior executive staff, (CEO, CFO and COO), as well as its own 6 member board of directors. This unusual management structure has been highlighted as the biggest contributing factor to Acordia’s unparalleled success by numerous industry experts, and is often cited by Tom Peters, (In Search of Excellence, and Liberation Management). Each company is given full autonomy to set its own policies and strategies.

“Because it is a network of highly autonomous operating companies, Acordia has no complex web of internal reporting requirements. We rely on the boards of directors of our operating companies, along with a system of incentives, audits, surveys, and other feedback systems, to ensure that the actions of our 29 operating companies are in the interests of our stockholders and consistent with Acordia's policies and standards,” said Lytle when defending his management structure. “Board members are successful businesspeople, educators, entrepreneurs, and other community leaders with expertise in management, marketing, law, insurance, medicine, government, finance, and other disciplines. The diversity and the depth of their backgrounds bring a wealth of knowledge to individual operating companies and to Acordia as a whole.”

Performance

In less than 8 years, Acordia has grown to be the seventh largest broker of insurance in the world. A record-setting pace for a company that was not even in the top 20 only 6 years ago. The growth has been primarily in revenues, but the company has been able to maintain profit margins substantially higher than other insurance providers.

However, recently Acordia has been slipping in their margins. Whereas revenues seem to still be increasing at an annualized 10% - 15%, the profits have actually fallen for the first time in the short history of the firm.

Time for Change

Because in late 1995, Acordia encountered its first profit slip since 1989, alarm bells went off in Ben Lytle’s office. After a careful review of each individual company’s performance, the corporate management determined that they are losing margin strength due to increasing operational costs. This has led to Acordia looking to shift their fundamental strategy.

The company is currently in a consolidation mode, grouping it’s individual companies into one of five regional conglomerates. The ideology behind this move is to reduce excess overhead in terms of senior management, boards of directors, etc. while seeking other cost reducing moves in terms of centralizing some redundant processes. So instead of 32 operating entities, the company is moving towards only five separate companies.

The question now hangs: are they going to lose their competitive advantage with this reorganization? Clearly this is a huge shift away from the entrepreneurial organization that thrived and grew at a phenomenal pace – so where are they headed now, and are they forfeiting that upon which they attributed their success?