Traverse City's Hagerty gathering steam for the future

TRAVERSE CITY, Mich: Hagerty is evolving to adapt to a changing automotive world.

"Our mission as a business is to save driving and car culture for future generations," said McKeel Hagerty, CEO. "We're not just in the insurance business. We certainly started in insurance, and we'll certainly continue doing that and we'll do a lot more of it."

"But it's all this idea of an automotive lifestyle: events, even — potentially — membership physical locations someday. All of our media efforts will start expanding, and the business will expand even faster," Hagerty told the Traverse City Record-Eagle.

Some of the growth will be made possible by an infusion of cash from Markel Corp., a multi-national holding company for insurance, reinsurance and investment operations. The company recently paid $212.5 million to acquire a 25% stake in Hagerty.

"It was really a match made in heaven," said Hagerty. "We just invited them into the owner group and now we're ready to continue growing the business as we planned."

Much of that growth involves the Hagerty Drivers Club, which offers members-only events, a magazine, automotive discounts, roadside service, membership in a historic vehicle association and access to an automotive help desk.

"The Drivers Club is our big evolution as a business," Hagerty said. "It went from kind of a sideline to the headline."

More than 1.4 million people now belong to the Hagerty Drivers Club. The company aims to increase membership. Business growth requires capital. The Markel deal offered a large chunk of capital.

"Markel is a really great long-term partner with another side of our business, which is they're a risk-taking partner with us," Hagerty said. "We're a risk-taking business, so we actually don't just sell insurance, we actually bear some of that risk. So we'll have additional capital to be able to do even more."

Markel operates 77 offices in 18 countries, according to the company's website.

The deal began taking shape almost a year ago. Terms were solidified last winter.

"It took forever to close," said Hagerty. "Because we're in the risk-taking business, and because of our reinsurance company in Bermuda, there was a lot of regulatory scrutiny — as there should be. Between Bermuda and Missouri and a couple of other states that were involved, it took a lot longer."

Selling a stake in the company was the best way to raise money for expansion.

"Because of the regulated nature of the business, you have to use actual capital," said Hagerty.

The ownership stake Markel purchased doesn't include any kind of control in the Traverse City company.

"It's still substantially closely held by the original owner group," McKeel Hagerty said.

The company will continue to add employees in Traverse City, there will be no change in management, no change in strategy, and its headquarters will remain here, he said, as the company grows.

"We will continue to add hundreds of thousands, and ultimately millions, of insurance customers over the next decade."

Like the Markel deal, the 2016 sale and leaseback of Hagerty's real estate in Traverse City generated capital to fuel growth.

"That's been a wonderful part of the strategy, and because of that, we've been able to expand so much in Traverse City," said Hagerty. "We're growing too fast to buy, build and own the real estate we need to expand in."

"We now fully occupy the Bank of Northern Michigan building, we have most of the square footage in the old Chase building filled with employees, we have a new member fulfillment center out on Aero Park Drive, in addition to our Hagerty Garage. We've expanded a lot, and that's really why we need to free up the ability to expand faster."

Hagerty employs 1,200 people, more than two-thirds of them in Traverse City.

Efforts to expand its Drivers Club drove Hagerty earlier this year to buy a collector car insurance program from Kemper.

"This is potentially 50,000 to 60,000 additional members who will be, now, part of the Driver's Club and be able to help us in our purpose of saving driving," he said of that purchase. "Members in the Driver's Club is our ultimate goal. Insurance is wonderful to help us get there."

Hagerty said increasing congestion in large cities is powering the need for different modes of transportation, more ride-sharing, shared vehicle ownership and — eventually — autonomous vehicles.

"We recognize that that's how people will get around in big cities, and they need to. Nobody wants commutes to work that last hour. We don't, frankly, consider that type of commute driving. It's just sitting in your car."

Hagerty's mission — and the push toward growing its Drivers Club — is to serve people who enjoy driving.

"We believe there will still be a substantial portion of the population interested in being able to go out for a drive and have their hands on the wheel," said Hagerty.

"We recognize and embrace the coming changes in auto-mobility, but we're also going to be the champions for sharing of the roads with non-autonomous vehicles and modes of transportation where human drivers continue to have their hands on the wheel."

Drivers will have time to adjust, Hagerty believes before autonomous vehicles become common.

"We're decades away from those being able to be a substantial part of the number of vehicles you see on the road," he said. "We're ready to be stewards of people who actually like to drive."