The beginnings of Arbella Insurance weren't very auspicious. Massachusetts' Commonwealth Automobile Reinsurers (CAR), the state's reinsurance pool created in the late 1970s, dominated a market in disarray. By the early 1980s, more than 60 percent of all drivers were in the pool, which carried a deficit of around $500 million. Insurance fraud was rampant, with overworked courts and police disinclined to do much about it.
Insurers were leaving the state in droves, including Kemper Group, which insured 7 percent of the Massachusetts auto market. The move would have required Kemper to pay a deficit of $40 million to CAR, cease writing all other lines of business, left more than 400 personal lines employees out of a job, and thousands of policyholders without coverage, said Frank Bellotti, former Massachusetts attorney general and current vice chairman of Arbella's board of directors.
Instead, Kemper's general counsel Lee McClain hatched a plan to create a mutual insurer—the first in the state in the last 50 years–to assume Kemper's personal lines business in Massachusetts. The plan required a special act from the state legislature.
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