From Insurance to Candy

By | February 10, 2008

For former insurance pro, life really is a box of chocolates

Although it’s been many years since See’s Candies President Brad Kinstler was at the helm of an insurance company, and even longer since he was involved in underwriting and claims handling, he still embodies the qualities of a solid insurance professional — an eye for detail, a clear understanding of business opportunities and risks, the optimism of a salesman, and a natural rapport with the public.

And if his newest job requires him to sample a few confections every now and then — strictly for quality control — he’s up to the challenge.

“It’s a tough job,” Kinstler jokes.

There is a serious side to all this chocolate tasting, though. When you manufacture more than a hundred different types of candy and sell 31 million pounds of it a year, one of your jobs is to become familiar with all the varieties, what they taste like, the recipes and which piece is which. Kinstler adds that See’s is always in the process of developing new products. Each potential new candy represents a sizeable investment of time and money.

“Achieving the flavor of those products is critical to their success,” he said. “I evaluate them before we decide to go to market, and I sample different pieces from time to time as does the rest of the management to assure the quality of our product.”

Kinstler says one of the secrets to the strong reputation of the See’s brand is the ingredients they use. “We make sure it’s fresh,” he said. “We use real butter, real cream, and high quality chocolate. So what the customer gets is a terrific product. You can taste the difference. That’s why when people give it to their friends and neighbors and business associates, the recipients will talk about that box and remember how good it was.”

Berkshire Hathway Connection

See’s Candies is the most recent stop for Kinstler, who has been affiliated with Berkshire Hathaway Inc. for two decades.

Prior to 1987, Kinstler worked as a management consultant for a number of years. “I consulted in semiconductor manufacturing plants,” he said, “uranium mines, telephone companies, a variety of businesses where you would evaluate a company and their methods for scheduling the business and the equipment and how resources were being used and come up with improvements that could be made.”

This experience of going into a firm and analyzing its activities would serve Kinstler well in his future endeavors. “It gave me a framework where I was comfortable with manufacturing,” he said, “with both the manufacturing end and the sales end.”

On to Insurance

In 1987, Kinstler went to work for Cornhusker Casualty, a midwestern insurance company owned by Berkshire Hathaway. He would eventually be named vice president of the Omaha-based carrier. “Cornhusker was in the $20 million to $25 million range in terms of premium volume, so it was a small company but a large company in the state of Nebraska,” Kinstler said. “I learned the property/casualty business from a claims and an underwriting standpoint. The company worked primarily in Nebraska, writing property/casualty for both businesses and personal lines.”

Berkshire Hathaway has a number of property/casualty businesses, including GEICO and Cypress Insurance. In 1990, the president of Cypress, a California-based workers’ compensation specialty carrier, resigned and moved away.

“They asked me to go out and watch over the business,” Kinstler said. After commuting a year between Omaha and Pasadena, Calif., Kinstler took the position permanently in 1991. He moved to northern California and switched the company’s locations, turning the San Mateo branch into the insurance carrier’s headquarters and the Pasadena main office into a branch. During his nine years at Cypress, Kinstler would steer the company through a challenging period and oversee its expansion.

“We elected to branch outside of California and begin writing workers’ comp in about eight other states, including Arkansas, Tennessee and South Carolina,” said Kinstler. “We expanded to states where the rates were attractive. Cypress was a relatively small specialty carrier in California, and at the time I left we were in the range of $40 million in premium.”

Kinstler remembers the 1990s as a turbulent time in California. “Fraud was running rampant,” he said, “both on the part of medical providers as well as attorneys and claimants. The costs were skyrocketing. Businesses were leaving the state because the workers’ comp costs were too tough to handle.”

Kinstler says Cypress and many other workers’ comp carriers fought fraud very hard. “We worked with the legislature to help construct reforms for the system,” he said. “Some were passed in the mid-’90s and we got some improvement from those for a period of time. Then, in 2003, they passed some very significant reforms in California and finally got on top of it.”

By that time, Kinstler had moved on to Fechheimer Brothers Co., another business within the Berkshire Hathaway group. “I was asked to be CEO of our uniform business in Cincinnati,” he explained. “They were making a change with the CEO in that company. They asked me to go run that business in 1998, and that again was a very solid business. It manufactured and sold uniforms for public safety officers, police and fire, military, band uniforms, postal uniforms, and some specialty uniforms such as for Hertz rental car and Carnival Cruise Lines. There’s always a learning curve. This particular business had four manufacturing plants in the U.S.”

Similarities to the insurance world

Though Kinstler was working for a very different type of business at Fechheimer’s, he found many similarities to the insurance profession. Fechheimer’s distribution system of 40 company-owned retail stores and numerous independent retailers evoked the insurance world’s network of direct writers and independent agents and brokers. In addition, the experience he’d gained running two insurance companies, his earlier time in underwriting and claims as well as his work as a business consultant, helped Kinstler evaluate Fechheimer’s operations from many different levels.

In 2005, Berkshire Hathaway came to Kinstler with another request. The corporation had bought See’s Candies from its founders in 1972. Since that time, it had been run by Charles Huggins, who had been with See’s since 1951. Huggins was ready to retire the following year. Would Kinstler move back to California and take the reins of the company?

Kinstler accepted the offer, and thus began another busy year of transition. He needed to find and train his replacement at Fechheimer’s, and also spend time in California under the tutelage of See’s president and CEO Huggins. “I commuted from Cincinnati to California for about a year and then moved out in late 2005 and took the position effective Jan. 1, 2006,” said Kinstler.

See’s was a unique and complicated business. Since the opening of its first store in Los Angeles in 1921, See’s had become a beloved institution in California. A significant part of its value as a company lay in its reputation for quality candy. Unlike uniforms, however, its product was perishable. It operates two primary manufacturing facilities, one in Los Angeles and the other in South San Francisco. In addition, See’s does not offer franchises; instead it sells its candy through 200 permanent stores, all but one store are west of the Rockies. See’s reaches the rest of the country through a hundred seasonal gift centers at malls, airports and other high traffic locations, as well as through its catalog and Web site.

Once Kinstler became affiliated with See’s, he gained an even greater appreciation for the company’s reputation and the special place See’s candy held in the memories of many people.

“Almost everyone you meet has a story about Sees,” said Kinstler, “from the family always buying a particular box of See’s candy to someone’s grandmother always giving them a See’s Easter Egg each year.”

Kinstler says that Berkshire Hathaway and the management of See’s has been able to preserve See’s reputation for quality and freshness over the years by retaining control of all stages of production and sales.

“We like our ability to manufacture and sell the product through the entire cycle,” Kinstler said. “Our typical box product has a shelf life of 90 to 120 days. When it reaches its shelf life, it’s not bad but the flavors are not as fresh and vibrant as when it’s at its peak. Because we distribute the product through our own stores, we know when we put it on the shelf and we know when it should be pulled down.”

Insurance Memories

Although Kinstler enjoys his new challenges at See’s, he does have fond memories of his days in insurance. “I think there are great challenges in insurance and I enjoyed the mental aspects of the business that you get in evaluating claims and liability and, of course, defending the lawsuits — that’s a very interesting part of the business. I did enjoy the challenges there, as well as the underwriting and risk selection side, and the rate making.”

The See’s CEO adds that he still values the relationships he made over the years with independent agents. “We wrote through independent agents and brokers in Nebraska and at Cypress,” said Kinstler. “I enjoyed those connections. They were generally people who’d started a business — they’d built a small to medium business from scratch.”

It was remembering those days that helped Kinstler recognize a potential target market for See’s as well as a way to re-establish a relationship with the insurance agents who’d been such important business partners in the past.

“The insurance company at Christmas would always send some type of gift to our good agents,” said Kinstler, “and many agents would send gifts to their good policyholders. I told corporate, ‘You ought to go to the Big “I” conventions and there may be insurance agents there interested in buying our product to give their clients.’ They felt it was a good match and they developed many leads that were worthwhile.”

What’s next in store for Kinstler? Time will tell, but for now, at least, Kinstler says he hopes See’s is his last stop. The immediate challenge is to finish out the Valentine’s Day orders and get ready for Easter. “We are packing hard as we speak,” said Kinstler in early February.

“This is a great time. We get a lot of inquiries from the media at Valentine’s and the photo shoots are always a lot of fun. Candy is on everyone’s minds.”

Topics Carriers California Agencies Workers' Compensation Property Casualty Manufacturing Berkshire Hathaway Nebraska

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