FIRE Cluster Can Help Grow Economy
Finance, real estate and insurance businesses are one of our best bets for state prosperity.
Back in 2000 to 2003 when the Wisconsin Summits were being sponsored by the University of Wisconsin System, it jumped out that our manufacturing and farm clusters were not producing big new job numbers and that the FIRE cluster – Finance, Real Estate and Insurance – was one of our best bets for state prosperity.
Not many political leaders read or paid attention to the Summit’s distillation of thoughts from the best and brightest minds from across the state, and they keep making bigger and bigger bets on our bedrock clusters of manufacturing and agri-business.
As examples, we exempted both sectors from the state income tax (as a manufacturer, I am a beneficiary – thank you) and we pursued Foxconn at $3 billion to $4 billion, depending on how you count.
Meanwhile, without a lot of tender loving care from state government, the FIRE sector has continued to grow. Fiserv, which provides processing for banks and credit card companies, has made 180 acquisitions small and large over the last 35 years and just announced a $22 billion acquisition of First Data Corp. of Atlanta. That deal will nearly double its size to $15 billion in annual revenue.
There has been a real estate renaissance in downtown Milwaukee in the last 20 years, and the insurance cluster has also grown. The spectacular Northwestern Mutual headquarters typifies the successful expansions in both clusters.
The latest positive story for the Wisconsin FIRE sector is the American Family Insurance acquisition for $1 billion of DePere-based Ameriprise Insurance.
Here are the insights from Thomas Hefty, who has served as an executive in both the Wisconsin finance and insurance clusters sectors, including as chairman of Artisan Partners Funds Inc., one of the state’s all-time great startups, as CEO of Cobalt Corp., which grew out of Blue Cross Blue Shield Wisconsin, and as a regulator and as an economic policy wonk:
Not mentioned in the recent acquisition story is the 2017 conversion of American Family Mutual to a mutual holding company. That structure was previously not permitted in Wisconsin—but had been permitted in Iowa for 20 years. CUNA Mutual moved its corporate headquarters to Iowa to take advantage of the investment flexibility of the Iowa law. American Family has used the flexibility of the new mutual holding company law to make a series of acquisitions.
Ameriprise Insurance of Green Bay has 1,300 Wisconsin employees and 1,800 employees country- wide. Ameriprise Financial, (IDS), previously a subsidiary of American Express, bought the Green Bay insurance company in 1986.
The Green Bay “Ameriprise” was started by two Wisconsin entrepreneurs, Wally Hilliard and Ron Weyers, in 1980. I was the Wisconsin insurance regulator at that time and we permitted Hilliard and Weyers to buy a nearly bankrupt very small Wisconsin insurance company. They renamed the company Wisconsin Employers Casualty Insurance Company.
Hilliard and Weyers also started Wisconsin Employers Health Insurance company in Green Bay — later sold to Humana. They also started the American Medical Security health insurance company in Green Bay in a joint venture with Blue Cross in 1988 — now owned by United Health Care. Blue Cross provided the financing — Hilliard and Weyers did the work.
Humana now has 3,300 employees in Green Bay, United Health has 2100 employees in Green Bay, and Ameriprise has 1300—–all due in large part to the entrepreneurial efforts of Hilliard and Weyers—with a little help from a friendly Dreyfus administration insurance regulator and the later Blue Cross partnership.
FYI: The Humana Green Bay operation is one of the largest locations in the country for processing Medicare Advantage insurance products.
FYI Again: Wisconsin has also lost insurance jobs and financial services jobs in the last decade, particularly in Milwaukee. In contrast, Green Bay has added 1,000 insurance and financial services jobs in the last decade.
Three points from this story.
1. The Wisconsin insurance regulatory climate matters. (FYI: The new Gov. Evers administration Wisconsin insurance commissioner comes from American Family.) The delay in modernizing the Wisconsin insurance code to permit insurance mutual holding companies and conversions badly hurt Wisconsin. (Witness the hassle over the Blue Cross conversion to a for-profit corporation, which began in 1989 and ultimately ended up four years later with continuing red tape and a positive Wisconsin Supreme Court decision.)
2. Entrepreneurs matter — Hilliard and Weyers ultimately created 6,500 jobs in three different insurance companies in Green Bay.
3. The labor union climate matters. Green Bay has no unions in financial services.
All in all, great news for Wisconsin—and a lesson on economic development.
That’s an insider’s take from Hefty. Here’s an outsider’s: We can’t count on manufacturing and agri-business to grow big job numbers. They are still very important to our economy, but have become and will continue to become extraordinarily efficient.
Wisconsin leaders need to send a lot of love in the direction of the FIRE cluster.