Liberty Mutual: Marketing to the middle
Liberty Mutual Middle Market commits to independent agents; sells its direct business
By Michael J. Moody, MBA, ARM
Commercial property and casualty insurance companies in the United States have several options available to them with regard to product distribution. Basically, coverage can be sold either via the independent agent/broker network or on a direct basis to the insurance buyer. While the majority of insurers have chosen one method or the other, some carriers have—for a variety of reasons—worked with both methods.
One such carrier has been Liberty Mutual Insurance Company. While the company came into being about 100 years ago as a direct writer, later events allowed the company to also function as an independent agency system carrier. The primary reason for Liberty’s movement into the independent agency system has been several acquisitions of insurers that had worked exclusively with agents and brokers.
The first of these acquisitions was Wausau Insurance Company in 1999. Other acquisitions, including Ohio Casualty Insurance Company (2007) and Safeco Insurance Company (2008), followed. And while Liberty Mutual tried to use these acquisitions as strategic movements that would allow it to have the best of both worlds, time has shown that this was not the case. This was particularly true for their middle market businesses.
Change is required
Liberty Mutual began to review its middle market distribution system more than a year ago and soon found that a significant change would be required. According to Mark Butler, chief operating officer of Liberty Mutual’s newly formed Middle Market business unit, “While over the years, we tried to leverage multiple distribution channels in the middle market space, it became clear that it limited our potential.” What also became clear was that the middle market was huge, by some estimates more than $60 billion nationwide. And Butler points out, for the most part “it was controlled and influenced by agents and brokers.” In fact, Liberty Mutual believes that over 95% of the market is placed via agents and brokers.
Michael Parker, senior vice president/executive director of broker relations for Liberty Mutual Middle Market, also points out that this market segment is becoming more sophisticated in its approach to commercial insurance. Middle market buyers are “beginning to realize that the insurance premium is just part of the equation,” says Parker. Many of the buyers are starting to view the insurance business from a total cost of risk, and they are “looking to their agents and brokers as valued advisors, who can help them better manage their total cost of risk.”
As such, he says, buyers want their agent/broker to meet all of their commercial insurance needs. He thinks that the independent agency distribution system is valued by the buyers and represented the most effective method for Liberty Mutual Middle Market to grow in this market segment.
Accordingly, on January 22, 2009, Liberty Mutual announced that it would be discontinuing its middle market direct distribution approach and would also be retiring the Wausau brand. To complete this action, Liberty Mutual Middle Market sold the renewal rights to its legacy direct business to three national insurance brokers: Arthur J. Gallagher, Hub International, and USI Holdings Corp.
Parker notes, “It was important that the brokerage community know that we were serious and committed to their distribution channel, so it was necessary to resolve the renewal issue.” Liberty Mutual held launch events in seven cities across the United States. Each of the launches had a baseball theme and was held at a Major League ball park in the selected cities. Parker says the launches were great. “We had over 100 agents at each venue.”
Perfect agency prospect
“Let’s start by saying that there probably is not a ‘perfect’ agency prospect,” says Parker. There are, however, some common traits that Liberty Mutual Middle Market will be looking for with regard to new appointments. “First, it’s important to understand what we mean by middle market business,” Butler notes.
According to Liberty Mutual, the middle market account is one that is in the $150,000 to $1.5 million all-lines account premium size range. Butler also points out, “We will be looking for agents who focus on these sizes of accounts and already have a good amount of these accounts, as well as numerous prospects.” Further, in general terms, the total agency revenue would be around $5 million to $10 million to be effective. Butler indicates that, “We are definitely looking for agencies to grow with us, rather than ‘one off’ dealings.”
Liberty Mutual has long been known as a workers comp market but is interested in working hard to change the perception that its expertise is limited to comp. Parker states, “Workers comp will still be an important line of coverage for us; however, for long-term success, we must bring solutions to the market that have an all-lines focus.”
He goes on the note, “We remain committed to writing workers comp, but we are trying to get some balance in our portfolio.” Liberty Mutual Middle Market will be introducing new products that will assist them with the all-lines expectation. “We believe that workers comp is a good line of business; however, we are trying hard to diversify our overall book of business,” says Parker.
While this has been a difficult decision for Liberty Mutual, given the company’s legacy with direct writing, it is moving ahead with the long-term goals for the middle market business. In that regard, Butler points out that the company has four strategic imperatives that are critical for their long-term success:
1. Liberty Mutual has been known as a work comp carrier. “And we are proud of that heritage, but there is no question that we need to move into all lines; and to do this we need a very competitive multi-line product strategy that will let us be an all-lines provider to middle market accounts,” says Butler.
2. Liberty Mutual knows that it needs to be responsive. “Brokers and agents need responsiveness, and so we have a very responsive underwriting platform that allows our agents and brokers to respond to their clients in a timely manner,” Butler points out.
3. Liberty Mutual will not be an open broker operating model. “We are being very selective of the agencies that will benefit from our products and services as well as having a strong footprint; while we are selective, we want to know of and do business with those brokers and agents that influence this market most effectively,” notes Butler.
4. Liberty Mutual wants to be different. “We want to have a differentiating value proposition; with our 100-year history, we can bring to the forefront a carrier that is known for quality, responsiveness, and making a positive impact on outcomes, which helps our agents and brokers as well as the end user, the policyholder,” Butler indicates.
“Feedback from agents and brokers and middle market buyers indicates that the overall success of our middle market program will result from these four imperatives,” Butler says.
Liberty Mutual’s decision to discontinue its middle market direct distribution channel signals a major change in direction for the carrier and an unprecedented opportunity for middle market agents and brokers. Today, Liberty Mutual Middle Market is actively soliciting agency appointments. And while it is working to connect with the middle market agents and brokers in each of the three divisions, agents can also contact Liberty Mutual via their online application for appointment and advise the company of their interest.
While it is still early in the process, Butler says, “The level of excitement and enthusiasm has been fantastic.” He points out, “We have already expanded our agency footprint significantly since the January 22 launch.” And the company remains focused on partnering with the right agents, those who enjoy the most influence in this marketplace.
And while Liberty Mutual’s product offerings are good, their claims management and loss control services are second to none. “It’s those services that have been the cornerstone of our success,” says Butler and he points out, “We are capitalizing on these with our middle market strategy.” Liberty Mutual believes that its products, when coupled with the above noted services, can make a compelling case to any agency. And now that the company has eliminated the direct distribution channel, Butler notes, “This change has taken away the last true obstacle for true long lasting relationships with the middle market brokerage community.”
For more information:
Liberty Mutual Middle Market
Contact: Michael Parker