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Liberty Mutual Group is throwing in the towel on direct distribution of insurance to middle market businesses. Because it couldn’t beat independent agents and brokers — who dominate sales in this segment — Liberty Mutual has decided to join them.
The Boston-based company, which sells insurance both direct and through independent agents, is discontinuing direct distribution to mid-sized businesses and now plans to distribute its commercial property/casualty insurance products in the middle market exclusively through independent agents and brokers.
Liberty Mutual defines the middle market as businesses with total account premium ranging from a low of about $150,000 up to about $1.5 million. Liberty Mutual has written about $2.5 billion in this segment.
The giant insurer, which ranks as the sixth largest property and casualty insurer in the United States, is selling off the renewals on these direct middle market accounts to several large brokers: Arthur J. Gallagher & Co., Hub International and USI Holdings Corp.
The company also is creating a new commercial business unit, Liberty Mutual Middle Market, which will accept and serve middle market business only from agents and brokers going forward. Products available will remain workers’ compensation, general liability, commercial automobile, property, crime and umbrella for mid-sized companies.
The insurer said that each of the brokerage firms has extended offers of employment to many of the Liberty Mutual Group sales and service professionals supporting the transferred policies. The transactions are expected to close on or around March 1, 2009.
The new Middle Market unit will be organized into three divisions, with headquarters in Boston (Eastern Division), Chicago (Central Division), and Dallas (Western Division). Agents and brokers will be aligned with dedicated distribution and underwriting resources.
As part of the move, the company is retiring the Wausau brand, which has been part of its middle market operation.
The moves recognize that about 95 percent of middle market business insurance is sold by independent agents and brokers, not through direct distribution. The company acknowledged that by limiting itself to direct distribution in the middle market, it was missing out on opportunities to grow.
“This truly is a strategic move not a financial move. The data [on independent agents’ market share] is pretty compelling,” J. Paul Condrin, Liberty Mutual’s president of Commercial Market, told Insurance Journal.
Condrin said the change is a response to requests from the company’s agents and the preferences of customers.
“For years, agents and brokers have sought to place their middle market clients with Liberty Mutual but couldn’t access us because we distributed directly to that segment of the market. Now they can. And we are giving middle market businesses what they want, the opportunity to have Liberty Mutual as their carrier, and still work with their trusted advisor — their agent or broker,” he said.
Condrin said that because middle market customers very often do not have risk managers, they rely on the advice and service of agents and brokers for their insurance needs; whereas larger, complex businesses usually have internal expertise that makes going direct to a carrier more of an option. Liberty Mutual will continue to write large commercial risks through its direct channel.
Liberty Mutual also writes large national account business through brokers and small commercial business through independent agents. In fact, most of the company’s commercial insurance is distributed through third parties.
Mark A. Butler has been appointed chief operating officer of the new Middle Market business unit. Butler was previously executive vice president and general manager of field operations for Liberty Mutual’s National Market commercial insurance operations, which caters to large complex business accounts.
Liberty Mutual said its new Middle Market unit plans to expand its network of appointed agents and brokers. Condrin said the new unit would be available to agents currently writing with its regional personal lines and small business companies known as Liberty Mutual Agency Markets.
Wausau Insurance Co., a subsidiary since 1999, has written middle market business directly and through agents and brokers. Wausau Insurance comprises Employers Insurance Co. of Wausau, Wausau General Insurance Co., Wausau Business Insurance Co. and Wausau Underwriters Insurance Co.
Wausau direct representatives will have an opportunity to work with the large brokerages buying the renewal rights. Agents and brokers who have been placing business with Wausau will have access to the Middle Markets unit.
“So while the Wausau brand will be retired, the Wausau agents, brokers and policyholders are vital to our future success,” Condrin said. “We value those partnerships and will focus on deepening and enhancing them via quality service, proactive communication, and a commitment to delivering superior outcomes.”
The company said it is committed to the overall commercial lines market and believes agents and brokers can help it better compete in the middle of this arena.
“Today’s announcement reinforces our commitment to being a leader in commercial insurance,” said Edmund F. Kelly, Liberty Mutual Group chairman, president and CEO. “The agreements with Gallagher, Hub and USI speak to the quality of our business and desire to form strong, mutually beneficial relationships with agents and brokers who have earned outstanding reputations among middle market buyers.”
Illinois-based broker Arthur J. Gallagher & Co. is acquiring renewal rights from Liberty Mutual’s middle market business located in the Midwest and Southeast regions. As part of the agreement, Gallagher expects to hire approximately 75 Liberty Mutual producers in these regions.
Gallagher is also acquiring substantially all of the policy renewal rights and hiring the national producer group from Wausau Signature Agency, Liberty Mutual’s commercial property/casualty and employee benefits insurance agency headquartered in Wausau, Wis.
When completed, it is expected that the transaction will add approximately 120 new insurance sales professionals to Gallagher’s retail commercial property/casualty brokerage operation under the direction of its president, James S. Gault.
The agreement includes an initial payment in cash and stock of approximately $44 million and additional payments in cash or stock (at Gallagher’s election) that is based on revenues generated in the two year period beginning 12 months after closing. The maximum amount of the additional payments is $120 million.
The agreement is also subject to customary closing conditions including regulatory approval under the Hart Scott Rodino Antitrust Improvements Act of 1976. The transaction is expected to close around March 1.
Chicago-based brokerage Hub International gets the renewal rights to Liberty Mutual’s middle market business in Arizona, Arkansas, California, Colorado, Hawaii, Kansas, Louisiana, Nebraska, Oklahoma, Utah and Texas. Terms of this transaction were not disclosed.
Hub said the business would be integrated into its regional operations: Hub International of California, Hub International Gulf South, Hub International Texas and Hub International Southwest. Roy H. Taylor, President of Hub’s West Region, will oversee the management of this group.
USI Holdings Corp., based in Briarcliff Manor, N.Y., is grabbing the renewal rights — and some 44 Liberty Mutual sales professionals — in the Northeast region, which includes New York, New Jersey, Connecticut and Massachusetts.
Details of the USI transaction were not immediately available, but Edward J. Bowler, senior vice president for corporate development at USI, told Insurance Journal his firm is “delighted” with the deal and considers Liberty Mutual sales people to be among the best in the business.
Liberty Mutual has launched a Web site at www.libertymutualgroup.com.
com to provide more information about the moves. The Web site asks and answers the following question:
“Is Liberty Mutual really exiting direct distribution for middle market companies?
Yes. Liberty Mutual fully intends to exit direct distribution of its products to middle market businesses and focus solely on distribution through independent insurance agents and brokers. We made this decision to satisfy the requirements of the vast majority of middle market buyers, who typically value and seek the input of a trusted agent/broker.”