Liberty Mutual Drops Direct Sales to Middle Market Businesses; Insurer Puts Faith in Independent Agents

Liberty Mutual Group is throwing in the towel on direct distribution of insurance to middle market businesses. Since 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 insurer, which ranks as the sixth largest property/casualty insurer in the U.S., is selling off the renewals on these direct middle market accounts to several large brokers: Arthur J. Gallagher & Co., Hub International (Hub) and USI Holdings Corp. (USI).

It is also creating a new commercial business unit, Liberty Mutual Middle Market, which will accept and serve middle market business only from agents and brokers. Products available will remain workers’ compensation, general liability, commercial automobile, property, crime and umbrella.

The insurer said each of the brokerage firms has extended offers of employment to many of the Liberty Mutual Group 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,” said J. Paul Condrin, Liberty Mutual’s president of Commercial Market. The change is a response to requests from the company’s agents and the preferences of customers, he added.

Condrin said that since 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.

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 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 wholly owned subsidiary of Liberty Mutual since 1999, has also written middle market business directly and through agents and brokers. Wausau Insurance comprises the operations of Employers Insurance Co. of Wausau, Wausau General Insurance Co., Wausau Business Insurance Co. and Wausau Underwriters Insurance Co.

Wausau direct representatives will now have an opportunity to work with the large brokerages buying the renewal rights, officials said. Agents and brokers who have been placing business with Wausau will now have access to the new Middle Markets unit.

“So while the Wausau brand will be retired, the Wausau agents, brokers and policyholders are vital to our future success,” said Condrin.

The company said it remains 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 chief executive officer. “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.

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, Wisconsin.

The Gallagher agreement includes an initial payment in cash and stock of approximately $44 million and additional payments in cash or stock of up to $120 million, based on certain revenue goals. Chicago-based brokerage Hub International Limited (Hub) gets the renewal rights to Liberty Mutual’s middle market business in Ariz., Ark., Calif., Col., Hawaii, Kan, La., Neb., Okla., 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, New York, is the third buyer of renewal rights on Liberty Mutual accounts. It is grabbing the renewal rights – and it said some 44 Liberty Mutual sales professionals – in the Northeast region, which includes New York, New Jersey, Connecticut and Massachusetts.

Further 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.